We Look For Vulnerabilities, Not Triggers.

Sapient Investment Committee

February 29, 2020

We look for vulnerabilities, not triggers.
-James Athey, Senior Manager at Aberdeen Standard & regular financial commentator on Bloomberg TV

Global stock markets sold off violently the past week and a half following news about the novel
coronavirus (Covid-19) spreading now to more than 50 countries outside of China, including clusters of
cases in South Korea, Italy, Iran, and Japan.

1 The S&P 500 fell from its all-time closing high on Wednesday,
February 19th, down into “correction” territory (decline of more than 10%) at a record-setting pace of just
six trading days,

2 and it continues to trend closer towards “bear market” territory (decline of more than

20%) as we pen this letter. As we wrap up the S&P’s worst week since 2008,

3 all equity market gains for
2020 have been wiped away and then some as global investors sell out of stocks to buy safe haven assets
like gold and U.S. Treasuries. Meanwhile, the U.S. Centers for Disease Control and Prevention warned this
Tuesday of the risk of the virus spreading within our own borders,

4 and yesterday the World Health

Organization said the outbreak is on the verge of being upgraded to a pandemic.

5 Futures markets are

predicting the Federal Reserve will start cutting interest rates again as early as its next meeting in mid-
March, and President Trump requested $2.5 billion in emergency funding from Congress to combat the

virus.
6 Economists are estimating that as much as $1 trillion of global GDP could be lost as a result of the
outbreak;
7 CNBC reports global stock markets have already shed $6 trillion of value in response.
8

These are concerning times for many, and Covid-19 presents real potential human consequences. Our
thoughts are with those directly impacted. Providing investment commentary during tragic events feels
somewhat insensitive, but in our role as fiduciaries we believe it is important to share our perspective with
you in light of the outbreak’s impact on financial markets. At Sapient, we came into 2020 feeling the

markets were priced for perfection with stocks, bonds, and consumer confidence all sitting close to all-
time highs. It appears many found the market’s enthusiasm contagious,

9 but we remained guarded as the
markets felt fragile and overbought. We weren’t sure what would cause the next correction, but we
believe corrections are an inevitable part of both market and business cycles and so, to paraphrase James
Athey above, we focus our energy on looking for vulnerabilities rather than triggers. Covid-19 seems to be
the surprise trigger this time – and some pundits suggest it could remain a headwind for markets through
the spring and possibly summertime7 – but at Sapient we have been conservatively positioning client
portfolios for precisely these types of market events. We sensed a storm on the horizon, though
admittedly we didn’t know where or when the lightning would strike; we never do. Which is in part why
investing is so challenging, and why it’s important to build diversified portfolios and maintain discipline in
regards to rebalancing and risk management. This is not the first health epidemic markets have had to
navigate in recent decades, as illustrated below, and it’s unlikely to be the last.

Global stock markets sold off violently the past week and a half following news about the novel
coronavirus (Covid-19) spreading now to more than 50 countries outside of China, including clusters of
cases in South Korea, Italy, Iran, and Japan.

1 The S&P 500 fell from its all-time closing high on Wednesday,
February 19th, down into “correction” territory (decline of more than 10%) at a record-setting pace of just
six trading days,

2 and it continues to trend closer towards “bear market” territory (decline of more than

20%) as we pen this letter. As we wrap up the S&P’s worst week since 2008,

3 all equity market gains for
2020 have been wiped away and then some as global investors sell out of stocks to buy safe haven assets
like gold and U.S. Treasuries. Meanwhile, the U.S. Centers for Disease Control and Prevention warned this
Tuesday of the risk of the virus spreading within our own borders,

4 and yesterday the World Health

Organization said the outbreak is on the verge of being upgraded to a pandemic.

