Weekly Review February 16, 2018

Transcription

1 Weekly Market Review February 19, 2018 Weekly Review Chart of the Week Weekly Highlights Stock markets have staged a comeback from last week s significant correction. The gains were distributed broadly across the market caps and sectors. In the process, market volatility, as measured by thecboe Volatility (VIX), has declined significantly, especially during the latter part of the week. The big story this week was inflation. As reported by the Bureau of Labor Statistics (BLS) on Thursday morning, the Consumer Price (CPI) rose 2.1% over the last 12 months, which is slightly higher than the expected 1.9%. Core inflation (less food and energy) rose by 1.8% over the last 12 months, slightly higher than the consensus reading of 1.7%. The rising inflation story was confirmed also on Thursday morning, when the BLS reported Producer Price (PPI) statistics, with PPI year-over-year increase coming in at 2.7% versus expectations of 2.5%. Talking Points Strong equity returns were relatively evenly split across large cap versus small cap, while growth slightly outperformed value. International developedstocks provided similar strong results relative to domestic equities, and emerging market equity returns outpaced those from developed markets. 10-year Treasurys have added nearly five basis points of yield since last Friday s close of 2.83%, with the largest jump coming on Thursday morning, when higher-than-expected inflation readings were revealed. Commodity indices rose slightly from last week. Defying the rising yields, the dollar has weakened this week, with the EUR/USD rate rising from about 1.22 at Friday s close to above by mid-day on Thursday. Echoing the Retail Sales Report, business inventories exhibited a month-on-month increase of 0.4% for January, versus expectations of 0.3%. Thursday s Retail Sales Report showed weakness in January, with month-over-month sales declining by 0.3%, whereas expectations were for a 0.2% increase. Auto sales were a big drag, as Retail Sales ex Autos were flat versus expectations for a 0.4% increase. 1

2 Market Dashboard Last Price Change % Chg. YTD % S&P 500 2, % 2.2% Dow Industrials 25, , % 2.0% Nasdaq 7, % 4.9% Russell , % 0.5% Euro Stoxx % -2.2% Shanghai Composite 3, % -3.3% Russell Global 2, % 1.4% ; % change is based on price. S&P 500 : Trailing 180 Days Last Price Change % Chg. YTD % Russell Global EM 3, % 3.5% 10-Year US Treas bps NM NM DJ UBS Comm. Idx % 0.0% Gold $1, $ % 3.5% Crude Oil $61.68 $ % 2.0% Dollar % -3.3% VIX % 76.3% L One Week YTD Value Growth Value Growth 3.86% 4.34% 4.76% 0.45% 2.59% 4.48% % 4.27% 4.55% -0.89% 0.71% 2.78% /21 9/4 9/18 10/2 10/1610/3011/1311/2712/1112/25 1/8 1/22 2/5 S 3.88% 4.45% 4.97% -1.07% 0.52% 2.01% Sector Performance: S&P/Global Industry Classification Sectors (GICS) % Wgt in Week % S&P 500 Chg. YTD %Chg. Consumer Discretionary % 6.2% Consumer Staples % -2.7% Energy % -6.2% Financials % 3.6% Health Care % 3.2% Industrials % 1.8% Information Technology % 5.5% Materials % 0.0% Real Estate % -7.1% Telecom Services % -4.2% Utilities % -5.3% VIX : Trailing 180 Days 8 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan Wealth Growth of $1: Trailing 24Months S&P500 Dow Industrials Small Cap EAFE Emerging Mkts. 0.7 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 2

