Global Equities: Keep calm and buy the dips

A total risk-off in mid-June, accelerated in the US with S&P500 down nearly -6% for days like 11th June. The race to find an appropriate reason for that starts. We see blames being settled on a combination of COVID uncertainty (emerging markets, and some pockets in the US), IMF’s lower economic guidance, shaky geo-politics (US/China), and need for additional stimuli in the US.

Though one has to realize that there are times and days when finally rationalization prevails. The fast and furious rise of the past weeks that sent S&P500 into an overbought zone, and stretched valuations quite dramatically. The market is ripe for a sell off and some profit taking, and therefore the knee-jerk reaction of last night seems very far from being an alarming signal.

Remaining constructive on the markets amid uncertainty related to the COVID, but lower so with a second rounds of lockdowns, one can anticipate recovery in jobs, and ultimately in consumption. Central banks have their hands on the trigger to shoot further liquidity as soon as they see any signs of a weakness, this should backstop a worst case scenario for the global economy. While expecting 2020 to be a year of several setbacks, we would nevertheless expect the market to continue its hike in the second half.