Dear friends of Arcus Capital Partners,
We hope this letter finds you in good health during this extraordinary time. Over the past three months, the world has been gripped by the global pandemic known as the novel coronavirus (COVID-19). What started as an isolated incident in China, quickly morphed into a worldwide health crisis. By the end of March, a large portion of the world population was under quarantine. Sadly, COVID-19 has not only taken many lives, but it has also wreaked havoc on the global economy and financial markets. During the quarter, global equities dropped sharply into bear market territory, interest rates declined to historic levels, and cyclical commodities hit multi-year lows.
From here, the macro outlook is dependent on two key factors. The first is the length of time needed to see a meaningful deceleration in infection rates. As of now, the growth rate of new cases remains positive but appears to be slowing. Assuming this trend continues, many regions could start ending lockdowns over the coming months and allow for a resumption of economic activity. The second is the size and scale of fiscal and monetary policy responses by governments and central banks. So far, these measures have been larger and more targeted than programs used during the Global Financial Crisis (GFC). They have also been implemented much quicker, which could limit the extent of the damage. The global economy will almost certainly experience a recession during the first half of 2020; however, it may end up being one of the shortest on record. In turn, many growth-oriented asset classes (e.g. equities) could recover over the next twelve to eighteen months.