Second waves of COVID-19 the biggest risk to equities

Neither the Fed’s latest projections for the US economy nor the waning popularity of President Trump and his party are convincing explanations for yesterday’s slump in stock markets after their previous rapid rebound. A more plausible trigger for the profit-taking is growing concerns about second waves of COVID-19. We think that the more positive tone in stock markets today is a sign of things to come. This is partly because we expect economies to continue to recover from their slumps, provided second waves do not lead to renewed widespread lockdowns. And, just as importantly, it reflects our view that exceptional policy support will foster an ongoing hunt for yield.