This framework will shape our thinking about the evolution of the global economy over the next several months as we look for signposts and signals in the markets, economic growth and the progression of the virus.
Where are we right now in the road map? The answer to that very important question is: in the transition between Phase 1 and Phase 2. Some markets are beginning to stabilize, VIX is falling from its record high and correlations are beginning to normalize. European countries have begun to take drastic action to arrest infection rate growth and policymakers are doing all they can to socialize losses. But there are second-round effects in credit markets, and it is not yet clear if the Fed’s response is sufficient to avoid third-round effects. Phase 3 is a long way off.