Overview: Stock markets were volatile last week, as investors evaluated potential stimulus measures against renewed concerns of rising coronavirus cases. Steep down trades on Wednesday and Friday led the S&P 500 index to end the week down 2.9%. These pullbacks occurred on the heels of renewed lockdowns in some states, and concerns around trade restrictions with both China and Europe. International developed stocks (MSCI EAFE) ended the week down 1.3% despite improved economic data and a number of European Central Bank (ECB) stimulus actions. June ECB meeting minutes indicated there was “broad agreement” that its monetary policy’s “negative side effects had so far been clearly outweighed by the positive effects of asset purchases on the economy in the pursuit of price stability.”
U.S. Treasury yields declined last week as investors favored safe assets. The 10-year Treasury yield dropped to 0.64% after daily total new infections in the U.S. hit its highest level and jobless claims came in higher than expected. In economic news, consumer spending in May rose a record +8.2%, reflecting the reopening of many businesses. Personal income fell -4.2% and many economists believe that income and consumer spending is at risk of further declines without further stimulus measures from Congress.
Virus news/Commentary from JP Morgan: Last week, the International Monetary Fund (IMF) released an update on its World Economic Outlook in which it downgraded 2020 global growth to -4.9%, the largest contraction since 1946. This change reflects a worse than expected impact from COVID-19 in the first half of this year, and a slower recovery in the second half than previously projected. The report attributes the deeper downturn to weaker consumption due to lockdowns and steep income losses, as well as subdued investment amid a highly uncertain environment. However, it noted that sizeable fiscal and monetary stimulus around the world has partially offset the damage. In economies where infection rates are declining, an early recovery is expected, although it may drag on due to continuing social distancing and reduced productivity as businesses operate with health precautions in place. As for countries that are still struggling to control the virus, more severe social distancing measures will weigh further on economic activity. The IMF also revised down global growth for 2021 by -0.4% to 5.4%. Although this is slower than previously forecast, this should be the fastest growth since 1964. While global economic growth should be slow for the rest of this year, it is expected to surge in 2021 and investors should start asking whether they are positioned for an eventual global economic recovery.
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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