In lieu of our usual Weekly Bulletin, we are publishing this special report to discuss the market reaction to evolving news on the coronavirus outbreak. We would stress the following points.

While acknowledging that there is considerable uncertainty concerning the ultimate economic impact of this outbreak, our base case remains that it will be a temporary economic shock. The U.S. economy is fundamentally sound and well positioned for future economic growth, despite the near-term disruption to economic performance caused by the outbreak.

The U.S. consumer is in very good shape. Labor markets are historically strong and consumer net worth was at a record high heading into the outbreak. Our financial system is sound with healthy banks.

The global economic backdrop was also improving heading into this crisis. These should be positive factors once the virus outbreak subsides.

The Federal Reserve is acting decisively to calm market volatility. The Fed has swiftly cut the federal-funds rate to a range between 0% and 0.25%, down 1 percentage point. The Fed also stated that they will buy $700 billion in Treasury and mortgage-backed securities, among other actions. We are also seeing an aggressive response from other global central banks.

China, the epicenter of the coronavirus outbreak, has drastically reduced the daily number of new cases and its economy is showing signs of normalizing. China is providing significant economic stimulus to its economy that should speed its recovery. This should ultimately benefit surrounding economies.

The lesson from prior bouts of market volatility is that markets ultimately recover. Despite average intra-year drops of 14%, the S&P 500 produced positive annual returns in 30 of the last 40 years with average total returns over that period of 10.1%. The enormous central bank and government policy response that we are seeing is encouraging.

An eventual peak in the number of new virus cases is a potential catalyst for a sustainable stock market advance. In the SARS crisis of 2003, markets troughed a week after the peak in daily infection rates.

We continue to advocate owning a well-diversified portfolio with the proper exposure to stocks and other risk assets. We remain favorable toward Technology and Health Care where we see positive secular trends. We also favor housing-related stocks, especially after the recent fall in interest rates.

This situation is obviously very fluid – stay tuned for future communications as circumstances evolve.

Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment.

This report is provided for informational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis.

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