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Coronavirus rattles investors

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Our market narrative remains intact

The outbreak of a coronavirus, a pneumonia-like virus similar to SARS (Severe Acute Respiratory Syndrome), has rattled investors this week. The situation is rapidly evolving – at the time of this writing reported cases of the virus have spread from the origin city of Wuhan, China to two confirmed cases in the U.S. and two in France. Our thoughts go out to the affected individuals and families. China is reporting over 900 cases including 26 fatalities.

News of the virus contributed to increased volatility in foreign emerging market equities and in global demand-sensitive commodities like crude oil and industrial metals earlier in the week. Concerns about its spread to the U.S. and Europe contributed to a further drop in equity prices today, including U.S. equities. U.S. treasury notes, considered a safe haven in times of crisis, rose in price to the highest levels seen since October.

In response to the outbreak, the Chinese government enacted strict travel restrictions in 12 cities including Wuhan, impacting 35 million people. The quarantine situation comes ahead of the high-traffic Lunar New Year holiday in China and is anticipated to significantly disrupt tourism and impact consumer spending. A further spread of the virus and the resulting steps taken by governments to control its spread could have a material effect on demand and potentially curtail 2020 economic growth.

While we continue to monitor this rapidly evolving situation closely, we maintain our constructive view on global growth prospects and global equities. The World Health Organization (WHO) has yet to declare an international public health emergency and governments have taken aggressive measures to combat the virus. While the U.S. Center for Disease Control (CDC) believes that the immediate risk to the U.S. public is low, it has mobilized an aggressive response and continues to screen travelers for any signs of infection. For now, we believe the global and domestic economic impact from the virus will prove transitory.

Historical perspective

The 2002 – 2003 SARS outbreak, which also emerged from China, provides some historical perspective. Like the coronavirus, SARS spread through the air such as when an infected person coughs or sneezes. SARS rapidly proliferated worldwide, eventually infecting over eight thousand people and resulting in 774 deaths.

The initial cases of SARS appeared in Guandong, China in November 2002. However, China delayed reporting the SARS outbreak until February 2003 and the WHO finally issued a global alert on March 12 of that year. From the first official report of the SARS virus on February 14th 2003 to July 5th, 2003 when the WHO removed the last travel restrictions from affected areas, emerging market equities returned a positive 25 percent and the S&P 500 was up 19 percent. While past performance is not indicative of future results, we also note that while China delayed its reporting of the SARS outbreak to the World Health Organization, it has appeared to take a more globally proactive approach to counteract the coronavirus’s spread.

The situation continues to develop rapidly, and we will provide updates if it impacts our capital market views. For the time being, we encourage investors to remember the value provided by diversification across asset classes and regions. We firmly believe that commitment to a disciplined financial plan can improve investment outcomes and help investors meet their personal goals. As always, we are happy to answer any questions about the situation and its risks to portfolios and we thank you for giving us your trust to manage your hard-earned capital.


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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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Important Disclosures

Investment products and services are: 
NOT A DEPOSIT  •  NOT FDIC INSURED  •  MAY LOSE VALUE    NOT BANK GUARANTEED   NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

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