July – August 2020

U.S. Economic and Market Highlights

The Economy

  • Promising early trial data for COVID-19 vaccines raised hopes for a virus treatment potentially before year end.
  • The U.S. unemployment rate fell to 8.4% in August. This marks the latest step of its decline from nearly 15% in April.
  • The Federal Reserve estimates the 2020 full-year growth rate will be at negative 5.5%. The International Monetary Fund estimates a negative 4.9% global GDP growth rate for 2020.
  • Muted inflation provides support for Central Banks to continue their accommodative policies of low interest rates. The Federal Reserve announced recently that its focus is on restoring full employment and lifting ultra-low inflation back to healthier levels.
  • Treasuries and central banks around the world continue with unprecedented stimulus. The European Union announced a €750B recovery fund that will be funded by European Union debt.
  • The concern now is with the level of government debt and the budget deficits needed to help economies recover from the economic impact of the pandemic. The current U.S. government debt is higher than ever at 140% of GDP, which is still lower than Japan’s 200%.
  • Because of the severity of the downturn, many economist view that additional fiscal stimulus will be needed to help the economy recover.

Fixed Income

  • The pandemic has led to better relative performance in investment grade bond sectors, which each generated a return over 7% over the last twelve months. See Market Tracker below.
  • Also, the number of investment grade downgrades (fallen angels) have abated from their March peak.
  • Emerging Markets Debt EMD spreads are still wide (when comparing rates to Treasury yields), which indicates lower prices/better values.
  • The struggle to recover from the pandemic will likely take emerging economies longer than more developed countries, given poorer healthcare infrastructures, limited government fiscal stimulus, and smaller economies.


  • Growth companies have outperformed over the last decade at historical levels. The three best performing equity sectors thus far in 2020 were technology, consumer discretionary, and communications services.
  • During the market rebound, unloved areas of the market (i.e. small companies, value stocks, cyclicals) still have not seen their potential level of performance. Typically, these sectors perform well in an economic recovery. The price/earnings PE ratios are low compared to larger and growth companies.
  • Volatility is likely to remain elevated given the potential rise of COVID 19 cases, rising tensions between the U.S. and China, and the upcoming U.S. election.
  • U.S. institutional investors remain in risk off mode with US lagging Asian and European institutional investors according to Bloomberg’s investor confidence index.

Real Estate

  • It is too early to determine the impacts on real estate capital flows and fundamentals because of the uncertainty and market volatility, combined with travel restrictions. Investors’ ability to conduct due diligence is likely to create a near term slowdown in transaction activity.
  • Private core real estate returns turned negative for the second quarter and YTD 2020. Exposure to sectors most impacted by COVID 19 (e.g. retail, hotels, senior housing, and student housing) represent a relatively small portion within the NFI ODCE Index.
  • The Pre-COVID 19 strength of the U.S. real estate market should quicken recovery and mitigate some value declines during the recovery.

U.S. Election

  • Recent polls indicate that Democratic presidential nominee Joe Biden has a moderate, but far from insurmountable, lead on President Trump two months before the election.
  • Despite the current environment’s elevated political polarization, conventional wisdom stipulates that incumbent American presidents are likely to be reelected in years when the U.S. economy is not in a recession.
  • History shows that the stock markets are generally positive around major elections.

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.