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Trust Building

Important Market Update from 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.

Sincerely,

William L. Moor Jr.

President