We’ve updated our Market Outlook. We expect a recovery, and are incrementally adding risk assets to portfolios. The first wave of the pandemic is passing. The skies seem to be clearing just enough to assess the damage and get a sense of where we’re headed.

Market panic

Economic disruption and uncertainty swept the globe

The S&P 500 reached its all-time high in February. By the end of March, the COVID-19 crisis led to one of the most severe worldwide economic contractions and bear markets in 100 years. Here’s how that transformation unfolded:

Relief rally

The market began to grasp the new normal

The market panic dissipated—even though the virus caseload climbed to over 2 million across the United States and to almost 8 million cases worldwide.

The question is: Why?

Our answer: The initial rally seems to be more of an expression of relief than economic recovery.

Investors sold risk assets when they were terrified of the economic costs of the widespread lockdown and when COVID-19 represented an existential threat.

Then, the extent of the impact of the coronavirus on the economy became clearer, new cases plateaued (with the exception of some emerging markets), the world economy started to open, and policymakers offered robust support. Risk markets rallied. 

Is the stock market ignoring the damage in the real economy?

Jake Manoukian, Global Market Strategist

Economic realities

Cyclical stocks, fixed income, and currencies and commodities are all still suggesting a tepid recovery

Markets still seem to have an uninspiring near-term economic outlook, even after the recent rally. Cyclical stocks, fixed income, and currencies and commodities all would still appreciate further if the current trajectory is sustained.
Through the crisis, there are some notable “winners,” many linked to two of the global “megatrends” we flagged in the 2020 market outlook we published at the beginning of the year. These megatrends—digital transformation and healthcare innovation—offer compelling secular opportunities that we expect to continue. In fact, the COVID-19 crisis has probably accelerated the move toward a digital-first economy, and healthcare innovation could provide the resolution to the pandemic.

Megatrends: Which sectors are poised to outperform in the next decade?

Anastasia Amoroso, Head of Cross Asset Thematic Strategy

High expectations

Two global megatrends—digital transformation and healthcare innovation—have helped create some recent winners:

  • The technology sector is up over 6% this year
  • Biotech stocks are up almost 10%
  • Companies linked to e-commerce are up more than 14%

Low expectations  

Many sectors and asset classes are still suggesting that weak future economic growth is expected:

  • Small cap stocks have underperformed large cap stocks by 10% so far this year
  • More than 163 S&P 500 stocks are down over 20% on a year-to-date basis
  • Bank stocks in the United States are down almost 30% from their 52-week highs
  • Emerging market equities are still more than 25% below their January 2018 highs
  • Ten-year Treasury yields are still below 1%, which signals that bond investors expect low future growth and inflation
  • High yield bond spreads are still indicating a default cycle similar to the global financial crisis of 2007–2008
  • Gold, a traditional safe haven, has rallied along with the U.S. dollar and the Japanese yen
  • Industrial metals and crude oil have both sold off to levels consistent with the commodity super-cycle collapse of 2015 and 2016

World views

Asia is now a tale of two extremes: Many parts of the region remain in lockdown with the worst economic fallout still to come. Other parts, particularly East Asia, have contained their viral outbreaks and moved into the recovery phase.

The recovering

In China, production activities recovered quickly after the government started easing restrictions in mid-March. Still, sluggish consumer demand is restricting growth. Elsewhere, Korea’s consumer sentiment is rebounding, and Japan is lifting its state of emergency. From a policy perspective, Japan, South Korea, Singapore and Hong Kong have launched sizable fiscal packages in response to the pandemic. China’s stimulus approach has been more conservative, due to concerns about structural challenges and high debt levels.

Looking ahead

Three broad factors will determine how well the Asian economies ultimately weather the COVID-19 storm:

Controlling the virus—This factor is particularly pertinent in those countries where cases are still rising, but still important in countries that now need to prevent a second wave.

The structure of the economies—Exporting economies and those more reliant on services and tourism will likely suffer in the second half of 2020 amid global weakness. But countries with large consumer bases and manufacturing industries (such as India and China) should fare better.

Policy responses—Hong Kong and Singapore have provided significant fiscal support, while other countries such as India and China provided relatively less.

The suffering

One key economic risk will be the ability of ex-East Asia emerging market economies to contain the virus’s spread. They may not be able to, given that: Despite extensive lockdowns, new case numbers keep rising; these countries often have fragile health systems and weaker governance capacities; and in many, especially those reliant on tourism, it seems likely that if the virus is an issue somewhere, it will continue to ripple across the region.

