In lieu of our usual Weekly Bulletin, we are publishing special reports to discuss the market reaction to evolving news on the coronavirus outbreak. We would stress the following observations as developments continue to unfold.

Stocks sold off last week as the U.S. reported record daily COVID-19 infections. Several southern and western states (AZ, CA, FL, and TX) that led the way in easing social distancing measures are now experiencing record-high infection rates and some states are pausing their reopening plans. This suggest the economic recovery from the lockdown will face setbacks. We anticipated this due to the uncertain nature of the virus.

It is expected that more people will contract a communicable disease once large swaths of the population are released from quarantine. A major reason for the lockdowns was to buy time for officials to design a testing, tracing and isolation framework that other countries have successfully wielded to short-circuit the spread of the virus. While temporary setbacks and economic volatility will remain a feature of the recovery, we remain confident that a solid recovery will continue to unfold in the second half of this year and into 2021.

The rapid and massive response of fiscal and monetary authorities is a major support for the recovery with authorities fully committed to further action as needed. Importantly, fiscal stimulus, which already exceeds $3 trillion, is supporting consumers with stimulus checks and increased unemployment benefits. Business is being supported by grants and low interest loans. Congress is working on another plan to extend additional support to consumers and businesses that should be passed by the end of July. We expect these stimulus plans to continue as long as the virus is disrupting economic activity.

The Federal Reserve is also fully committed to the recovery and is acting very aggressively with unprecedented monetary policy. This is providing significant support to financial markets and has allowed many firms to raise capital at attractive rates (even airlines have been able to issue new debt). The Fed has strongly signaled that easy monetary policy will remain, as needed, until the economy fully recovers from the lockdown shock.

Meanwhile, economic data last week still point to a strong economic rebound in the U.S. and elsewhere. The Markit June business surveys for the U.S. and other major developed economies indicate a synchronized global business rebound is unfolding—other countries are also providing massive economic stimulus that is supporting their own recoveries. China was first in and out of lockdown and is an important barometer for the economic recovery—their data continues to indicate a strong rebound. Global auto sales also support the recovery narrative, surging a broad-based 24% m/m last month.

Many other U.S. indicators from last week are suggesting a healthy rebound including: durable goods orders (+16% m/m for May), new house sales (+17% m/m for May), and consumer spending (+8% m/m for May). The still elevated 23% May household saving rate signals that the 8% rise in consumer spending should be sustainable.

We continue to favor economic sectors that have major secular tailwinds. These include Technology, Communication Services, and Health Care. Many firms within these sectors have been able to grow profits—even during the economic lockdown—and are well positioned to grow earnings as the economic recovery unfolds.

Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment.

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis.

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