Market Update May 8, 2020

There are four things underpinning the potential for the stock market to recover from our perspective:

1. Direct Government Support - Governments around the world have committed to unprecedented levels ofsupport for their economies. There is little, if any, opposition to governments spending billions and even trillionsof dollars through aid packages to consumers and businesses. The United States alone may add $2-3 trillion in aid packages for COVID-19 through various measures.

2. Central Bank Accommodation - Global Central Banks have also provided unprecedented support for the markets, by dropping rates to basically zero and ballooning their balance sheet by purchasing debt to stabilize the credit market. Having the major central banks (lenders of last resort) support the money and bond markets allows investors to sell their less attractive bond investments and reallocate into stocks. Chart 1 on the next page, illustrates how central banks around the world have increased their balance sheets by over $6 trillion dollars.

3. The Search for Returns - To fund all of the fiscal and monetary support above, governments around the globe are issuing massive amounts of debt (bonds). This will lead to an oversupply of bonds and values will fall. This in turn will push more money to equities.

4. Election Cycle - This is an election year in the U.S. Traditionally, these years have been positive for investors. The incumbent President will do as much as possible to spur the markets on to new highs to help keep him in the White House.

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