S EAMO UN T FINANCIAL GROUP, INC. REGISTERED INVESTMENT ADVISER

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1 S EAMO UN T Financial Markets and the Economy September 30, 2018 As of September 30, 2018, the price-to-earnings ratio (P/E ratio) of the S&P 500* was (The 25-year historical value is 16.1.) The stock market is slightly more expensive than average. One year ago, the PIE ratio was 17.7, much more expensive. The S&P 500 has also gained 15% since then. The reason the P/E ratio has fallen despite the market growth is because of strong corporate earnings. The slide below shows the strength in corporate profits. S&P 500 earnings per share Index quarterly operating earnings 544 2Q18: SaP consensus analyst estimates $41 $38 S35 $ S213 $ S17 S14 $11 SE1 S5 S2 S&P 500 sales and the U.S. dollar Year-over-year % change, monthly. USD broad currencies index 4-15% 4 High foreign sales S&P 500 revenues 3 U S. 56% 1 2 to% S&P 500 profit margins Quarterly operating earnings per share/sales per share 14% 12% 1 8". 6% 4% 2% ' International 44% 5% 11.4i1 i di 6% % -3 USD (inv.) II. 2 '04 '05 06 '07 08 '09 '10 '11 '12 '13 '14 '15 '16 '17-51 '02 '05 '08 '11 '14 '17 92 '94 '96 '98 '00 '02 '04 06 '08 '10 '12 '14 '16 '18 Source Compustat FactSet. Standard 8 Poor's. J.P Morgan. (Top nght) Federal Reserve EPS levels are based on operating earnings per share Earnings estimates are Standard 8 Poor s consensus analyst expectations Past performance is not indicabve of future returns Currencies in the Trade Weighted U S Dollar Major Currencies Index are Argentine peso. Australian dollar. Brazil real. British pound, Canadian dollar. Chilean peso. Chinese renminbi. Colombian peso, euro. Honk Kong dollar. Indian rupee. Indonesian rupiah. Israeli new shekel Japanese yen, Korean won. Malaysia ringgit. Mexican peso Philippine peso, Russian ruble. Saudi nyal. Singapore dollar. Swedish krona. Swiss franc. New Taiwan dollar. Thai baht. Venezuelan bolivar High foreign sales is the average of the year-over-year % change in last 12 months sates of the tonowing S&P 500 sectors information technology. rratenals. energy. inclustnals U S dollar has a 9-month lag Guide M the Markers - U S Data are as of September J.P.Morgan There has been quite a bit of press lately about how this bull market has run for such a long time that we must be due for a recession. In the slides below, notice the length of expansions versus recessions, and the size of the recessions going back to the Great Depression. ENHANCE PROTECT ENJOY PHONE I FAX I 90 SOUTH CASCADE AVENUE, SUITE 1140 COLORADO SPRINGS, CO NORTH SCOTTSDALE ROAD, SUITE 205 SCOTTSDALE, AZ EAST CHAPMAN AVENUE ORANGE, CA 92866

2 S EAMOUNT Length of economic expansions and recessions 125 Average length (months): 111 months' Expansions: 47 months Recessions: 15 month, 100 The Great Depression and Post-war recessions Length and severity of recession 5 yrs 4 yrs Groat Depression: 26.7% lecline in real GDP t2 3- g 3 yrs 7, 0 r, 2 yrs f -26.7% htnst recent recession: 4. lechne in real GDP 25 o yrs -3.4% -12.7% % -2.4% isal -02% 11P10.1% % % 0 yrs Source. BEA. NBER. JP Morgan 'Chart assumes current expansion started in July 2009 and continued through September lasting 111 months so tar Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER) These data can be found at moor nber orgfcyclesi and reflect information through September 2018 Bubble size reflects the seventy of the recession. which is calculated as the decline in real GDP from tne peak quarter to the trough quarter except in the case of the Great Depression. where it rs calculated from the peak year (1929) to the trough year (1933). due to a lack of available quarterly data Gude to are Markets - U S Data are as of September J.P.Morgan At this point, the economy remains strong for several Better inventory controls Larger service sector Smaller manufacturing sector A more cautious Fed Low unemployment Low energy prices Strong housing sector reasons: Strong investment spending Strong consumer spending Low inflation Strong corporate earnings Accelerating global manufacturing. A stabilizing dollar With the strength of the economy, it is expected that when we do experience a recession, the impact will not be as severe in duration and decline of real gross domestic product (real GDP) as the most recent recession. PHONE I FAX

3 A&hw S EAMO UN T FINANCIAL GROUP, INC Interest Rates For the third quarter of 2018, the 10-year Treasury bond closed at 3.055%, compared to 2.84% in the second quarter. During this past quarter, the Federal Reserve raised interest rates by 0.25% on September 27. The discount rate now stands at 2.75% and the prime rate at 5.25%. The gradual increase of interest rates by the Federal Reserve is to provide a soft landing when the economy eventually enters a recessionary period. In his September speech, Federal Reserve Chairman Jerome Powell removed the word "accommodative" from the Fed policy statement. It appears, he no longer needs to talk down future policy rates. However, this may create more confusion in the bond markets as the Federal Reserve tries to normalize interest rates with these gradual rate increases. Federal funds rate expectations FOMC and market expectations for the fed kinds rate 7% 6% 5% Federal funds rate * FOMC year-end estimates Market expectations on 9/26/18 FOMC September 2018 forecasts Percent Long run' Change in real GDP, 40 to Unemployment rate, PCE inflation, 40 to % 3% % 3.38% 3.13% 40 " 2.83% 2.85% 2% 2.13% V'2.26% 1% '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 71 LOng run Source. Bloomberg. FactSet, Federal Reserve, J.P.Morgan Market expectations are the federal funds rates priced into the fed futures market as of the date of the September 2018 FOMC meeting and are through September 2021 'Long-run prciections are the rates of growth unemployment and nflabon to which a poltcymaker expects the econony converge over the next five to Six years in absence of further shocks and under appropriate monetary policy Gu4e to the Marlre:s - U S Data are as of September J.P.Morgan Notice in the chart above the slope of the yellow lines, which indicates the rate of rise in the interest rates from the previous Fed tightening cycle and the current one. Clearly the Fed is being much more cautious PHONE FAX I

