About the Markets

Greetings,

Unless you’ve been sequestered as a juror or have otherwise been off the grid, it’s likely you’ve heard that the coronavirus, or more accurately the various responses to the virus, have been impacting the global economy and hence the prices of your investments. It appears more likely each passing day that this will become a global pandemic, but much like our own body’s immune system, our collective reactions may cause more harm than the disease itself. While there’s much to learn about this new virus, it looks like the fatality rate is about 2% overall, with healthy populations faring better. While every death is regrettable, this disease’s impact is likely fleeting, without permanent structural changes to societies, families, or workforces.

For some time, we’ve been tracking the progress of the US and world economies and noted many signs that we are in a mature stage of the growth cycle, with every indication being that while some major economies (US & China) are still growing, the rate is slowing. This is normal and expected after the long recovery from the bottoms of 2009, but it’s been recently exacerbated by the tariff battles. The various, and mostly rational, responses to the spread of the coronavirus are hampering international trade and will further suppress growth around the world, possibly pushing more economies into recession. The US economy is on better footing than most with strong employment, a huge internal consumer market, and access to most other markets on the planet. It’s generally a nice place to live too. We’ll note though, that stocks are expensive, and a little healthy doubt about where things are headed may just be the catalyst to help them get cheaper. We’ve been preparing for this by reducing equity exposure, selling stocks we view as too expensive, buying more income producing positions, and applying strict valuation criteria in our buy decisions. Our focus on risk management will not spare us from all the whims of the market, but it should bring you some comfort that wherever things go from here, you’ll have a reasonable experience.

I’ll add that the stock market has been quite robust, so much so that even after the selloff of the past few days the S&P 500 Index is within 6% of all-time highs, and at the price it was in early December.

I welcome your comments and concerns, so please feel free to call, stop by, or reply to this message.

Thank you for your continued trust.

Your Cairn Team