3 The Economy and Markets A Macro View Why Are Yields Rising, and Should We Care Warren Buffett once said, Interest rates act like gravity on valuations. In physics, gravity translates mass into weight, so the higher the gravity, the harder it is for previously levitating objects to continue to do so. So why, after many years of almost zero financial gravity, are yields suddenly spiking? To answer the above question, we first need a brief review of the components of yields. Nominal yields can be broken down into three main components: 1 1) bond risk premia (also known as term premia ), 2) the market s expectations of the average real short-term interest rate, and 3) the market s expectation of inflation rates. The last two components are measured over the lifetime of the bond. Investors are assessing two things when contemplating what a fair price (or, equivalently, yield) on a long-term nominal bond should be: the sequence of short-term real rates over the lifetime of the bond and the sequence of inflation rates over that same period. Additionally, the harder it is for investors to determine the future path of real short-term rates and inflation (e.g., due to large and erratic recent inflation readings) or the more fearful they are feeling (e.g., due to general economic malaise), the higher additional yield bond risk premium they will require on their long-term bond investment as an additional reward for greater uncertainty. This component also responds to supply-demand imbalance for long-term debt. To wit, the various iterations of the Federal Reserve s (Fed) quantitative easing (QE) were aimed at compressing this component by increasing the demand for Treasurys through outright purchases of these securities. Keeping in mind the above-noted three components of nominal yields, we can understand why they have changed so drastically over the last several months, with the yield on the 10-year Treasury Note rising from 2.33% on November 15 to 2.91% on February 14 a nearly 60-basis points rise (see chart on page 8). First, note that inflation expectations are very stable through time, and all survey-based evidence points to these expectations staying close to the Fed s current 2% inflation target. Second, the estimates show 2 that the expected average nominal short-term interest rate (or the sum of two out of the three components that make up the yield) rose by about 24 basis points during the span of November 15 through February 14. Incidentally, the Tax Cuts and Jobs Act of 2017 was making its final rounds through Congress during mid- to late November. This suggests that tax reform was the impetus behind the rise in expected future real short-term rates, as the tax bill s aim was to raise the US economy s productivity. Finally, the term premium rose by about 35 basis points over a span of about 10 days between February 2 and February The timing of this rise in term premium suggests that it was related to inflation uncertainty as well as supply/demand imbalance issues, which we analyze next. During this time, the unit labor costs in nonfarm business sector increased significantly. 3 Also, Congress passed a budget agreement that will add a temporary 4 increase in discretionary spending. 5 The Committee for Responsible Federal Budget estimates 6 that this could add $2 trillion to the more than $20 trillion of existing US government debt, which is unsustainable. 7 Also, Washington is currently abuzz with President Trump s fiscal year (FY) 2019 budget proposal, which prominently features trillions of dollars for infrastructure spending. Finally, the Fed has begun the process of normalizing its massively bloated balance sheet, 8 which calls for not rolling over an increasing portion 9 of maturing Treasury debt. The result is the Fed has increased supply by not purchasing around $44 billon (and counting) worth of Treasurys since October of 2017, which constitutes a significant percentage of US debt sold by the Treasury. These events combined have created an excess supply of Treasurys, which has caused the term premia to expand, resulting in significantly higher long-term yields. If the Fed sticks to its guns about maintaining stable and low future inflation, then the above-mentioned budgetary issues will likely lead to higher future real rates. Everything else being equal, this financial gravity s rise should inexorably precipitate an end to stocks decade-long levitation. 1 In what follows, we will focus on U.S. Treasury yields, but the same analysis forms the basis for dissecting the yield of any bond. 2 See In light of this temporary increase, it is perhaps fitting to quote Milton Friedman a Nobel Prize laureate and a former professor in economics at The University of Chicago, who famously quipped: Nothing is as permanent as a temporary government program

4 Economic Data % Real GDP Growth Rate - Annualized - 12 Qtrs Thousands Non-Farm Payrolls-Trailing 12 Mos Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 0 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 % Unemployment Rate-Trailing 12 Mos Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Monthly % Chg. Consumer Price -Trailing 12 Mos Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Headline CPI Core CPI Dec-17 Thousands Initial Jobless Claims-Trailing 12 Wks /24 12/8 12/22 1/5 1/19 2/2 Consumer Board Confidence - Trailing 12 Mos Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 4

