The post-March 23 rebound in global equity prices is getting stretched, and there is a risk that a pause or correction will take hold.
As noted in a report last Thursday, the equity rebound was spurred by an escalation in monetary and fiscal stimulus, and, critically, a cresting in active COVID-19 cases in the leading countries. The near-run threat derives from the re-starting of economic activity in a growing list of countries, and even individual U.S. states, before adequate testing exists and, importantly, before a vaccine has been developed. The danger is that a rebound in active cases (and deaths) will occur, which would further delay prospects for a durable rebound in economic activity and improving corporate profits.
In the context of the recent rebound in equity prices and the uncertain economic/public health outlook, we are sticking with a neutral weight on equities while maintaining an overweight in credit (within both fixed-income and multi-asset portfolios). Historically, credit tends to outperform equities during recessions and the initial economic recovery phase. It is safer to take credit market risk (rather than equity risk) given huge economic uncertainty.