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 remain focused on the better-than-expected incoming economic readings, despite the ongoing impact of the virus. While certain sectors of the economy (travel, leisure, restaurants, and retailing) will continue to face headwinds until the pandemic subsides, we see a sustainable economic recovery unfolding in the coming quarters. The recovery should lead to improving corporate profitability, which is the ultimate driver of stock prices. This thesis is supported by the massive policy support that is resulting in current U.S. and global economic readings coming in better-than-expected and suggesting a strong global rebound.

Importantly, policy makers are providing unprecedented fiscal and monetary support and are committed to it until we are through the pandemic. The next stimulus package is expected to pass Congress late this month and include enhanced unemployment and small business support of about $1 trillion (the House of Representatives already passed a package that was north of $3 trillion). The Federal Reserve has provided unprecedented support and this has resulted in record low borrowing rates for consumers and business. This is supporting major consumer purchases and giving businesses financial flexibility. The Fed is also committed to this aggressive support until we are through the crisis.

Remaining Encouraged by Incoming U.S. Economic Data

Housing and autos are major cyclical components of the economy and both sectors are suggesting a strong recovery is unfolding. Mortgage applications for purchase are above the pre-crisis level, rose again last week, and are now up 82% from the April low. Auto production is on track to surge 186% in the third quarter versus a 62% decline in the second quarter. The level of production in the third quarter is now forecast to be back up to its fourth quarter 2019 level. Lumber and copper prices and rail shipments are all corroborating the strong recovery narrative.

Global Readings are Signaling Recovery

The J.P. Morgan Global Composite PMI (comprised of business surveys that cover over 40 countries) showed the global economy moved closer to stabilizing during June, as rates of contraction eased sharply in both the manufacturing and service sectors—after historic declines. While the survey showed global output contracted for the fifth successive month during June, the rate of decline eased sharply. Both the Manufacturing Output Index and Services Business Activity Index rose to the greatest extents in their respective series histories, breaking the records set in the prior month. Given the massive global economic stimulus that is in place, we expect the surveys to soon show a new economic expansion has begun—barring major new lockdown restrictions.

Earnings Season should Provide Some Clarity

Second-quarter earnings season begins this week with the large banks reporting results. In light of the major economic uncertainty caused by the lockdown, many firms withdrew their guidance for the second quarter and earnings are expected to show a significant decline. However, the market and investors are forward looking and management commentary concerning the reopening of the economy should be the focus and will hopefully shed some clarity on the economy’s direction.

We continue to expect a sustainable global economic recovery to unfold, despite headwinds for specific industries from virus flare-ups. Global governments are fully committed to providing needed fiscal support while central banks are fully supporting credit markets. With massive stimulus in place, the incoming economic data is now reflecting improving economic conditions as the economy reopens. This should continue supporting stocks as we move into the back half of the year.

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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