Observations and Actions in Light of Recent Market Activity

March 6, 2020

This week saw several more days of volatile moves up and down, and it looks like stock markets will be ending the week at about the same level at which they began. The markets are continuing to try to determine how much economic damage is being done by COVID-19, and market volatility is likely here to stay until more clarity is evidenced.

Here are the factors we believe are most important to consider:

• Global economic growth rates are expected to decline this year causing a substantial reduction in corporate earnings’ expectations. However, this is likely temporary and many companies are forecasting a recovery in 2021.

• Interest rates on the 10-year U.S. Treasury are now under 1%. This is unprecedented in the U.S and shows that bond investors are concerned about the health of the economy. Bond yields though have been falling for years. This should be a boon to the housing market and other interest rate sensitive sectors.

• Markets in the country hardest hit by the coronavirus, China, have actually held relatively steady over the last few weeks.

At Exencial we see the following as potential actions in response of recent changes:

• The funding for account withdrawals should be taken from cash and fixed income positions to avoid selling stocks at these prices.

• Available cash not set aside for distributions may opportunistically be used to purchase equities at now lower market valuations.

• The harvesting of tax losses could be executed in taxable accounts as certain securities with losses are swapped for similar investments.

• Certain companies have had their stocks driven down despite little current exposure to COVID-19 effects and risks, generating opportunities for us to make portfolio adjustments.

• On the planning side, lower equity prices create a window for potentially more effective Roth conversions and gifts to family members.

As we noted, volatility is likely to persist until we being to get better understanding around the outbreak and the effect on the economy. We may though find this volatility presents us with an opportunity to take action in certain circumstances. As always if you have any questions about markets or these transactions please let your advisor or the Investment Team know.

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