Global economy firmly in recession

There's no evidence of a sharp recovery in the economic business cycle.

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Key takeaways

  • The US economy is in recession though monetary and fiscal policy seems to have tempered the worst of the near-term damage in financial markets and the economy.
  • China has made the most progress in reopening its economy though economic activity has been significantly below pre-virus levels.
  • China's experience moving out of lockdown may show that the path for other countries will also be hesitant and uneven.
  • Uncertainty and volatility are likely to remain high.

United States

  • The US is firmly in the recession phase with activity hitting deeper troughs in a much shorter span of time than during typical recessions.
  • A historically rapid and expansive US monetary and fiscal policy response helped mitigate the most acute near-term financial-market liquidity issues and is providing a partial offset to the economic damage.
  • Unlike previous recessions, the durability and shape of the recovery will also be informed by the path of the virus, related easing of restrictions, and consumers' willingness to re-engage in economic activities. The future path of the employment market remains highly uncertain even with reopening activity.
  • The combination of supply-chain issues and lower demand is likely to weigh heavily on corporate profits.

Global

  • The coronavirus shock continues to weigh heavily on global manufacturing, trade, and service activity.
  • China is the furthest along in re-opening its economy, as increased mobility has coincided with improved economic activity. However, activity has recently remained range-bound and is significantly below pre-virus levels.
  • China's path out of lockdown—as well as initial findings from other countries—strengthens our conviction that the path to normalcy for the US and global economies will be hesitant and uneven.

Asset allocation outlook

  • Uncertainty and volatility are likely to remain high—a more cautious near-term portfolio tilt, without any significant asset class tilt, may be warranted.
  • More defensive assets such as high-quality bonds and non-cyclical equity sectors tend to do better during economic contractions.
  • The end of the business cycle, the recession phase, often provides investment opportunities for long-term investors.

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