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As we embark upon the second quarter of 2020, the entire Clear Harbor team hopes this commentary finds you and your family both healthy and safe. We also reflect on those who are working on the front lines of this COVID-19 crisis, particularly the healthcare professionals who put themselves at risk so that they can tend to the seriously ill, which often requires painful sequestration from their own loved ones. Indeed, as we all wade through this moment of historic uncertainty, I suspect we are all reminded of what is most dear and precious in our lives. We mourn with those who are suffering so much during this moment, even as we persist in our commitment as stewards of your hard-earned capital.

Ten years ago, the world wondered what would follow the extraordinary fiscal and monetary measures taken during the financial crisis. Would major economies transition to sustained flight under their own power, or crash back into severe recession? Ultimately, concerns about a relapse subsided. However, some crisis-era policies have become the norm—and urgent questions of political and economic realignment have been at the fore, at home and abroad, ever since.

As we race toward the final quarter of 2019, markets are defying widespread narratives of decelerating global growth and accelerating geopolitical uncertainty as much as they have at any time over the last decade. Equity benchmarks for U.S. and global developed markets are better by 10-20% so far this year, while emerging markets have notched an average 5.5%.

In the second quarter, major asset classes held onto the first quarter’s impressive gains despite decelerating corporate earnings, a seemingly abrupt turn in U.S. monetary policy, and significantly heightened tensions between the world’s two largest economies. Beyond the U.S.-China trade spat, other geopolitical disturbances erupted: In the Straits of Hormuz, Iran was implicated in attacks on oil tankers; in Hong Kong, residents turned out to support the island territory’s unique legal protections in the largest demonstrations since its handover from Britain to China in 1997. The UK’s exit from the European Union remained constipated, costing Prime Minister Theresa May her post and spreading further heartburn across the Continent.

After closing out a year in which returns were dented by decelerating economic data worldwide and a Federal Reserve seemingly bent on a steady pace of interest-rate hikes, markets gave investors some relief in the first quarter of 2019. The S&P 500 is better by 13.6% year-to-date, and 21.2% since the December 24th near-term bottom; international equities, as measured by the MSCI All-World Ex-U.S. Index, gained 10.4% in the quarter.[1] Fixed Income also fared well, with the Bloomberg Barclays Aggregate Bond Index improving 2.9% amid a rise in sovereign bond prices and a reasonably healthy credit environment.

After years of advances, global equity markets ended 2018 with the stinging reminder that they can still reverse on a moment’s notice. A year that began amidst historically low inflation, accelerating economic growth and expanding equity valuations ended with an eruption in volatility and the meaningful outperformance of broad fixed income benchmarks—precisely the reverse of what most strategists had predicted.