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Trust Building

Important Market Update from Capital City Trust Company

July 23, 2020

Dear Valued Trust Client:

As the country emerged from the strict, virus-controlling lockdown measures of April and much of May, the early economic, health and stock market results of the reopening exceeded many of even the most optimistic expectations. The economy added a total of seven and a half million jobs in the months of May and June when average estimates called for an additional four million jobs to be lost. The S&P 500 gained 10 percent from the start of May through the end of the second quarter. And most importantly, the increased population mobility and economic activity occurred without a significant spike in the number of new virus cases.

However, much has changed as we begin the third quarter of 2020. The country is currently in the midst of a virus resurgence that, by early indications, has already begun to slow the impressive economic momentum of May and June as voluntary and involuntary virus-control measures reemerge. Some are optimistic that any potential second round of control measures will be less economically inhibiting as lessons learned from the initial lockdowns are applied to achieve results more efficiently. Whatever the path forward, it seems likely that the much-anticipated second half of 2020 economic rebound will be delayed to some degree. As companies across the economy report second quarter earnings, our investments team will monitor the forward-looking guidance offered by management teams to gauge the progress of recovery.

While the near-term economic outlook has deteriorated somewhat, you will not find any evidence of deterioration in the recent returns of the stock market. After the stellar returns of May and June, the market has risen another three percent through the first two weeks of July. Market optimism in the face of rising virus cases likely has two sources. First, there is growing confidence that effective COVID-19 treatments and potential vaccines may be in place by early 2021, if not sooner. Second, the next round of economic relief/stimulus is likely to be passed in two to four weeks. Current estimates suggest the final agreed-upon stimulus package will be in the range of one to one and a half trillion dollars. The package is likely to extend federal unemployment benefits set to expire at the end of July, albeit at a lower level. The package is also likely to target small businesses and state and local governments, plus include additional direct stimulus payments.

While concern is rising over the substantial increase in the national debt from the multiple relief/stimulus packages, it is worth noting that the ultra-low interest rate environment makes servicing the increased debt much more manageable in the near-term. Expect the long-term consequences of this massive debt issuance and how to deal with them to be a central issue in the upcoming election. Our team anticipates elevated market volatility as November draws near. Yet the lack of concern over the election outcome reflected in the market thus far may indicate the market expects urgent economic and health priorities of the pandemic to limit any significant policy changes, no matter the election outcome.

As ever, your Capital City Trust Company team remains focused on your long-term investment success and is available should you have additional questions or concerns. Thank you for choosing Capital City Trust Company.


William L. Moor Jr.



May 12, 2020

Dear Valued Trust Client:

Through the first full week of May, the stock market as measured by the S&P 500 has rallied nearly 33 percent from its low on March 23. The “impressively aggressive” fiscal and monetary easing packages enacted in early April have, up to this point, been extremely effective stabilizing and supportive forces for the stock market.

In the face of record unemployment, a staggering drop in economic activity and a rapidly ballooning fiscal deficit, the equity market has staged the sharpest bear-market rebound since 1970. Much of the rebound can rightly be attributed to the overall decrease in financial system risk and the ultra-low interest rate environment brought about by the government’s swift and substantial actions. It would also be correct to assume that dramatic public-safety measures in recent weeks have not only proven effective for slowing the growth rate of global coronavirus infections, but also warranted some degree of equity appreciation.

However, at current levels, the market is discounting a significant earnings recovery in the second half of the year that is dependent on a timely and sustainable reopening of the economy. As reopening plans commence across many parts of the country and social-distancing measures are relaxed, the risk of reaccelerating infection rates will grow. A significant spike in infection rates could lead to the reinstitution of economic-inhibiting, virus-control orders and jeopardize future reopening attempts. Such a setback also would dampen earnings expectations and may lead to another round of selling in equity markets.

In addition to the risks outlined above, we are monitoring the potential reescalation of tensions between the U.S. and China and the likely increase in volatility and uncertainty as we move closer to the November general election. We continue to be cautious and believe a defensive posture remains prudent until we see evidence that economic activity can improve without a corresponding increase in virus transmissions.

Your long-term investment success remains our focus, and we are available should you have questions or concerns. Thank you for choosing Capital City Trust Company.



