by Connor Darrell CFA, Assistant Vice President – Head of Investments
Most global equity markets pushed higher last week as more economies continued to take steps toward reopening. Optimism that a vaccine could become available sooner than many anticipated has also helped to boost market sentiment. Markets have remained quite stable over the past several weeks, even as some economic data has begun to paint a very bleak picture. But financial markets are forward-looking entities and are far more focused on the future than the past. In recent weeks, we have seen a significant rebound in the price of oil as air and road travel have both shown signs of recovery. In the U.S., all 50 states have now taken at least some small steps toward reopening their local economies, suggesting that the worst of the economic pain may now be behind us. However, it will be a long and slow recovery, and it will likely take quite some time before economic activity returns to pre COVID-19 levels.

There are also likely to be a variety of lasting issues that persist as we emerge from this crisis, including higher debt levels, poorly balanced state budgets, and an eroded relationship with China. Total authorized spending related to COVID-19 relief has reached about 12% of U.S. GDP, and it is likely that more spending will be required in the near future as many relief programs have now been fully exhausted. Additionally, lower tax revenues and vastly increased unemployment spending has put some states in a very difficult position with respect to maintaining a properly balanced budget, and it is possible that federal aid may be required, placing further strain on the federal budget deficit. Lastly, the relationship between the U.S. and China has taken a clear step backwards as a result of growing speculation surrounding China’s handling of the virus. While China has continued to emphasize its intention to follow through on its end of the Phase 1 trade deal, the rising friction between the two countries is likely to make it even more difficult for a Phase 2 agreement to be reached anytime soon.