The East-West divide

For investors, one significant overhang is escalating U.S.-China tensions. Relations between the two countries appear to be at their lowest point in decades. There was a short period of calm after the “Phase one” trade deal was signed on January 15, but the COVID-19 crisis seem to reignite tensions. 

Still, the trade deal is safe, for now. Both countries recognize the detrimental impact of tariffs and are unlikely to escalate tariffs while working to recover from the COVID-19 recession. So far, China seems committed to honoring its purchase agreements, though it’s highly unlikely to be able to meet the agreement’s targets.

Overall relations are likely to keep deteriorating, however, with both sides continuing to decouple their economics from each other. 

As Europe deals with the COVID-19 crisis, the continent is on the brink of systemic change.


The year 2020 was always going to be difficult, given the tight timetable for Brexit negotiations seemed bound to cause tensions and undermine economic confidence.

One might have thought the pandemic would persuade both the United Kingdom and the European Union (EU) to shelve difficult decisions until calm was fully restored. That is not the case, at least not yet. As we write this report, there is no agreement to delay the year-end expiration of the “transition period,” in which the United Kingdom remains bound to EU rules as final details are hammered out. Furthermore, as feared, there is no progress in reaching an agreement on the shape of a post-Brexit economic and security relationship.

Instead, the second half of the year looks likely to bring more Brexit drama and volatility. It is still possible to reach a deal that will avoid the worst possible economic fallout. However, it is also possible today’s politicians will ignore one of the past’s most painful lessons: Economic barriers often worsen, and extend, economic depressions.

Historic financial proposal

But despair not. Some of the current, potential changes are constructive, particularly the EU executive’s proposal to borrow to finance an EU-wide recovery plan. 

As the COVID-19 crisis began to unfold, the European Central Bank (ECB) stepped up its stimulus efforts. Many questioned whether the ECB’s actions were within its remit. It was not long before the German Constitutional Court raised fundamental objections—which at a minimum might, if successful, place constraints on the ECB not felt by other central banks.

Spurred by the need to find other ways to stimulate the economies of the EU countries, support the nations hardest hit, and prevent uneven recoveries from undermining EU stability, Germany and France agreed on a landmark proposal: The EU itself would borrow in the capital markets and distribute grants to its weakest regions and sectors. This kind of fiscal unity seemed like a pipe dream for years. If implemented, it could be a boon for European assets.

At the time we are writing, it is not yet clear whether all 27 EU members will agree to finance a response to the crisis. However, if the core of this proposal becomes operational, 2020 will be remembered not only for the COVID-19 crisis, but also for laying a historic foundation for the EU’s ongoing economic stability. 

The year began with such high hopes—invigorated by the assumptions that the trade truce between the United States and China would hold, and supportive monetary policy would endure.

Expectations were that Latin America’s economic growth would strengthen somewhat from its soft 2019 levels. The whole region seemed about to get a boost from the two giants that account for 60% of the region’s economy: Brazil, where an economic recovery was underway, and Mexico, where an economic recovery was not yet seen but presumed. It was thought Latin American growth would go from 2019’s meager 0.6% to 1.5% in 2020. That would have been a welcome change, though still be shy of an estimated potential of 2.5%.

A Black Swan, a variety of responses

Then, suddenly, the deadly coronavirus brought the global economy to its knees. Most countries around the world imposed containment protocols that abruptly halted economic activity. And, when the global economy stopped spinning, so too did the Latin American economies. The region plunged into an unprecedented recession.

Now, six months into the year, Latin American countries have a variety of monetary and fiscal stimulus programs in place, but are still struggling to keep their populations safe and their economies afloat:

  • Countries like Chile and Peru, and to a lesser extent Colombia—after many years of fiscal discipline—had greater leeway to shield their economies from the crisis.
  • Others, like Argentina, threw their more limited resources into the fight against the pandemic. 
  • Still others, notably Mexico and Brazil, downplayed the pandemic’s risks and kept their initial responses to a minimum. Brazil later eased this hard line, forced by internal politics. But the Mexican government refused to budge. As a result, Mexico—despite its fiscal firepower—has allocated the region’s least amount of financial resources to combat the crisis.

A risky reopening?

At mid-year, many Latin America countries are following the lead of the world’s superpowers and partially reopening—even though many here think this move is premature.                             

We’ll see the results in the second half of the year. As it stands now, the region is expected to contract by more than 7% in 2020. But this number assumes that lifting rules for social distancing does not spark a second wave of contagion that sends everyone back home and paralyzes economic activity yet again.

