Second Quarter Review of Asset Allocation: Risks and Opportunities

July 21, 2020 | Greg Leonberger, FSA, EA, MAAA, FCA, Partner, Director of Research

The second quarter of 2020 proved to be as eventful as the first, with slow economic results being largely ignored as markets rallied. GDP growth for the quarter is expected to come in at -35.5% YoY, though 3Q GDP projections indicate a significant rebound is expected as the country begins to reopen to “the new normal.” In addition, the unemployment rate came in at 11.1%, down from the April peak above 14%. Below are some highlights from the quarter:

Countries around the globe began reopening businesses amid fears of a second wave of COVID-19 infections.
Daily infections reached a new high in the United States at more than 50,000 per day, causing some states to roll back their reopening plans.
Weekly initial claims for unemployment insurance have continued to trend downwards.
Additional fiscal and monetary stimulus are expected in the second half of the year, bolstering markets.

COVID-19 has proven to be a potentially long-lasting concern as it remains to be seen whether we are in for a V-shaped or U-shaped recovery. Economic data is improving slowly, though markets have seemed to shrug off some of the negative news as the S&P 500 moved into positive territory over the one-year period. Though it may have fallen into the background due to COVID-19, 2020 is a presidential election year. Uncertainty surrounding the election will undoubtedly have an impact on forward-looking expectations. In this newsletter, we analyze what all of this means for each asset class.

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