A MESSAGE FROM DELEGATE REGARDING COVID-19

Watching the Coronavirus

We are actively watching the current market volatility and sell-off in global equity markets. As you know, it has been our recent opinion that the equity markets were highly valued, and over the last year equity markets have become even more overvalued. We have been concerned that any type of shock, be it economic or exogenous, would cause substantial volatility and downward pressure on markets. Thus while the cause of this current pullback is unexpected (the coronavirus), the resulting pullback is not.

While the recent declines in the market may appear alarming at first glance, the S&P 500 has only decreased to levels seen during the second quarter of last year. We would not be surprised to see the market decline further as global uncertainty surrounding the coronavirus increases. It is also important to remember that while the stock market has declined this week, short-duration, high-quality bond prices have generally either held their value or have increased in value as investors have sought less risky assets. The yield on the 10-year US T-Notes and 30-year US T-Bonds are at all-time lows. These are a good barometer for market uncertainty. If market volatility persists, we would not be surprised if these yields fell further.

Given what we have learned thus far, we believe the impact of the virus may be significant, and we are glad that we have counseled our clients to maintain equity allocations that are at or below the target levels of their strategic asset allocations.

At this time, we are not recommending that clients sell equities given the tax friction and our long-term investment approach. We are monitoring the market for opportunities to buy risk assets once we see valuations at compelling levels and some abatement of market uncertainty.