MARKET UPDATE - MARCH 5TH

Given all that is going on in the market, we want to provide you with our thinking regarding Covid-19, the upcoming Presidential election and current market volatility as of close of business on March 5th. With respect to Covid-19, uncertainty remains as to how widespread the virus will become, if the warmer weather will end the threat, or if the virus returns next flu season after a period of dormancy. We do, however, believe that advances in medicine, detection and communication have the world in better stead than the period of the Spanish Flu. As far as Knights of Columbus Asset Advisors is concerned, thus far Connecticut (zero) and Massachusetts (three) have had limited instances of confirmed cases and our entire operation can work remotely as our trading platform is cloud based and we are all equipped with remote access. I certainly believe it won’t come to such a measure but rest assured, we are ready to operate remotely if the need arises.

We continue to have volatility in the market as we saw the S&P 500 rise on March 4th by 126.75 points, representing a +4.22% move, to then reverse on March 5th and close down 106.13 points, a -3.39% decline. Since the start of the virus concern, the 10-year Treasury broke through 1.00% for the first time ever and closed at 0.92% on March 5th. The market was initially soothed by the announcement that the U.S. would spend $8 billion for virus protection and the diminished prospects of the leading socialist candidate for President. We do believe that the broad market is not enthused by a Bernie Sanders candidacy/Presidency and the thought of Joe Biden as the Democratic nominee seemed more palatable to the market. We think there will be more volatility as the virus ebbs and flows and we move forward with the election cycle. We expect this type of volatility to remain until there is a clearer picture on the containment of the virus.

After the strong returns of 2019, we have been on the record that we thought the equity market was at least fairly valued and there was certainly the potential that some of the 2020 equity returns were enjoyed during 2019. Further, our long-held approach of patient, long-term investing has not abated. We believe that developing a long-term strategic asset allocation, revisiting that allocation at least annually, regular rebalancing, and shifting allocations when strategic circumstances change remains the most solid approach to asset management. I have said facetiously many times that I am smart enough to know that I am not smart enough to time the markets.

We are acutely watching the Federal Reserve (“Fed”) and were less than enthused by the recent rate cut. The concern is that if the Fed is cutting rates, do they know something that the market does not. This market doesn’t need lower rates, it requires economic confidence. Businesses invest in growing their productive capacity when they believe that the demand will grow. Individuals buy cars, houses and other major expenditures when they have confidence in their own economic situation. It is confidence and spending that causes the flow and velocity of money and leads to economic prosperity. I have long held we need to get the Fed out of the markets and the more confident the broad economy is the more prosperous we will all be. We do not believe negative rates will afflict the U.S., but rates can certainly go lower, before they move higher.

We are vigilant in watching the markets and managing portfolios. We believe that, like many things, this flu will pass. The election will certainly cause volatility and there could always be another surprise around the corner. Please feel free to reach out to any of us here at KoCAA if you would like to discuss your asset allocation or the markets in general. We remain humbled by your trust in us and continue to work hard on your behalf each and every day.