No one could have predicted the events which led us here—facing the most severe pandemic in over a century and a deep, consequent recession. We're indeed navigating unchartered waters.
In order to help you and your clients navigate these waters as successfully as possible, we're sharing insights on four key investment themes to watch in the second half of 2020 and beyond.
Equity and credit markets have rallied dramatically in the second quarter through mid‑June of this year, but have those rallies gotten ahead of themselves? A key to the road ahead is gaining a better understanding of how long will it take for companies to regain enough earnings power to justify current valuation levels while compensating investors for the risk that an economic recovery might not progress as rapidly, or evenly, as some might expect.
Arguably the era of disruption has moved into high gear amid the virus, and an era of growth dominance could continue. Business Innovation, technological change, and automation are key investment themes that we have been focused on for some time. The question now is how those trends are being affected and shaped by the coronavirus crisis.
A search for yield amid declining interest rates has presented real challenges for fixed income investors for some time now. However, the economic damage wrought by the coronavirus crisis also has moved credit quality into the spotlight. Credit downgrades have moved a number of former investment-grade issuers (“fallen angels”) into the high yield universe, and investors are anticipating a dramatic increase in default rates.
Heading into 2020, geopolitical risks already appeared high, given Brexit, the ongoing trade war between the U.S. and China, and the upcoming U.S. presidential election. While the coronavirus has upstaged those issues for now, it has also highlighted the potential for populist politics to influence the post-crisis world.