5 Eurozone Basis points (bps) SELECTED EUROPEAN SOVEREIGN YIELD PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Germany 10-Yr. Govt bps NM NM France 10-Yr. Govt bps NM NM Greece 10-Yr. Govt bps NM NM Ireland 10-Yr. Govt bps NM NM Italy 10-Yr. Govt bps NM NM Portugal 10-Yr. Govt bps NM NM Spain 10-Yr. Govt bps NM NM Netherlands 10-Yr. Govt bps NM NM Belgium 10-Yr. Govt bps NM NM U.K. 10-Yr. Govt bps NM NM 0.90 Germany 10-Year Government Bond Yield 1.7 Spain 10-Year Government Bond Yield % 0.40 % /20 12/4 12/18 1/1 1/15 1/29 2/ /20 12/4 12/18 1/1 1/15 1/29 2/ Italy 10-Year Government Bond Yield 6.0 Greece 10-Year Government Bond Yield % 1.7 % /20 12/4 12/18 1/1 1/15 1/29 2/ /20 12/4 12/18 1/1 1/15 1/29 2/12 5

6 Equities WORLD MARKETPERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % S&P 500 2, % 2.19% Swiss Market 8, % -4.21% Dow Industrials 25, % 2.02% CAC 40 (France) 5, % -0.58% Nasdaq Composite 7, % 4.87% DAX (Germany) 12, % -3.60% Russell Global 2, % 1.4% Irish Overall 6, % -2.91% Russell Global EM 3, % 3.5% Nikkei , % -4.59% S&P/TSX (Canada) 15, % -4.67% Hang Seng 31, % 4.00% Mexico IPC 48, % -0.99% Shanghai Composite 3, % -3.27% Brazil Bovespa 84, % 10.63% Kospi (S. Korea) 2, % -1.85% Euro Stoxx % -2.20% Taiwan Taiex 10, % -2.08% FTSE 100 7, % -5.11% Tel Aviv 25 1, % -1.30% IBEX 35 (Spain) 9, % -2.11% MICEX (Russia) 2, % 6.90% ; % change is based on price. 27,000 Dow Jones Industrial Average -Trailing 90 Days 7,600 Nasdaq Composite-Trailing 90 Days 26,000 7,400 25,000 24,000 7,200 7,000 6,800 23,000 6,600 22,000 6,400 21,000 11/20 12/4 12/18 1/1 1/15 1/29 2/12 6,200 11/20 12/4 12/18 1/1 1/15 1/29 2/12 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 Shanghai Composite -Trailing 90 Days 2,000 11/20 12/4 12/18 1/1 1/15 1/29 2/ Euro Stoxx -Trailing 90 Days /20 12/4 12/18 1/1 1/15 1/29 2/12 6

7 Equities Emerging and Frontier Markets EMERGING AND FRONTIER MARKET PERFORMANCE Last Change % Chg. YTD% Last Change % Chg. YTD % Mexico IPC 48, % -1.0% Hang Seng 31, % 4.0% Brazil (Bovespa ) 84, % 10.6% India (Sensex 30) 34, % -0.1% MICEX (Russia) 2, % 6.9% Malaysia (KLCI ) 1, % 2.3% Czech Republic (Prague) 1, % 3.2% Singapore (Straits Times ) 3, % 1.2% Turkey (Istanbul) 116, % 1.0% Thailand (SET ) 1, % 3.0% Egypt (Hermes ) 1, % 3.4% Indonesia (Jakarta) 6, % 3.7% Kenya (Nairobi 20 ) 3, % 0.0% Pakistan (Karachi KSE 100) 43, % 7.8% Saudi Arabia (TASI ) 7, % 3.9% Vietnam (Ho Chi Minh) 1, % 7.7% Lebanon (Beirut BLOM ) 1, % 1.6% Sri Lanka (Colombo) 6, % 3.1% Palestine % 2.7% Cambodia (Laos) % -4.6% ; % change is based on price. Brazil (Bovespa )-Trailing 90 Days 90,000 37,000 India (Sensex )-Trailing 90 Days 80,000 36,000 70,000 60,000 50,000 35,000 34,000 33,000 32,000 40,000 31,000 30,000 30,000 11/21 12/5 12/19 1/2 1/16 1/30 2/13 11/20 12/4 12/18 1/1 1/15 1/29 2/12 Egypt (Hermes )-Trailing 90 Days 1,600 3,650 Singapore (Straits Times )-Trailing 90 Days 1,400 1,200 3,600 3,550 3,500 1,000 3, ,400 3,350 3, ,250 11/19 12/3 12/17 12/31 1/14 1/28 2/11 11/20 12/4 12/18 1/1 1/15 1/29 2/12 7

