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Case growth remaining contained, policy remaining accommodative and the reopening process going smoothly have driven the S&P 500 Index to its best quarter the fourth quarter of 1998. But with case growth accelerating and the future direction of fiscal policy uncertain, two of these pillars have been called into question. Therefore, risks are skewed to the downside, according to David Lebovitz from JP Morgan who discards a retest of March lows though.

Key quotes

“From a policy perspective, this makes it increasingly important that the unemployment benefits which are set to expire at the end of July are extended in the coming weeks. On the growth front, given that the direction of the data has been a more significant driver of markets than the level, the path forward for the economy will be monitored closely. However, we have far more information in hand than was the case three months ago; the risks to valuation are tilted to the downside, but a re-test of the March lows seem like a bit of a stretch.”

“The fundamentals are becoming increasingly important, and over the next few weeks, companies will begin reporting second-quarter profits. The silver lining to the upcoming earnings season is companies may start to provide some guidance as to what they expect over the remainder of the year and into 2021. That said, we acknowledge that the distribution of outcomes remains wide, and maintain that the best investment approach will be one characterized by balance between quality and cyclicality.”