5 Futures markets are

predicting the Federal Reserve will start cutting interest rates again as early as its next meeting in mid-
March, and President Trump requested $2.5 billion in emergency funding from Congress to combat the

virus.
6 Economists are estimating that as much as $1 trillion of global GDP could be lost as a result of the
outbreak;
7 CNBC reports global stock markets have already shed $6 trillion of value in response.
8

These are concerning times for many, and Covid-19 presents real potential human consequences. Our
thoughts are with those directly impacted. Providing investment commentary during tragic events feels
somewhat insensitive, but in our role as fiduciaries we believe it is important to share our perspective with
you in light of the outbreak’s impact on financial markets. At Sapient, we came into 2020 feeling the

markets were priced for perfection with stocks, bonds, and consumer confidence all sitting close to all-
time highs. It appears many found the market’s enthusiasm contagious,

9 but we remained guarded as the
markets felt fragile and overbought. We weren’t sure what would cause the next correction, but we
believe corrections are an inevitable part of both market and business cycles and so, to paraphrase James
Athey above, we focus our energy on looking for vulnerabilities rather than triggers. Covid-19 seems to be
the surprise trigger this time – and some pundits suggest it could remain a headwind for markets through
the spring and possibly summertime7 – but at Sapient we have been conservatively positioning client
portfolios for precisely these types of market events. We sensed a storm on the horizon, though
admittedly we didn’t know where or when the lightning would strike; we never do. Which is in part why
investing is so challenging, and why it’s important to build diversified portfolios and maintain discipline in
regards to rebalancing and risk management. This is not the first health epidemic markets have had to
navigate in recent decades, as illustrated below, and it’s unlikely to be the last.

Sources

Global stock markets sold off violently the past week and a half following news about the novel
coronavirus (Covid-19) spreading now to more than 50 countries outside of China, including clusters of
cases in South Korea, Italy, Iran, and Japan.

1 The S&P 500 fell from its all-time closing high on Wednesday,
February 19th, down into “correction” territory (decline of more than 10%) at a record-setting pace of just
six trading days,

2 and it continues to trend closer towards “bear market” territory (decline of more than

20%) as we pen this letter. As we wrap up the S&P’s worst week since 2008,

3 all equity market gains for
2020 have been wiped away and then some as global investors sell out of stocks to buy safe haven assets
like gold and U.S. Treasuries. Meanwhile, the U.S. Centers for Disease Control and Prevention warned this
Tuesday of the risk of the virus spreading within our own borders,

4 and yesterday the World Health

Organization said the outbreak is on the verge of being upgraded to a pandemic.

5 Futures markets are

predicting the Federal Reserve will start cutting interest rates again as early as its next meeting in mid-
March, and President Trump requested $2.5 billion in emergency funding from Congress to combat the

virus.
6 Economists are estimating that as much as $1 trillion of global GDP could be lost as a result of the
outbreak;
7 CNBC reports global stock markets have already shed $6 trillion of value in response.
8

These are concerning times for many, and Covid-19 presents real potential human consequences. Our
thoughts are with those directly impacted. Providing investment commentary during tragic events feels
somewhat insensitive, but in our role as fiduciaries we believe it is important to share our perspective with
you in light of the outbreak’s impact on financial markets. At Sapient, we came into 2020 feeling the

markets were priced for perfection with stocks, bonds, and consumer confidence all sitting close to all-
time highs. It appears many found the market’s enthusiasm contagious,

9 but we remained guarded as the
markets felt fragile and overbought. We weren’t sure what would cause the next correction, but we
believe corrections are an inevitable part of both market and business cycles and so, to paraphrase James
Athey above, we focus our energy on looking for vulnerabilities rather than triggers. Covid-19 seems to be
the surprise trigger this time – and some pundits suggest it could remain a headwind for markets through
the spring and possibly summertime7 – but at Sapient we have been conservatively positioning client
portfolios for precisely these types of market events. We sensed a storm on the horizon, though
admittedly we didn’t know where or when the lightning would strike; we never do. Which is in part why
investing is so challenging, and why it’s important to build diversified portfolios and maintain discipline in
regards to rebalancing and risk management. This is not the first health epidemic markets have had to
navigate in recent decades, as illustrated below, and it’s unlikely to be the last.

Sapient Private Wealth Management
101 E Broadway
Suite 480
Eugene, OR 97401

(541) 762-0300
info@sapientpwm.com