April 3, 2020

Dear Valued Trust Client:

While uncertainty remains high surrounding the economic consequences and infection arc of the current COVID-19 pandemic, financial markets have seen some degree of stabilization. Market stabilization, albeit at considerably lower levels, is due in large part to the more than $2 trillion U.S. relief package recently enacted by Congress and the actions of the Federal Reserve.

The fiscal and monetary easing packages seem to have successfully addressed three near-term critical issues. First, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides much-needed income support to individuals by expanding, extending and increasing unemployment benefits, along with providing direct payments. Second, the relief package provides financial support to the business community, both small and large, in the form of grants, loans and tax relief that should reduce near-to-intermediate term risk of large-scale business failures. Finally, the announcement and implementation of a multitude of Federal Reserve facilities designed to enhance liquidity across fixed-income markets reduces the risk that the sharp downturn in economic activity will cause lasting systemic damage to the financial system.

The size and scope of the policy response have generally been regarded as “impressively aggressive.”  However, the positive economic effects of the relief package are not likely to materialize until a recovery is underway—hopefully in the third quarter of this year. Economic output in the second quarter is currently expected to drop 10% on a quarter-over-quarter basis and may yet be revised downward.  Where consensus expectations only a week ago were for a rapid “V shaped” economic recovery in the second half of the year, a “Nike Swoosh” shaped prolonged recovery has since become the more accepted view.

Other notable, positive global developments have also occurred. Russia and Saudi Arabia are considering a plan to decrease oil production, which could alleviate some of the strain on the domestic oil industry and curb potential defaults. The Chinese economy is showing signs of a significant rebound following what they anticipate was the worst of their infection period. A strong Chinese economic rebound would provide confidence that other parts of the world economy can rebound quickly once infections subside. Lastly, equity markets have taken the record-breaking initial jobless claims of the last two weeks in relative stride and that is a sign the markets have already “priced in” a difficult employment and economic environment.

The most important indicators remain the rate of infections and consequently, the duration of economic-inhibiting social distancing measures. While we are encouraged by recent national policy responses and signs of a Chinese economic rebound, we believe a defensive posture remains prudent given the potential for negative revisions to current expectations.

As always, your Capital City Trust Company team remains focused on your long-term investment success and is available to you should you have additional questions or concerns. Thank you for choosing Capital City Trust Company.


March 20, 2020

Dear Client,

The emerging coronavirus pandemic has caused the outlook for financial markets and the global economy to change dramatically in just a few short weeks. Where we began the year with a strong economy and a trade deal with China to bolster markets, we now have a high level of uncertainty as to the duration and depth of the economic consequences of COVID-19.

The measures required to curtail the spread of the virus have and will continue to have economic effects the markets are struggling to estimate. 2020 earnings estimates for the S&P 500 have gone from up 5%, to flat, to down 5% in less than three weeks, and could potentially be revised lower. The uncertainty around earnings and the global policy response, combined with a surprise oil price war, has pushed volatility to extremely elevated levels that are likely to persist until additional clarity around the duration of the infection growth period emerges.

In response to the current environment, our investment team began adjusting equity weightings within client portfolios to target or below target levels in early March. We are leveraging our relationships with world-class research firms to continually monitor the evolving investment landscape and will make additional adjustments as conditions warrant.

At current levels, the stock market is discounting a “garden variety” recession through the second and third quarters of 2020, with a sharp rebound in demand in the fourth quarter. Such a sharp rebound in demand and earnings has been a characteristic of previous event-driven bear markets and recessions. It is reasonable to expect the stock market to “price in” the recovery long before the evidence of the recovery becomes readily apparent. We also recognize the effects of the pandemic could be deeper and longer lasting than markets are currently expecting, and we remain flexible and ready to reduce risk exposures as additional evidence presents itself.

It is also worth noting that our commitment to investing in investment-grade fixed-income securities and high-quality companies with solid balance sheets and sustainable competitive advantages should continue to aid relative performance versus broad-market benchmarks during this time of market stress and potential credit illiquidity.

Your Capital City Trust Company team remains focused on your long-term investment success and is available to you, as always, should you have additional questions or concerns.