Central banks across the globe met last week and committed to continue doing what they can to support the economy, as we see the largest slowdown in economic activity in at least 100 years. Corporate earnings continue to roll in with a wide range of outcomes depending on the industry. I continue to expect the second-quarter earnings to be more telling than the first quarter, given the timing of the coronavirus and the resulting consumer behaviors in May and June as the economy slowly reopens.
From an economic and markets perspective, many uncertainties will exist in the coming months. Still, one that will be very important in the medium to long term is how geopolitical relationships change across the globe. The merits and drawbacks of globalization were already a hot topic before the pandemic, but this dialogue will only gain momentum now and charged rhetoric is likely to increase significantly. How governments and companies make decisions for the future will have a large impact on markets and the expectations for economic performance. The relationship between the U.S. and China will be front and center. In a U.S. election year, I expect it will be a frequent topic given the circumstances surrounding COVID-19.
Amid all of the uncertainty and factors at play, the valuation of risk assets is a challenge. I do believe markets have run out in front of the fundamentals and more downside risk exists over the next few months.
Take care, and be well.
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