For all of us, this is not only an uncertain time, but also unsettling.  A strong sense of collective responsibility and action from our markets and Government is key to navigating this well. We are continuing to monitor this on your behalf.  We wanted to let you some of our thoughts on the markets:

• Our nation’s collective response to this crisis is to act swiftly to address it head-on rather than kicking the can down the road. While the economic pain from drastic social distancing measures will be acute and widespread, it also provides the best possibility of crushing this outbreak and limiting the length of disruption and the pressure on our health care system. Since the Federal government waived the FDA limits on testing, and states can use public and private labs, the number of people being tested will increase and the number of known cases will also increase, probably dramatically over the next couple of weeks at least.  Hopefully, the dramatic actions being taken by many state and local governments will help blunt the spread and allow the rise in new cases to plateau while limiting the strain on our healthcare resources.   
• The U.S. financial system remains strong to withstand pressures while still providing access to credit. The U.S. acted swiftly to address the financial system turmoil left in the wake of the Global Financial Crisis of 2008 by immediately requiring banks to write-off bad loans that had a low chance of being recollected and to recapitalize their balance sheets following those losses. As a result of those actions and tighter regulations, our financial system was rebuilt far stronger than before the recession to continue to lend and stay solvent during periods of stress like we find ourselves in today. Though banks will be pressured by clients drawing down excess availability on their lines of credit to make up for the expected short-term losses in operating income, they remain very well capitalized to cover losses and the Federal Reserve has stepped in with several measures to ensure that banks can continue to provide liquidity.
• Credit markets continue to be a key bellwether. Daily credit markets assist in keeping capital available to banks and ultimately businesses here in the U.S. and around the world. This is not 2008, when the liquidity across all credit markets froze, but we are seeing some stress and will be monitoring closely for further signs of deterioration in these markets. We are watching overnight lending rates, credit spreads, the ability of commercial paper markets to stay open and nimble, and drawdowns on lines of credit.  Your investment team is paying close attention, so that we can continue to provide you with the best possible advice.
• The U.S. economy entered this crisis from a place of relative strength. Prior to this outbreak, unemployment sat near 50-year lows at just 3.6%. We will likely see unemployment begin to rise near-term, particularly in the retail, restaurant, travel, and hospitality industries, but there have been few mass layoffs in the U.S. so far. Cutting staff hinders a company’s ability to recover, which can be more damaging to the organization in the long-run, so many companies prefer to reduce hours and limp along with a couple quarters of extra wage expense if possible.
• China may serve as a bellwether in determining the duration of disruption. The month-long shutdown in China appears to have been effective in reducing the pace of transmission among its population, but it did not come without a price on short-term economic activity. China’s business activity in the first two months of the year contracted compared to the prior year for the first time on record with factory output falling -13.5% and retail sales plummeting -20.5%. However, the rate of infection continues to slow in China as the number of reported active cases has fallen to under 10,000 today, which is just 17% of the total active cases at the peak in mid-February. China is not yet in the clear as the pace of resumption of economic activity remains slow, but we will continue to monitor its progress, as well as that of other nations like South Korea and Italy.
• For high quality companies with strong balance sheets that we invest in for your portfolio, price volatility does not equal risk of capital loss unless it causes investors to shorten their perspective and react by selling at poor prices. Our investment team focuses on solid balance sheets, abundant and consistent cash flow, dividends and the ability to grow dividends, and sustainable, understandable businesses and business models.
• There is a wide range of possible outcomes.  While it appears increasingly likely that the global economy, including the U.S., will be pushed into recession as a result of the coronavirus outbreak disruption, the length and depth of the downturn is unknown.  We may see a slower U-shaped recovery rather than a quick V-shaped recovery.  The very nature of this crisis is highly unpredictable.  Other outbreaks or events have had very small effects, while others produce a much more dramatic effect.  Fears about the oil price war and the U.S. election have also have magnified the effects of COVID-19.  

At First Merchants Private Wealth Advisors we stand ready to guide our clients through these difficult times and keep in mind that the “Business of America IS Business” . We will stay vigilant and continue to provide you the best possible advice to assist you in meeting your long term investment goals.