April – May 2020

U.S. Economic and Market Highlights

The Economy

  • Most developed countries saw Gross Domestic Product (GDP) turn negative in the first quarter due to the economic impact caused by widespread shutdowns to ward-off the Coronavirus outbreak. It is almost certain that the second quarter GDP will be negative in most countries, triggering a technical global recession.

  • Jobless claims in the U.S., and elsewhere, over the last six weeks surpassed the volume experienced during the global financial crisis last decade, making this the worst employment crisis in U.S. history.

  • Economist view this situation more like an extreme natural disaster that will likely be brief, but more severe than most historical recessions.

  • The Federal Reserve and other Central Banks made strong financial commitments to help their countries to buoy an economic recovery.  It is expected that third quarter growth will be positive after the economy is re-opened and additional stimulus money is circulated.

  • Economic fundamentals were generally strong going into the economic shut-down, banks and other companies had stronger balance sheets, and consumer debt payments as a percentage of disposable income was near record lows.
  • The question remains open as to what type of recovery will occur – V-shaped, U-shaped, or something else (such as a W-shaped)? A V-shaped recovery is quick and a U- or W-shaped is drawn out. This will depend on how well the virus’s transmission is contained, until there is a vaccine, and how quickly people are able to reengage in life’s normal activities.

  • Another concern for investors is the reemergence of U.S. and China tensions over the origins of COVID-19 which is likely to impact the trade agreements outlined in the signed phase one trade deal at the beginning of the year.

Fixed Income

  • Central Banks have, and continue, to cut short-term interest rates lower borrowing costs for businesses and consumers. However, lower interest rates create a challenging environment for depositors and investors seeking higher yields from fixed income securities.

  • The shape of the yield curve is positive (or normal) which results when the yield on long-term U.S. Treasury bonds is higher than the yield on short-term Treasury bills. This is typically a positive indicator for future growth potential.

  • Demand for investment-grade corporate bonds grew during the crisis, as investors seek higher quality, lower risk investments. Also, the Fed announced that it was expanding its purchasing facility to include corporate bonds.

  • Sovereign debt in emerging market countries generally have higher long-term yields, which have widened during the current crisis making the valuations/prices lower on emerging market debt (EMD). However, investors must be aware that not all EMD has the same quality or potential for future returns.

  • Under the economic shut-down default rates have risen and will increase, especially if re-opening the economy is delayed. The industry sectors hardest hit have been energy, transportation, and retail.

  • The post crisis period may present opportunities for investors to consider private credit as valuations reset, leverage levels decrease, terms become more lender-friendly, and economic activity returns to normal.


  • The S&P 500 U.S. Stock Index gained 30.4%, by the end of April, since the market bottomed on March 23. This is nearly 60% of the drawdown since the market peak in mid-February. This represents the largest one-month rally ever.

  • The U.S. stock market has led other markets over the past two months with India, Germany, and Taiwan following closely behind.

  • Growth companies led the rally as technology dominated other sectors and currently makes up 26% of the S&P 500 Index, the largest sector.

  • Value stocks historically have outperformed growth stocks during, and immediately after, recoveries as momentum slows down and cyclical stocks become more attractive at lower valuations/prices.  Also, yields are generally higher on value stocks which help generate income for investors during recessions.

  • The energy sector had strong gains over the last month on an improving supply and demand picture.

  • Earnings expectations for the remainder of the year are lower. Therefore, the potential for companies to outperform estimated earnings has increased.

  • The average duration of a bear market from start to finish, over the last 50 years for developed countries (EAFE index), was 16.3 months.

  • Other asset classes have done well lately including real estate, infrastructure, and gold.

This communication was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.