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Introduction

The first phase of the COVID-19 shock has ended with the world’s largest economies near or past peak infection levels. Economic shutdowns and social distancing mandates have saved many lives, and now many workers are returning to work.

Across the broader market, we have experienced the ninth major market decline since 1946. COVID-19’s sudden shock to the global economy has been reflected in the markets with record volatility and a rapid market correction followed largely by a Fed inspired rebound. The structural realities of today’s markets (coupled with the proliferation of quantitative and other passive investment strategies) had exacerbated volatility and helped drive the sell-offs record pace.

Peak infection rates: Investors have paid close attention to domestic and global efforts to “flatten the curve” to gauge when people will begin returning to work. We have witnessed the early stages of reopening of the economy.

A proper “washout” in major fixed income and equity markets: Initial reaction from active investors has been of relative calm (modest de-grossing) whereas the violent de-grossing from market neutral quants was early and quick.

Earnings estimate clarity / crisis level valuations: While earnings estimates still remain largely uncertain, assessing valuation multiples remains challenging. Many issuers have abandoned estimates until the impact of COVID-19 can be determined.

Sustained credible monetary and fiscal policy response: Governments have launched measures and devised policies capable of supporting corporate and household cash flows that should keep many from financial distress. Crucially, this response helps remove or reduce many of the downside tail risks the economy and financial system faced in the past several months.

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