City National Rochdale | Jun. 19, 2020

Making Progress

Pent-up consumer demand, the gradual rehiring of millions of workers, and further federal support for the economy should fuel the economy's recovery.

While recent headlines cite rising coronavirus cases in various places as states have reopened, data from leading universities indicate no states are at risk for an exponential crisis or running out of hospital capacity.

The country will see another $1 trillion or more in fiscal stimulus by fall.

A combination of pent-up consumer demand, reopening businesses and government economic support programs drove an 18 percent increase in retail spending in May after a 15 percent slide in April.

Recent polling data from RealClearPolitics and 270towin shows a tight presidential race, with Democratic momentum and Senate races and control too early to call.

City National Bank’s investment team expects the U.S. economy to emerge from recession by the third quarter and experience a healthy recovery throughout the second half of this year as businesses reopen following the coronavirus shutdown.

Pent-up consumer demand, the gradual rehiring of millions of workers, and further federal support for the economy should fuel the recovery, the bank’s investment leaders said during their weekly market update Wednesday.

“This could be the shortest, deepest, most severe recession in our lifetimes but we believe it could be over by the third quarter,” said Garrett D’Alessandro, CEO of City National Rochdale, the bank’s investment advisory organization.

While recent headlines cite rising coronavirus cases in various places as states have reopened, data from leading universities indicate no states are at risk for an exponential crisis or running out of hospital capacity, he said, citing statistics from the COVID Tracking Project and the Institute for Health Metrics and Evaluation.

The increase “is completely within our expectations,” with absolute numbers of new cases less dire than the percentage increases suggest, D’Alessandro said.

City National Rochdale Chief Investment Officer Tom Galvin said the bank’s economic and financial indicators signal “a solid economic recovery in the second half of the year, especially the third quarter.”

Among other factors, he cited improvements in housing demand, consumer spending and the labor market, as well as strong monetary and fiscal support from the Federal Reserve and U.S. policymakers. Galvin predicted the country will see another $1 trillion or more in fiscal stimulus by fall.

The bank’s investment leaders cited several encouraging trends, including as D’Alessandro noted, signs that people are returning to some normalcy. He presented data from Apple, for instance, showing that six weeks after a steep April decline in mobility — people getting out and about — movement recently was off only 8 percent from pre-crisis levels.

While restaurant bookings remain weak, down 65 percent from early March, they show notable improvement from the virtually flat crisis levels when most eating establishments had closed their doors, he said, citing Bloomberg and OpenTable data.

A combination of pent-up consumer demand, reopening businesses and government economic support programs drove an 18 percent increase in retail spending in May after a 15 percent slide in April, according to Bloomberg data. In addition, travelers are slowly returning to airports, D’Alessandro said, citing Bloomberg data on TSA checkpoints.

At the same time, more than half the hourly workers who lost their jobs at the height of the coronavirus outbreak have gone back to work, with businesses rehiring faster than most experts had anticipated, according to data from Homebase.

Team members reiterated their view that the pandemic remains at manageable levels in the United States now, despite spikes in some places several weeks after states started lifting restrictions. All 50 states have reopened to varying degrees, with many allowing the majority of their businesses to operate, D’Alessandro noted.

He presented data from covid19-projections.com showing the infection rate growing moderately in 23 states and decreasing in 28 others.

Hospitalizations are flat or declining in most states, and the few experiencing increases — led by Arizona, Texas and North Carolina — have adequate hospital capacity, he said, citing COVID Tracking Project statistics.

“In most parts of the United States we’re seeing declines to flat hospitalizations, which is very encouraging considering all those states are opening to some degree,” said Ben Goetsch, City National Rochdale senior analyst, investment solutions.

CIO Galvin said the team expects a potential surge of coronavirus cases anticipated for the fall to be manageable.

As for the broader environment, City National Rochdale portfolio managers believe the United States will likely continue to operate under a politically divided government after the November elections, which would limit meaningful legislative shifts, Galvin said. He cited recent polling data from RealClearPolitics and 270towin showing a tight presidential race, with Democratic momentum and Senate races and control too early to call.

The stock market and other asset classes have surged faster than expected since late March, with the recent equities rally driven by federal policy response, hedge fund short covering and a significant increase in retail investors armed with stimulus checks who turned to day trading when they couldn’t bet on sports.

“The markets quickly went from panic to euphoria, there was a lot of exuberance behind that that may not be sustainable,” Galvin warned.