Even if a relatively benign scenario plays out and a degree of normalcy resumes, Latin America will have to contend with the fiscal deterioration and mounting levels of public debt that its defensive policies are likely to produce.

But that’s the challenge to be tackled tomorrow—after (we hope) renewed economic stability and growth are secured today.

As 2020 began, the U.S. media seemed to expect that the U.S. election would dominate the national dialogue.

Then the COVID-19 crisis hit and consumed our attention. But the more the country is able to move into a “new normal” and the closer we get to November, the more the U.S. presidential and Congressional elections are likely to come into focus.

While the COVID-19 crisis was intensifying, so too did the Democratic nomination process. Before presidential Joe Biden decisively won the South Carolina primary on February 29, betting markets were giving him only a ~10% chance of becoming the Democrat’s choice. His Super Tuesday turnaround could have been the story of the spring, but alas.

From the perspective of the markets and the economy, having Biden as the presumptive Democratic candidate likely avoids more potentially transformative outcome. Biden’s last viable opponent for the nomination, Senator Bernie Sanders, offered a platform that sought meaningful change to the way American capitalism operates. In contrast, former Vice President Biden embodies the left’s more traditional approach: higher tax rates on corporations and the wealthy; more regulation; greater spending on public healthcare and infrastructure.

Election risks?

As investors, we have to assess how policy influences the economy and financial markets. We will be watching the outcome closely to see if there is increased likelihood of higher corporate or individual taxes, or less willingness to enact further fiscal support for an economy that is still recovering from the COVID-19 lockdown.


No matter how the election goes, we expect the process of economic decoupling from China to continue. The “tough on China” approach is now quite bipartisan; there is broad support among federal lawmakers to rein in China’s rise. The recent national reckoning with systemic racism could also influence the tenor of the election.

The good news for long-term investors is that markets know how to deal with elections. They happen every four years after all. Historically, they matter for markets in the near term, and result in shifts at the industry and asset class level. Still, we believe that linking political outcomes to the business and economic cycle is the most important factor that drives our asset allocation process.

Investing with intent

What should investors do?

Our mid-year outlook is that a recovery will come, and may already have started. The contraction has been severe and painful; it will lead to lasting consequences.

But there is reason to believe this economic recovery could happen faster than the one after the global financial crisis. It will also likely be quite similar in many ways: low and stable inflation, low interest rates and rising earnings. We also expect certain trends to accelerate: geopolitical tensions, digitization, healthcare innovation and widening gaps in wealth and income. Still, the path to recovery is murky. Business models have been forcibly disrupted. There are questions regarding the long-term viability of the corporate real estate sector. Amid this backdrop, valuations seem full. That is why we maintain a modest underweight to equities relative to our strategic benchmark. Further, we still believe that core fixed income can provide an important balance against other risk assets. 

Rebuilding pro-cyclical positioning

The coronavirus impact on the economy has been a stark reminder for all investors to expect the unexpected. We rely on diversification to help us weather unexpected storms. Stocks may be down 14% so far this year, but bonds are up 5%.

We are focused on navigating volatility and downside protection. At the same time, we have started a deliberate and thoughtful approach to rebuilding a “pro-cyclical” tilt in portfolios (i.e., overweights to equities and risk assets.) The first step was to allocate to high yield bonds, which we believe present an attractive risk reward profile relative to stocks, given that spreads are still suggesting a significant default cycle. Further, at this point, we have been adding to assets that have exposure to the physical economy if the recovery surprises to the upside.   

Expect the unexpected: Setting a plan for your wealth in times of volatility

Jamie Lavin, Head of Advice

Your personal portfolio and planning

Ultimately, investors need to focus on what they can control: articulating a specific intention for their investments—whether it is saving for retirement or a new house, or building generational wealth.

One of the best ways to achieve your individual financial goals is though proper planning and precise portfolio construction. We aim to build portfolios together that offer a higher probability of success, even in the face of a new black swan event that might cause the next 30% sell-off in equity markets.

Look outside your investments

Low rates and market volatility also offer opportunities to make tactical and strategic changes in your overall wealth picture to move forward on your goals. Now is a great time to review your loans and liquidity to see if they are optimized for the current rate environment and to review your estate plan, not just to make sure you have essential documents in place, but to see if there are gifts or changes you can make to accelerate your gifting plans (whether it’s to children and loved ones or to charities if your portfolio has recovered).


For more of our view of the road ahead, including its potential risks and rewards:
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