Chart of the Month | Markets are Running Ahead of Economic Reality

July 7, 2020 |
1 minute read

When investors open their second quarter investment reports, many will be shocked by the magnitude of stock market gains in the second quarter. Their surprise could be voiced by a rhetorical question such as: “If I told you that close to 50 million Americans will file for unemployment in 3 months, the unemployment rate in June will be hit 11.1 percent, that personal consumption will decline by 11 percent in the first 5 months of the year and GDP will decline by 35 percent (annualized rate, estimated) in the second quarter, would it possible that U.S. and global equities could gain 20.5 and 19.2 percent in the second quarter, respectively, and only be down by 3.1 and 6.3 percent year-to-date?”

This month’s chart shows the disconnect between the speed of the recovery in the S&P 500, which has rebounded 39.3 percent from the lows on March 23, and economic conditions that are recovering at much slower pace. While investors owe much gratitude to the Fed for coming to the rescue with never-before-seen speed and magnitude, and economies around the world have started to re-open, we feel it is too early to declare victory.

There are still several key risks that we are monitoring, including a potential second wave of COVID-19 infections, a looming presidential election, credit market distress and the deglobalization trend. Furthermore, we are likely to continue to experience disinflationary pressure from slack in industrial capacity utilization and tightening bank lending standards which will affect earnings growth in the short term. Considering the balance of increasing efforts by the Fed to support consumption and acknowledging the present risks, we continue to favor a neutral position versus strategic investment policy targets.

COM - Markets vs Economic Conditions

Ivo C. Nenin


Ivo C. Nenin

Stay connected with the Insights Blog

Popular Blog Posts

Investment Strategy | Insights Blog

What is an OCIO?

Outsourced investment management, once primarily a solution for small institutions with limited resources, is now used by a broad range of long-term investors. When properly implemented, outsourcing...
Investment Strategy | Insights Blog

How to Measure Private Equity Investments

Private capital investors use a particular set of quantitative and qualitative measures to assess performance. While the standard benchmarks used for marketable securities are sometimes applied to...
Governance And Policy | Insights Blog

Five Key Points of the Investment Policy Statement

The central document guiding the management of a nonprofit institution’s endowment—essentially, the strategic plan of the investment committee—is the investment policy statement (IPS). The IPS should...


Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.