US ECONOMY

CONSUMER HEALTH

NEGATIVE

May’s retail sales and consumer spending rebounded at record clips month-over-month, following unprecedented declines in April. However, new coronavirus cases in the US are accelerating as social activity has increased, which threatens to rescind the gains in consumer

confidence.

CORPORATE EARNINGS

VERY NEGATIVE

Coming into the year, analysts were expecting mid to single digit earnings growth, but the spread of COVID-19 is likely to have a substantial impact on near-term earnings forecasts. However, earnings could bounce back quickly once the pandemic has run its course.

EMPLOYMENT

VERY NEGATIVE

2.5 million jobs were added in May, in large part driven by the return of furloughed workers. The figure represents the greatest monthly increase in jobs since at least 1939, and a stark divergence from economic consensus which expected further unemployment. Nonetheless,

the jobless rate remains historically high at 13.3%.

INFLATION

POSITIVE

The deflationary environment created by COVID-19 should provide additional room for robust stimulus from both fiscal and monetary policy initiatives. However, we will be watching closely in the intermediate term for second and third order effects leading to a return of

inflationary pressure.

FISCAL POLICY

VERY POSITIVE

The US Government has passed a series of fiscal measures to combat the economic impacts of the COVID-19 pandemic. The largest of these measures, known as the CARES Act, provides approximately $2.2 trillion of support for businesses and families that are impacted by

business closures and unemployment.

MONETARY POLICY

VERY POSITIVE

In response to the threat of COVID-19, the Federal Reserve has implemented two emergency rate cuts and has moved its target interest rate back to zero. Additionally, it has announced its intention to conduct further asset purchases to support markets. We believe that the Fed

is doing all it can to support the economy and markets.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

VERY NEGATIVE

Western opposition to China’s National Security Law, legislation that reduces Hong Kong’s autonomy, has amplified the discord already present between the US and China as a result of COVID-19. In addition, demonstrations across the US evidence considerable domestic unrest.

ECONOMIC RISKS

VERY NEGATIVE

The economic impacts of the COVID-19 pandemic are likely to be substantial. However, we believe that the eventual economic recovery (which will be aided by historically large economic stimulus) may occur more swiftly than from previous economic shocks.