Market Commentary for July 2020

While domestic and international markets have rallied off the lows of March in a very positive way, the economic picture still remains somewhat uncertain, albeit much better than it was in the second quarter. In Europe, the picture isn’t so rosy, where travel and tourism are crucial segments of the economy. Hopes of a speedy recovery in 2020 are fading, as investors and analysts sift through the rubble after the shutdowns. At this time, it’s hard to see a return to normal activity in the travel and tourism industry any time soon, which is bad news for popular destinations like France, Italy and Spain.

However, there are some relative bright spots overseas, like Germany, which appears to be weathering the storm better than others in the European Union. For example, as China’s economy reopens, German plants are ramping up their production of luxury cars, electrical machinery and chemical goods; leading the way to growth for Europe. In addition, the massive monetary fiscal stimulus measures introduced by Central banks and national lawmakers to avoid a severe recession, has made it possible to see a potential growth surprise in 2021.

In the U.S. the amount of new Coronavirus cases surged in July; more than triple the mid-June level and more than double the previous mid-April peak. The resurgence poses a significant risk to the robustness of the economic recovery, which will no doubt impact incomes and a potential cascade of evictions. The total fiscal support for the economy now easily tops $3 trillion, and could soon rise above $5 trillion. As alarming as these figures may be, it is also a key reason why we believe the recovery from this recession will be shorter than the eight quarters it took to recover from the 08’\09’ recession, which was a post-war record. The rising debt levels are a concern, but even the Fed Chair Powell indicated, “the time to work on that hard [stabilizing or reducing the debt-to-GDP ratio] is when the economy is strong, unemployment is low, there’s growth…but I wouldn’t prioritize them at a time like this, when the spending is giving us a better economy moving forward, which will really help service the debt.”

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