Markets in Q2 rebounded strongly from the severe losses seen in Q1 and both equities and credit performed well as central banks and governments provided enormous amounts of stimulus and economies started to reopen. Despite the strong rebound in risk assets, traditional portfolio hedges such as government bonds and gold also performed well. US Treasuries are up about 9% year to date, while gold is up over 17%.
The recovery in asset prices and economies in Q2 has been welcome relief for investors but the long-term impact of this crisis should not be under-estimated. A depression has been averted though the world is experiencing a very deep recession, the worst in living memory. The world is not going back to the structures in place pre-COVID-19. Many businesses have seen permanent changes to their business models, as individual and corporate behaviour is altered for the long-term. The reach of fiscal and monetary authorities has extended in size and scope. This will have a profound impact on investing and asset prices.