4 Ai6h S EAMO UN T this time by raising rates one-quarter point each time thus far. The last few times the Fed increased interest rates (Feb '88-Dec '88, Sep 92-Feb '95, Nov '98-May'00, Jun '03-Jun '06) they raised them at two and a half times the current pace. We continue to watch the spread between the 2-year Treasury note (2.819%) and the 10-year note (3.055%). As this spread tightens, there may be concern for an inverted yield curve, which is when shortterm yields are higher than long-term yields. If this happens, history has shown that a recession is on the horizon. However, an inverted yield curve may not be as much of an issue as foreign investors have been attracted to U.S. treasuries, depressing their yields. The Federal Reserve is expected to raise rates again in December by 0.25%, keeping in line with current Fed policy. Can Mid-Term Elections Affect the Financial Markets? Based on the previous 21 mid-term elections dating back to 1934, the party holding the White House is expected to lose an average of 30 seats in the House of Representatives and four seats in the Senate. Only twice has the president's party gained seats in both Congressional chambers. Since losing seats is so common, these losses are usually priced into the financial markets early in the year to anticipate potential legislative policy changes. S&P 500 Index average cumulative return (1931- present) 18% All other years Midterm election years JAN FEB MAR APR MAY JUN JUL AUG 3EP OCT NOV DEC JAN FEB MAR APR MAY JUN Sources: Capital Group, RIMES, Standard & Poor's. As of 8/31/18. PHONE I FAX I

5 A66,, S EAMOUNT However, as the chart above indicates, the financial markets tend to move sideways for most of the year until shortly before the election. The adage that the markets have difficulty dealing with uncertainty seems to apply earlier in the year, as there is less certainty about the political outcome and its impact on policy. But the markets tend to rally when election results become easier to predict and continue to rise after the polls are closed, and the winners are declared. The one constant during a mid-term election year seems to be that markets tend to rebound in subsequent months with above-average returns for the entire following year. S&P 500 Index price return one year after a midterm election % % % % % % Average one-year returns % After midterm election 15.1% % Ail other years 6.8% % % % % % % % Sources: Capital Group, RIMES, Standard & Poor's. Calculations use Election Day as the starting date in all election years, and November 5th as a proxy for the starting date in other years. Only midterm election years are shown in the chart. Since 1950, the average one-year total return following the mid-term election is 15.1% for the S&P 500, more than double that of all other years The current consensus is that the Republicans will retain razor-thin control of the Senate but lose seats in the House to give the Democrats a majority position. Although no strong conclusions can be drawn, history seems to indicate that a change in control of the House does not necessarily translate into a negative market event. PHONE I FAX I

6 A&h, S EAMO UN T S&P 500 Price Index Avg. ann. Rolling six-month returns return 11% 4 2 Republican 14.4% Democrat f.2% Donded gov't 6.7% % of time -2 AO% '47 '52 '57 '62 '67 '72 77 '82 '87 '92 02 '07 '12 '17 Real GDP Quarter-over-quarter % change, seasonally adjusted annualized rate Ill IIlhlIrtll,l 1 1)1 111 ;ill RI'p,t1hcon Avg. GOP growth 2 8', % of time -3 '48 '55 '63 70 '78 '85 '93 DO 08 '15 Source FactSet. Office of the President. J P Morgan. (Top) Standard 8 Poor's, (Bottom) Bureau of Economic Analyse. Top chart shows S&P 500 puce returns. Guide to the Markets - U S Data are as of September J. P. Morgan From the chart above, notice that the markets perform better when Republicans have control and the economy, as indicated by gross domestic product, performs better when Democrats are in control. However, when there is a divided government, the markets and economy have still done quite well. The bottom line is: Don't let the emotions of politics influence your long-term investment goals. Final Word The rhetoric surrounding the world of politics seems to produce a lot of noise and uncertainty. But the reality is that long-term, total returns are generated by prudent asset management. Low-cost investing, proper asset allocation and diversification strategies become paramount during both challenging and notso-challenging market cycles. The economy remains strong and with a cautious Fed, we have further upside potential. PHONE ' I FAX ' I WWWSEAMOUNTEINANCIALCOM I

7 S EAMOUNT Sources: The Wall Street Journal, September 14th, 2018 Capital Ideas Newsletter, J.P. Morgan Guide to the Markets, Thomson One & Barron's. *The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. Performance of an index is not illustrative of any particular investment and performance figures quoted are historical. It is not possible to invest directly into an index. This material may contain an assessment of the market environment at a specific point in time. It may also contain forward-looking statements regarding future events or future financial conditions. Actual events or conditions may differ materially from those expressed in this material. These statements are based on our current beliefs or expectations and are subject to uncertainties and changes in circumstances, many of which are beyond our control. This information should not be relied upon by the readers as research or investment advice nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. PHONE FAX I