The initial pick-up in economic activity that we saw in June began to fade in July as households and firms remained in cautious mode, particularly with new virus cases rising in some countries. Monetary policy is less effective as global interest rates are at their lowest levels, leaving central banks with little ammunition.  Central banks are conducting quantitative easing on a much larger scale than during the global financial crisis, buy­ing a wider variety of assets. In August, we maintained the Recession Outlook for our twelve- month forward time horizon.

The global pandemic has exacerbated long standing tensions between the U.S. and China, as trade, technology, and investment act as accelerators towards increased protectionism and re-onshoring. The CPB World Trade Monitor recorded a contraction of -1.1% in May and -17% for the first five months of 2020. Labor market disruptions would also keep growth potential slow as even countries that have provided ample labor market support continue to see reduced immigration, high unemployment levels, and permanent job losses.

China, Vietnam, Taiwan, and Korea are furthest along the road to recovery while economies in southern Europe, Latin America, and Africa lag behind. China has returned to growth, reporting GDP growth of 11.5% YOY for Q2 of 2020, after a contraction of -10% in Q1.1

 Eurozone GDP results showed that their economy shrank 12.1% during Q2, the worst result on record, highlighting the economic challenges that Europe faced during lockdown.2 During Q2, Spain’s GDP contracted sharply by 18.5% while Germany saw a lower infection rate and was able to relax restrictions sooner, resulting in a relatively moderate 10% decline.3,4 On July 21, the leaders of the European Union agreed on a COVID-19 rescue package, providing €750 billion in additional aid, consisting of €390 billion in grants to replenish member-country coffers and €360 billion in loans.5 This is a significant step forward for the EU, as it marks the first time the bloc has raised debt in common. In the U.K., recovery has been slow and the unwinding of the furlough scheme from August is likely to prompt a second wave of unemployment. Additional uncertainty around Brexit is expected to dampen business investment further.

The economic recovery in the United States was strong in May and June, with several indicators beating expectations. It stalled in July, with a report from the Department of Labor showing initial jobless claims rising for the first time since March. Despite ongoing government support, 42% of job losses in the U.S. may be permanent, which means out of the 41 million Americans that have filed for jobless claims, at least 17 million will have no job to return to.6 According to the CBO, the federal budget deficit reached $2.8 trillion for the first 10 months of fiscal year 2020, $1.9 trillion more than recorded during the same period last year. In Canada, greater reliance on commodities and higher private sector debt will likely impede GDP recovery to its pre-virus level.

U.S. equities continued their rally in July. The gap between what is happening in the real world and financial markets is wide. Risks associated with weak macroeconomic data and fears of a resurgence of COVID-19 have been diminished by Fed stimulus and strong earnings results. For July, the S&P 500 gained by 5.6%, while S&P MidCap 400 and S&P SmallCap 600 gained 4.6% and 4.1%, respectively. The S&P 500 gained 2.4% for the year ending July. In Canada, the S&P/TSX Composite was up 4.5% in July. International markets also gained, with the S&P China 500 up 9.8% and the S&P Hong Kong BMI up 0.7%. European equities ended July negative as the S&P Europe 350 declined 1.5% and S&P United Kingdom declined 4.6%.

In August, we maintained the asset allocation that was established in July for all models. We continue to be positioned in shorter duration fixed income. We expect interest rates to remain low or negative across the globe and as a result, we have maintained exposure to gold while monitoring four variables: the US dollar, stock market volatility, real interest rates, and inflation. Equity exposure to large cap across all models reflects our view that shifting business models during this pandemic have had a negative impact on bottom lines but that select businesses are benefiting from the shift. We continue monitoring the recovery in Europe following the Eurozone’s agreement on a stimulus package.

While deflation caused by current weak demand is a near-term risk, current fiscal and monetary stimulus measures will likely result in inflation in the future. We continue to monitor developments regarding deficits, government intervention and regulation, reduced globalization, and greater taxation. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP. July 16, 2020.

2 Trading Economics. Eurozone GDP. August 14, 2020.

3 Trading Economics. Spain GDP. July 31, 2020.

4 Trading Economics. Germany GDP. July 30, 2020.

5 Special European Council. EU Budget. July 17-21, 2020.

6 TD Economics. The Post-Pandemic Global Economy. June 4, 2020.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2020. Index performance is based on total returns and expressed in the local currency of the index.