Financial Market Review

April 30, 2020

Jason T. Deitz, CFA – Senior Vice President & Chief Investment Officer [email protected], 715-422-0225 As of APR 30 Trailing Twelve-Month Review 2020 Concerns regarding the Coronavirus, oil and interest rates have contributed to increased market volatility.

1 2 3 4

8.2% -1.0% -11.3%

U.S. Stocks Developed International Stocks Taxable Bonds

1 January 16 The United States and China reach a Phase 1 trade deal. 2 January 31 The United Kingdom officially withdrawals from the European Union, often referred to as Brexit. 3 February Concerns grow the Coronavirus may become a pandemic and materially impact the global economy.

4 March 27 Congress passes the Coronavirus Aid. Relief, & Economic Security (CARES) Act.

Selected Benchmarks: U.S. Stocks: Russell 3000; Developed International Stocks: MSCI EAFE Taxable Bonds: Barclays Intermediate Government/Credit. Sources: The Wall Street Journal, Morningstar, Inc. TR12-20200501-M Investment Themes “In the short run, the market is a voting machine but, in the long run, it is a weighing machine.” - Benjamin Graham

Global Economic Recession Likely • The Coronavirus has triggered massive disruption of business activity across all sectors. • This disruption comes on the heels of a record 10 years of expansion, primarily supported by a strong consumer. • Oil markets have been rattled by both a decrease in demand and supply tension between OPEC and Russia.

Interest Rates • U.S. Treasury yields have fallen while credit spreads have widened on corporate and municipal debt. • The Federal Reserve introduced a series of monetary policy measures to promote smooth market functions. • Negative interest rates have been seen across the G7 Nations, including very short U.S. Treasuries.

Coronavirus Aid, Relief & Economic Security (CARES) Act • At $2.2 trillion, the largest ever fiscal stimulus package was signed into law on March 27, 2020. • Provides direct support to individuals, families, hospitals, small businesses and a number of industries. • The Paycheck Protection Program helps fund the operational costs of eligible businesses.

Questions Going Forward • To what extent will the Coronavirus impact the economy, unemployment and corporate earnings? • How effective will fiscal and monetary policy be in both the short and long run? • How will consumer behavior be impacted by Coronavirus?

THEM-20200330-N As of MAR 31 Bear Markets and Drawdowns 2020 There have been ten bear market declines of 20% or more since 1920. Most of these have been related to recessions, wars or credit bubbles.

S&P 500 Declines from All-Time Highs Bear Market Decline from Market Cycle Peak Duration All-Time Commentary Corrections (Months) High Great Depression Aug. 1929 33 -84% Excessive leverage, irrational exuberance 1937 Fed Tightening Feb. 1937 63 -74% Premature monetary tightening Post WWII Crash May 1946 37 -54% Post-war demobilization, recession fears Flash Crash of 1962 Dec. 1961 7 -22% Flash crash, Cuban Missile Crisis Tech Crash of 1970 Dec. 1968 18 -29% Economic overheating, civil unrest Stagflation Dec. 1972 21 -43% OPEC oil embargo Volcker Tightening Nov. 1980 21 -19% Extremely high rates to reign in inflation 1987 Crash Aug. 1987 3 -27% Program trading, overheated market Tech Bubble Aug. 2000 31 -42% Extreme valuations, mostly in tech stocks Global Financial Crisis Oct. 2007 17 -51% Leverage, housing, Lehman collapse COVID-19 Feb. 2020 ? -34% Global Coronavirus pandemic and shutdown Average -44%

Source: Standard & Poor’s, NBER, FactSet, Robert Schiller, J.P. Morgan Asset Management. *A bear market represents a 20% or more decline from the previous market high. BEAR-20200505-N As of MAR 31 The Stock Market Since 1900 2020 With a disciplined plan investors can benefit greatly from staying the course when markets are volatile and uncertainty is high. Since 1900, stocks have produced approximately a 10% annualized return.

COVID-19

Tech Bubble

1987 Crash Global Financial Crisis

Tech Crash Flash Crash Volcker Great Depression Stagflation Tightening

Fed Tightening

WWII

Source: JPMorgan Asset Management, Robert Shiller, FactSet. Log Scale S&P Composite Index 1900-20200505-A As of MAR 31 Bond Returns in Negative Stock Years 2020 Bond’s low correlation with stocks provide important diversification benefits to a portfolio, especially when equities perform poorly.

S&P 500 Aggregate Bond Index

Bond returns are represented by the performance of the Barclays Aggregate Bond Index from January 1976 through current and by a composite of the IA SBBI Intermediate-Term Government Bond Index (67%) and the IA SBBI Long-Term Corporate Bond Index (33%) from January 1926 through December 1975. Stock returns are represented by the performance of the S&P 500 Index, excluding dividends. Source: Morningstar, Inc., Morningstar Ibbotson SBBI 2007 Classic Yearbook NEGY-20200505-A Importance of Asset Allocation Asset allocation is the primary contributor to investment volatility. It is the most important decision for each investor’s ability to manage their risk and reward.

80% 74.4%

70%

60%

50%

40%

30%

20% 14.6%

10% 8.4%

0% Asset Allocation Market Timing Security Selection

Source: Brown, Garlappi, and Tiu, 2009, “Asset Allocation and Portfolio Performance: Evidence from University Endowment Funds. ASAL-20180530-N Asset Allocation Framework Empirical research can suggest certain asset allocations may be appropriate for the majority of people based on their ages. However, many unique circumstances may alter this in either direction.

Sample Asset Allocation Framework Based on Age

100% Reasons for Being More Aggressive 90% • Temperament is conducive to higher volatility 80% • Capital appreciation as a primary objective • High risk tolerance or appetite 70% • Little to no distributions or longer than average time horizon • Significant assets outside of the particular account 60%

50%

Equity Allocation 40% Reasons for Being More Conservative 30% • Temperament is conducive to lower volatility • Income or safety of principal as a primary objective 20% • Low risk tolerance or appetite • Distributions in the near term or sooner than average 10% • Tax considerations or other unique circumstances

0% 35 40 45 50 55 60 65 70 75 80 85 90 95 Age

Sources: Average of Asset Allocation Glide Paths from J.P. Morgan, T. Rowe Price, BlackRock and Vanguard. WORK-20170727-N Investment Committee The Investment Committee is responsible for the review, discussion and coordination of all WoodTrust investment programs.

Chad D. Kane Jason T. Deitz, CFA D. Mike Glodosky, CTFA Jon R. Clark President SVP & Chief Investment Officer SVP, Portfolio Manager VP, Portfolio Manager 26 years experience 15 years experience 30 years experience 24 years experience Joined WoodTrust in 1996 Joined WoodTrust in 2006 Joined WoodTrust in 1998 Joined WoodTrust in 1998

Marc P. Kettleson, AFIM Terry J. Knoll, CFP, CRSP Michael J. Spalding, CFA Justin J. Regnier, CFA VP, Portfolio Manager VP, Portfolio Manager VP, Portfolio Manager Portfolio Manager 15 years experience 32 years experience 29 years experience 7 years experience Joined WoodTrust in 2012 Joined WoodTrust in 2003 Joined WoodTrust in 2013 Joined WoodTrust in 2016

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