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Active, bottom-up oriented investors can be caught flat-footed by unforeseen bouts of volatility—indeed, 2020 has already seen several unprecedented selloffs and remarkable recoveries. However, a bottom-up approach needn’t preclude using tools to help identify and, to the extent possible, mitigate the portfolio risks associated with meaningful market reversals. Admittedly, market unwinds will likely never be entirely foreseeable. But we believe it is possible to anticipate periods where the risk of a market reversal is high—and as active managers, to then reevaluate the risk-return tradeoff for portfolio holdings with material unwind risk.

Relative to the US, Europe’s stock markets have a reputation of being staid, dominated by “old economy” industries and national champions. But Europe may no longer deserve this reputation. Since the global financial crisis (GFC), the makeup of Europe’s equity market has undergone a gradual but meaningful evolution.

Amid a world of economic headwinds, the US housing market has been a bright spot—delivering a V-shaped recovery since April’s plunge and possibly offering some insight into the efficacy of the Fed’s activities year to date, as well as broader consumer health.

Well, the Congressional music seems not to have stopped just yet—with the deeply divided House and Senate continuing their (unsurprising) stimulus dance. The negotiations have moved little since late July, when Senate Republicans released their outline for a $1 trillion bill (which they’ve since followed up with a scaled-back plan). For their part, Democrats have thus far remained committed to the House’s $3.5 trillion package, passed on a near-party-line vote in May.

But is further stimulus yet warranted?

ESG has been an increasingly hot topic over the past couple years—and if anything, the recent pandemic and accompanying market volatility have accelerated many ESG-related conversations. As a firm without a centralized research function or a CIO, Artisan Partners’ approach to ESG and related topics has necessarily looked different.

Russia has had its fair share of market-moving news this year. Normally, the dispute with Saudi Arabia over oil production and President Putin’s announcement he would reset his term limits would take center stage—yet both have been overshadowed by the dual threats of COVID-19 and the corresponding pressure on oil demand. The economy has predictably struggled, with GDP down 9.6% YOY in Q2, while personal incomes fell 8.0%. Predictably, the ruble has also weakened relative to both the euro and USD—likely a byproduct of not only relative economic weakness but also the oil price collapse.

While the market has responded as we might expect (the MSCI Russia Index is down 22.5% YTD through July in USD terms), Russia is nevertheless still near the middle of the EM pack. It trails countries which have rebounded sharply, such as China and Taiwan, while leading harder-hit compatriots Brazil, Turkey, Hungary and Greece.

As COVID-19 hit and economies shuttered, long-planned IPOs and mergers slowed to a halt around the globe. German chemical firm Atotech, Russian oil giant Sibur, China’s 58 Home and the US’s Airbnb—to name a few—all delayed or halted IPO efforts in March and April. The same was true for M&A, where banks, financial firms and other parts of the market rethought agreed upon deals. M&A globally dropped nearly 50% through the first two quarters of 2020 compared to 2019, while IPO activity fell a more modest 6.8%.                             

None of this is surprising: M&A and IPO activity are likely a decent proxy for sentiment—with participants’ appetite waning as the macro backdrop’s favorability declines. On the flip side, then, it can potentially provide early insight into how quickly sentiment is rebounding. And we may now be seeing some sign of life in certain markets.

Seven months after the first COVID-19-related lockdowns, the economic impact is starting to manifest in the numbers. The EU, one of the hardest hit regions, expects an 8.3% contraction in GDP in 2020. The decline’s potential depth, coupled with decisions countries made during the 2008-2009 global recession, has elicited yet more creative tactics from the EU to attempt to stem a longer-term pullback—the latest of which is a large stimulus package. The €750bn deal, passed in July, still requires approval from individual parliaments, but it could alter how the EU operates moving forward.

There is frequent debate among market participants about which style factors will be in favor in the future: growth, value, momentum, active, passive, etc. While we do not possess the ability to pinpoint the timing of when one style may be in favor over another, we believe the key element in determining the future path of a share price over the duration of an economic cycle is highly dependent on knowing which way profits are headed.

The likelihood of a second trade deal this year with China appears to have materially faded—if it’s not off the table altogether. President Trump recently relayed he isn’t currently focused on  a phase-two deal. To be fair, a phase-two deal may have already been dead in the water for 2020, given the next round of negotiations was intended to aim at some of the bigger bones of contention between the US and China.  Then, too, Beijing officials have long stated their preference for a wait-and-see approach to ongoing negotiations—pending the US’s November election outcome. But now, it seems an even longer-term delay is possible—with potentially significant global ramifications.