The role of the financial industry as an allocator and distributor of capital to the economy is critical to the evolution of the current pandemic. The current health crisis has morphed into an economic crisis, which has morphed into a financial crisis. While advances in testing and contact tracing will help, risk of a second wave of infections and the re-imposition of strict containment measures is likely to remain until a vaccine is developed. Simultaneously, geopolitical risks are heating up amid escalating tensions over Hong Kong, civil unrest in the U.S. and the return of Brexit uncertainty. We are monitoring these developments and have maintained our previous Recession outlook for the U.S. economy to reflect a Recession that began in March and extends through the end of the year.

Central banks globally have taken action. The China National People’s Congress (NPC) has laid out plans for fiscal stimulus. Japan’s fiscal support measures turned out to be larger than initially planned, at 22% of GDP.1 The European Central Bank announced €750B in stimulus grants and loans to be funded by the currency area’s first joint debt.2 The 17.1% month over month collapse in eurozone industrial output in April was partly reversed in May and June, but the recovery will be much more gradual than the slump.3 In the U.K., GDP figures for April showed that output fell by a cumulative 25% since its pre-crisis peak in February.4

The FOMC minutes reinforced the Fed’s commitment, putting floors on risk markets. The Fed has moved to the outer limits of monetary intervention to backstop CMBS, investment grade bonds, the muni market, and high yield debt. The Fed’s balance sheet has expanded more in three months than it did cumulatively in the six-year period from December 2007 to November 2013.5 The U.S. international trade deficit widened to $49.4 billion in April as exports slumped.6 The closure of motor vehicle production plants throughout North America had the greatest impact on the slump. Retail sales plummeted in April, down 16.4%, a 21.6% year-over-year decline but began to recover in May (up 17.7%) as thousands of stores and restaurants reopened after lockdowns and federal stimulus checks and tax refunds fueled a burst of spending.7 The permanent devastating impact on the economy can be seen in retail bankruptcy filings, as retailers J.C. Penney, J. Crew, and Neiman Marcus declared bankruptcy, and Lord & Taylor plans to liquidate.8 Unemployment was 14.7% in April, followed by an improvement in May to 13.3% as 2.5 million jobs were added back to the nonfarm employment.9

Statistics Canada announced that the services trade balance jumped from a deficit of $1.1 billion in March to a surplus of $0.3bn in April, reflecting that more Canadians travel abroad than foreigners travel to Canada.10

Markets during May were driven by some positive data and reopening plans. The S&P 500 closed up 4.8% for the month. The S&P MidCap 400 gained 7.3% and S&P SmallCap 600 gained 4.3%. Canadian equities had a positive month, with the S&P/TSX Composite up 3.0%. S&P Europe 350 gained 2.9% as contributing nations unlocked at differing speeds with German equities providing the greatest positive contribution. Asian equities continued their recovery, with the S&P Pan Asia BMI up 3.0%. S&P China 500 gained 1.0%, S&P Korea BMI was up 4.8%, while S&P Hong Kong BMI dropped 7.8% in May.

In June, we maintained the asset allocation that was established in May for all portfolio 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 continue to have exposure to gold which is a store of value in this environment and a preferred asset for central banks for the foreseeable future. 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.

The scale of the economic damage caused by the coronavirus outbreak will lead to an extended period of weak economic growth, excess capacity, deflationary pressure, and a wave of bankruptcies. Financial repression is likely to remain through our outlook time horizon (the next twelve months) as central banks continue to demonstrate their willingness to keep widening their safety net. We will continue to monitor the data for growth, inflation, and recession signals from employment, consumer spending, business sentiment, Fed policy, the yield curve, inflation, and global economics. 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


1KPMG Insights, Japan. April 7th, 2020.

2European Central Bank. March 18th, 2020.

3Trading Economics, Eurozone Industrial Production. April 2020.

4Trading Economics, United Kingdom GDP Growth. May 13th, 2020.

5Trading Economics, U.S. Central Bank Balance Sheet. June 10th, 2020.

6Trading Economics, U.S. Balance of Trade. June 4th, 2020.

7Trading Economics, U.S. Retail Sales. June 16th, 2020.

8S&P Global Market Intelligence. May 15th, 2020.

9Trading Economics, U.S. Unemployment Rate. June 5th, 2020.

10Trading Economics, Canada Balance of Trade. June 4th, 2020.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 29, 2020. Index performance is based on total returns and expressed in the local currency of the index.