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

With market volatility at an extreme, we are beginning to see the early impact of the economic shock being delivered by the efforts to combat the spread of the coronavirus. In response, we are seeing an equally historic effort by global policy makers to combat the economic fallout, with new policy announcements almost daily.

Already announced global stimulus packages amount to more than $3.0 trillion dollars or 4% of global economic output. The U.S. is finalizing a fiscal stimulus plan estimated at $2.0 trillion. This plan will include checks to individuals, small business loan forgiveness, big business lending support, and corporate tax relief. We expect an imminent announcement of a final stimulus bill which will help mitigate the impact of the economic shock to business and consumers.

The Federal Reserve and other central banks are also acting quickly and aggressively by dropping interest rates to ultra-low levels and implementing asset purchase programs to help credit market liquidity. Just this morning, the Federal Reserve came out with an unprecedented set of measures aimed at restoring market functioning and cushioning the economic blow of the virus.

The Fed now has a completely open-ended asset purchase program. In one of many firsts, the Fed established a facility to buy corporate securities directly from issuers where interest payments can be deferred for six months (or longer at the Fed’s discretion). They will also buy corporate securities in the secondary market, including exchange-traded funds. This is the first time the Fed steps into the equity market. They have also announced programs that will more directly help consumers, small businesses, and municipalities.

It is encouraging to see this rapid response to the crisis and these measures should ultimately stabilize the economy and financial markets. We anticipate volatility will persist until there are signs that efforts to contain the virus are successful. We are in favor of maintaining a conservative investment profile until we see stabilization in economic and financial market indicators.

Meanwhile, we are seeing initial downward earnings estimates that are giving an early indication of the hardest hit industries. Revised estimates are now showing negative earnings growth of 4% for the S&P 500 Index. Energy (-64%), Industrials (-15%), and Consumer Discretionary (-14%) are leading the downward revisions. Health Care (+14%) has seen a significant upward revision to its earnings. Technology (+4.2), Consumer Staples (+3.0), Utilities (+2.0), and Communications (+2.0) are also still expected to see positive earnings in 2020.

While we expect more downward earnings estimates, these readings give an early indication of which sectors could be hardest hit and which may fare better. So far, defensive sectors like Health Care, Consumer Staples, and Utilities sectors have fared better. Technology and Communication sectors, where we see many long-term secular themes, could benefit patient investors. Travel- and tourism-related industries and many other retailers and restaurants are seeing significant stress on their business models.

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

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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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