- Because this economic decline is policy driven, a solid recovery is likely as lockdowns end.
- Easy monetary policy, aggressive fiscal policy and zero-bound interest rates should continue to support equity markets.
- Low growth and inflation suggest that the low interest rate environment is likely to persist. Against that backdrop, a diversified approach and active fundamental research can prove beneficial.
Mid-year Outlook: From recession to recovery
In the opening weeks of 2020, investors had very few hints of the daunting events to come in this most unusual year. Although global economic growth was slowing, there were reasons to be cautiously optimistic.
That was then. This is now.
Over three challenging months, coronavirus-induced lockdowns have wreaked havoc on global economies. Millions have filed for unemployment benefits. COVID-19 infections appear to have peaked in many places, but the risk of secondary outbreaks remain.
Despite all of this, many stocks are down on a year-to-date basis but not necessarily out as investors optimistically look ahead to an eventual recovery. Their hopes are underpinned by massive government stimulus measures and ultra-low interest rates. Some companies perceived to be benefiting from stay-at-home mandates — including e-commerce, video streaming and food delivery firms — have rallied in the face of the worst market and economic environment since the 2008–09 global financial crisis.
As Capital Group vice chairman and portfolio manager Rob Lovelace has noted in recent investors calls, there is a unique aspect of this downturn: It was self-imposed by governments in response to a global health crisis. As such, it is not difficult for investors to imagine an end to this chapter and look forward to a post-COVID recovery period, which may have already started.
“This is different than the 2008 financial crisis — we can see the other side of the valley,” says Lovelace “It’s hard to know how wide the valley is, but I believe we will end up in a better place two years from now.”