Summary

  • The COVID-19 pandemic has dealt a historic shock to the world economy, with Q1’s decline alone comparable to the peak-to-trough decline in the worst recession before the 2008/09 financial crisis. At the same time, the anticipated cumulative 12% drop for the G7 in the first half of this year more than doubles the hit from that historic downturn a little more than a decade ago.
  • The heightened concern and pessimism over the current situation permeated into expectations for growth; however, these downbeat views largely neglected to take into account what actually happened to the global economy.
  • The fact that the downturn, sharp as it is, is the result of an exogenous shock to the supply-side of the economy rather than structural issues impacting demand, making it very different from previous experiences. Typically, in scenarios of this kind, activity can normalize fairly quickly once those external forces subside, resulting in a rapid ‘V’-shaped rebound in momentum.
  • Indeed, data covering everything from housing to consumer spending to construction to industrial production across the globe are exhibiting a conspicuously sharp inflection from the lows registered amid widespread shutdowns in April.
  • There is still plenty of ground to make up before we can consider things are ‘good’ in an absolute sense. How the recovery progresses from here depends on whether or not the rolling back of
    emergency measures to stem to the spread of infection can continue unabated — a process that is being complicated by the accelerating spread of infection in the US and major EM economies.
  • To the extent that the non-zero odds of a renewed large-scale lockdown can be diminished — for example, by indications that the contagion is coming under control, or there is progress on the development of therapeutics — that would present upside risks to the outlook. It still appears that the balance of risks is tilted in this direction.
  • As such, risk assets appear primed to continue on their road to recovery from their crisis lows, as investors continue to pare the undue weight assigned to the worst-case scenario outcomes.
Want to read more? View the entire Summer 2020 Outlook
This document includes information concerning financial markets that was developed at a particular point in time. This information is subject to change at any time, without notice, and without update. This commentary may also include forward looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate. Investing involves risk. Equity markets are volatile and willincrease and decrease in response to economic, political, regulatory and other developments. The risks and potential rewards are usually greater for small companies and companies located in emerging markets. Bond markets and fixed-income securities are sensitive tointerest rate movements. Inflation, credit and default risks are all associated with fixed income securities. Diversification may not protect against market risk and loss of principal may result. Index returns are for information purposes only and do not represent actual strategy or fund performance. Index performance returns do not reflect the impact of management fees, transaction costs or expenses. This presentation is for educational purposes only and does not constitute investment, legal, accounting, tax advice or a recommendation to buy, sell or hold a security. It is only intended for the audience to whom it has been distributed and may not be reproduced or redistributed without the consent of Guardian Capital LP. This information is not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation. It shall under no circumstances be considered an offer or solicitation to deal in any product mentioned herein. Certain information contained in this document has been obtained from external parties which we believe to be reliable, however we cannot guarantee its accuracy. Guardian Capital LP manages portfolios for defined benefit and defined contribution pension plans, insurance companies, foundations, endowments and third-party mutual funds. Guardian Capital LP is wholly owned subsidiary of Guardian Capital Group Limited, a publicly traded firm listed on the Toronto Stock Exchange. For further information on Guardian Capital LP, please visit www.guardiancapitallp.com