Risk assets continued to rally in July, partly due to better-than-expected second-quarter corporate earnings results. Additionally, massive amounts of global monetary and fiscal stimulus continued to support financial market gains, even as COVID-19 cases continued to rise and economic concerns lingered. We believe this ongoing uncertainty highlights the value in active, experienced portfolio management.
Economy. GDP data released in July confirmed the severity of the COVID-19-related global economic shutdowns. Annualized second-quarter GDP in the U.S. and Europe contracted at the largest pace on record. But monthly manufacturing and employment figures were more encouraging and suggested the worst of the economic downturn may be over.
Rates. Against a backdrop of massive monetary stimulus and global economic weakness, government bond yields and key lending rates are likely to remain historically low for the foreseeable future.
Inflation. We expect global inflation to remain unusually low in the near term. Longer term, we believe the effects of massive debt, a weaker U.S. dollar and onshoring trends among businesses will push U.S. inflation higher.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
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