as of June 30, 2020
During the second quarter, the global economy experienced a recovery in economic activity off of a very low base as lockdowns were relaxed. The strong monetary and fiscal response from around the globe has helped to mitigate some of the economic damage. The U.S. unemployment rate spiked to 14.7% before ending the quarter at 11.1%. By comparison, the unemployment rate during the Great Recession peaked at 10.6%. The U.S. economy officially entered a recession after having peaked in February 2020, according to the National Bureau of Economic Research.
Financial market conditions improved considerably during the second quarter, as credit spreads declined and bond issuance volumes rose sharply. The VIX index, a measure of stock market volatility, also saw notable declines during the quarter. A number of U.S. states experienced a resurgence in COVID-19 caseloads, which could begin to weigh on the economic rebound. While any mandated shutdowns are likely to be far more targeted than before, individuals may begin to change their behavior without mandates.
Global equities rebounded during the second quarter, with the MSCI ACWI Index, a measure of the global stock market, gaining 19.2% as economies began to show signs of improvement in activity. The S&P 500 Index gained 20.5% during the quarter, outperforming most other markets. Year-to-date, the S&P 500 has declined 3.1%. International developed stocks rose 14.9% and emerging markets stocks rose 18.1% during the quarter. Latin America modestly outperformed during the quarter, but continues to significantly lag other regions year-to-date.
Within fixed income, the Bloomberg Barclays Aggregate Index returned 2.9% during the second quarter, with corporate bonds outperforming Treasuries. The yield curve saw very modest changes, with three month yields rising by 5 basis points, while 10-year yields fell by 4 basis points and 30-year yields rose by 6 basis points. Investment grade bond spreads fell an average of 122 basis points to 1.5%, which is roughly 40 basis points above the long-term median level.
It remains difficult to predict the magnitude of the intermediate-term impact on global growth, but we may have seen the low point in economic activity during the second quarter. The path forward will depend largely on whether the virus is contained or merely controlled, whether fiscal support will be sufficient, any potential rebound in business investment, and whether behavioral changes will drive structural changes to economies.
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