Sticking with the right asset class selection generally drives the majority of portfolio returns, more so than picking individual stocks, Galvin added. City National Rochdale remains comfortable with its current strategy, which has focused lately on high-yield bonds, highdividend stocks, core large-cap U.S. stocks, alternative investments and a modest cash buffer.

U.S. stocks remain better positioned for growth than Europe, and Asia presents the most promising emerging-markets region, Galvin said, citing Bloomberg data.

Among stocks, City National Rochdale is focusing on high-quality companies with sustainable business models and reasonable valuations aligned with five well-positioned themes: the nesting consumer, the digital revolution, healthcare innovation, industrial leaders and domestic high growers.

“We think this position has served us well and will continue to do well, which gives us confidence longer term,” Galvin said.

In terms of alternative strategies, the team is seeking high income and diversification through unique investments such as rail car leasing, collateralized loan obligations, reinsurance and healthcare royalties, Galvin said.

In these turbulent times, City National encourages you to review your investment portfolio with your advisor. Contact our financial professionals today to ask questions and receive help with your wealth planning needs.

Key Points

Pent-up consumer demand, the gradual rehiring of millions of workers, and further federal support for the economy should fuel the economy's recovery.

While recent headlines cite rising coronavirus cases in various places as states have reopened, data from leading universities indicate no states are at risk for an exponential crisis or running out of hospital capacity.

The country will see another $1 trillion or more in fiscal stimulus by fall.

A combination of pent-up consumer demand, reopening businesses and government economic support programs drove an 18 percent increase in retail spending in May after a 15 percent slide in April.

Recent polling data from RealClearPolitics and 270towin shows a tight presidential race, with Democratic momentum and Senate races and control too early to call.

Important Disclosures

This material is available to advisory and sub-advised clients of City National Rochdale, LLC, a Registered Investment Advisor and a wholly-owned subsidiary of City National Bank.

The information presented does not involve the rendering of personalized investment, financial, legal or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts and forward-looking statements presented herein are valid as on the date of this document and are subject to change.

Diversification does not ensure a profit or protect against a loss in a declining market.

Past performance is no guarantee of future performance. As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.

Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The Dow Jones US Select Dividend Index includes a selection of stocks based almost entirely on dividend yield and dividend history. Stocks are also required to have an annual average daily dollar trading volume of more than $1.5 million. These criteria help to ensure that the index represents the most widely traded of the markets highest yielding stocks.

The Bloomberg Barclays US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.

The Bloomberg Barclays U.S. Corporate High Yield Index covers the U.S.-dollar denominated, non-investment grade, fixed-rate, taxable corporate bond market and includes securities with ratings by Moody’s, Fitch and S&P of Ba1/BB+/BB+ or below.

The MSCI Europe Index is a free-float weighted equity index measuring the performance of Europe Developed Markets. It was developed with a base value of 100 as of December 31, 1998.

The MSCI Emerging Markets Asia Index is a free-float weighted equity index measuring the performance of Asia Emerging Markets. It was developed with a base value of 100 as of December 31, 1987.

The MSCI Emerging Markets Index is a free-float weighted equity index that captures large and mid cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

ICE BofAML High Yield US Emerging Markets Corporate Plus Index tracks the performance of US dollar denominated below investment grade emerging markets corporate debt publicly issued in the US domestic or eurobond market.

The ICE BofA US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued in the US domestic market.

The ICE BofA US High Yield Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market.

This presentation is for general information and education only. City National makes no representations or warranties in respect of this presentation and is not responsible for the accuracy, completeness or content of information contained in this presentation. City National is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained in or from the site. The information in this presentation should not be used to obtain credit or for any other commercial purpose nor should it be construed as tax, accounting, regulatory or legal advice. Rules in the areas of law, tax and accounting are subject to change and open to varying interpretations and you should seek professional advice from your advisor. Nothing in this presentation should be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the viewer’s specific investment objectives. Any financial instrument discussed in this presentation may not be suitable for the viewer. Each viewer must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this presentation and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results.

The material contains forward-looking statements regarding intent, beliefs, or current expectations which are used for informational purposes only. Readers are cautioned that such forward-looking statements are not a guarantee of future performance, involve risks and uncertainties, and actual results may differ materially from those statements as a result of various factors. The views expressed are also subject to change based on market and other conditions. Furthermore, the opinions and information presented do not involve the rendering of personalized investment, financial, legal, or tax advice. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results.

City National Bank provides investment management services through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor. Content from the June 17, 2020 presentation, “Making Progress,” is reprinted by permission from City National Rochdale. City National (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this article and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

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