The great poet Ralph Waldo Emerson famously wrote, “Do what we can, summer will have its flies.” As we head into the summer months, this mood may best describe nervous investors who recently experienced large bouts of market volatility due to the spread of the coronavirus. The S&P 500 Index fell 34% from its all-time high reached on February 19 to its low on March 23.1 While it has recovered since then, we are seeing global economic activity reflects the implementation of mandatory “shelter-in-place” policies. Simultaneously, extreme moves in the oil market — with West Texas Intermediate (WTI) oil futures prices at one point trading in negative territory due to fears of oversupply — caused additional distress in markets.Our take on the major investor themes for the weeks ahead:
U.S. equities:
We prefer a moderately pro-risk position within U.S. equities, and like industry and sector level opportunities that reflect secular, long-term growth trends, such as tech and healthcare.
Megatrends:
We like infrastructure as an investment theme as it may benefit from renewed appetite by governments globally to address this gap, though it is critical to understand the various global and regional drivers at the global, U.S. and emerging markets levels.
International markets:
High differentiation in government policy response to the coronavirus impact speaks to the importance of expressing views with single country international exposures.
Fixed income:
We see opportunities in credit markets. Extraordinary measures by central banks — including purchases of corporate debt — provide a favorable backdrop.
Factors: Value, the comeback king?
Our outlook on momentum has improved from a moderate underweight previously. The factor’s relative strength has sharply improved and now appears attractive.
