Markets rallied vigorously in the second quarter. The increase in risk sentiment was considerable. Positive stock performance was broad-based. All sectors and regions benefitted. In this environment, after providing downside protection in a volatile and declining market in the first quarter, we were able to again outperform in the second quarter as result of significant repositioning.

To be sure, economic fundamentals are still poor, and most countries expect the fallout to continue for the foreseeable future. However, the data marked a bottom in April and improved sequentially in both May and June. This improving picture can be attributed to the phased reopenings of afflicted countries and the pickup of business activity off of a very low base.

Large waves of fiscal and monetary stimulus continued, amounting to many trillions of dollars worldwide. This has served to prop up afflicted consumers and businesses, stabilize financial markets, and guarantee liquidity almost anywhere it is needed.

We are cautious as economic fundamentals are still weak and pandemic uncertainty is still elevated, yet cognizant of the phenomenon that investors in financial assets have been backstopped by the central banks.


Since cutting interest rates to zero in mid-March, the Federal Reserve has deployed extraordinary measures of quantitative easing to ensure markets function smoothly and remain liquid. Initially, this amounted to purchasing treasuries and government-guaranteed mortgage bonds. Now, the Federal Reserve will also begin programs to purchase corporate bonds and municipal bonds, and make “Main Street” loans to mid-size businesses. These extensions of quantitative easing are unprecedented by the Federal Reserve, but they will keep liquidity flowing to households, businesses, and local governments that are desperate for loans. Prior to the pandemic, the Federal Reserve’s balance sheet was under $4 trillion. It has now ballooned to over $7 trillion, and it is expected to continue climbing higher.

There was no shortage of headlines surrounding the fallout in the U.S. economy. Gross domestic product (GDP) declined 4.8% sequentially in the first quarter, and the Federal Reserve expects that GDP will decline over 30% sequentially in the second quarter. As case counts slowed through April, and the government shifted its focus to reopening, various economic indicators had rebounded. Labor markets improved in May, as nonfarm payrolls surprisingly increased and unemployment fell. After enacting the country’s largest-ever fiscal stimulus package at the end of March, worth more than $2 trillion, the U.S. withheld from announcing an additional relief package. Congress has debated the merits of more fiscal stimulus given the rebound in economic data. However, many are concerned that a waning fiscal tailwind could derail a nascent recovery. Through June, coronavirus cases and hospitalizations rose sharply, particularly in states that avoided the first wave. This may lead to additional bouts of consumer anxiety and overall cautiousness, similar to those that preceded the initial lockdown.

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