• Stocks bounced back due to many factors, including strong retail sales.
• The Federal Reserve announced that it would continue to support credit markets, also boosting sentiment.
• A return to normal economic activity and behavior is not yet on the horizon, so we urge investors to be patient.

U.S. equities rebounded last week, with the S&P 500 Index gaining 1.9%.1 We can trace the recovery to many factors: relief from overbought conditions thanks to last week’s pullback, the Federal Reserve’s announcement that it would buy individual corporate bonds, renewed speculation about infrastructure stimulus and V-shaped recovery expectations following better-than-expected May retail sales. Health care and technology were the best-performing sectors, while utilities lagged.​1

Ten Observations And Themes
1. The depth of the economic plunge has been milder than anticipated, while the subsequent rebound has been stronger than expected. May U.S. retail spending increased 17.7% month-over-month, marking the largest monthly increase on record.2 This, along with the strong May employment and industrial production reports, strongly suggest we reached the bottom of the recession in April.

2. Second quarter GDP may have fallen by “only” 30% to 35%, versus the originally anticipated 40%. Third quarter GDP could increase 10% to 20%. However, Congress’s failure to agree on a phase-four fiscal package, and/or a sharp acceleration of new virus cases, would put that projection at risk. If a vaccine becomes widely available as soon as early 2021, growth would likely increase more as the remaining physical constraints and risks abate.

3. Just as March and April were worst months of 2020, May, June and July should be the strongest. We are concerned that growth will slow, but should remain positive past the summer recovery.

4. Fed Chair Powell broadly encouraged more Congressional action to support the economy. Given the uncertainty in the recovery, he highlighted the need for continued unemployment support and state budget issues as appropriate areas for relief.

5. We believe Congress will pass another round of fiscal stimulus this summer, with significant increases in state and local government aid, some liability protection for corporations, further unemployment insurance aid and some paycheck protection support for small businesses. Any significant increase in infrastructure spending seems unlikely.

6. Small businesses have been disproportionately hit by the effects of the coronavirus pandemic. Small businesses are typically more financially fragile than their larger competitors and their access to credit is more difficult.

7. The collapse of global tax negotiations has increased the likelihood of another trade war. European nations may impose new taxes on U.S. tech companies, which in turn will prompt additional tariffs from the U.S. on a wide range of European goods.

8. International sales now comprise 29% of S&P 500 revenues, according to Goldman Sachs, marking the lowest level in 10 years. This is a result of faster growth in U.S. sales over the last decade compared with non-U.S. sales, meaning the S&P 500 is not the global index it once was.

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