8 Interest Rates SELECTED INTERESTRATES Last Change % Chg. YTD % Last Change % Chg. YTD % 2-Yr. U.S. Treasury 2.19% -2 bps NM NM Prime Rate 4.50% 0.00 NM NM 5-Yr. U.S. Treasury 2.63% 11 bps NM NM Fed Funds Rate 1.50% 0.00 NM NM 10-Yr. U.S.Treasury 2.88% 5 bps NM NM Discount Rate 2.00% 0.00 NM NM 30-Yr. U.S.Treasury 3.14% 0 bps NM NM LIBOR (3 Mo.) 1.87% 5 bps NM NM German 10-Yr. Govt. 0.70% 4 bps NM NM Bond Buyer 40 Muni 3.87% 7 bps NM NM France 10-Yr. 0.95% 3 bps NM NM Bond Buyer 40 G.O. 3.84% NA NM NM Italy 10-Yr. 1.98% 5 bps NM NM Bond Buyer 40 Rev. 4.33% NA NM NM Fed 5-Yr Fwd BE Inf. 2.15% -4 bps NM NM YIELD CURVES 4.00 US Treasury Actives Curve US Treasury Actives Curve USD Composite (A) BFV Curve USD Composite (BBB) BFV Curve M 1Y 3Y 5Y 8Y 10Y 15Y 20Y 30Y Year Treasury Yield - Trailing 180 Days 1.50 BBB/Baa- 10-Yr Treas. Spread Rising Line = Risk Aversion Yield % /21 9/21 10/21 11/21 12/21 1/ /21 9/21 10/21 11/21 12/21 1/21 8

9 Currencies SELECTED CURRENCY PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Dollar % -3.26% Chinese Yuan % 2.61% Euro % 3.37% Swiss Franc % 5.06% Japanese Yen % 6.04% New Zealand Dollar % 4.14% British Pound % 3.77% Brazilian Real % 2.42% Canadian Dollar % 0.16% Mexican Peso % 6.14% U.S. Dollar - Trailing Six Months Euro - U.S. Dollars per Euro /21 9/21 10/21 11/21 12/21 1/21 8/21 9/21 10/21 11/21 12/21 1/ Chinese yuan - yuan per U.S. Dollar Japanese yen - Yen per U.S. Dollar /21 9/21 10/21 11/21 12/21 1/21 8/21 9/21 10/21 11/21 12/21 1/21 9

10 Commodities SELECTED COMMODITY MARKETPERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Bloomberg Comm. Idx % 0.04% Platinum Spot $1, $ % 8.34% Crude Oil $61.68 $ % 1.99% Corn % 4.46% Natural Gas $2.57 -$ % % Wheat % 7.10% Gasoline ($/Gal.) $2.54 -$ % 2.29% Soybeans 1, % 6.12% Heating Oil % -6.40% Sugar % % Gold Spot $1, $ % 3.47% Orange Juice % 8.78% Silver Spot $16.68 $ % -1.52% Aluminum 2, % -4.54% ; % change is based on price. Copper 7, % -0.90% 70 Crude Oil - Light Crude ($ per barrel) 1,380 Gold - Spot gold price ($ per ounce) 60 1,360 1, ,320 $ perbarrel $ perounce 1,300 1,280 1, ,240 1,220 1, /21 9/21 10/21 11/21 12/21 1/21 1,180 8/21 9/21 10/21 11/21 12/21 1/21 7,400 Copper 390 Corn - Active Contract 7, ,000 6,800 6,600 6,400 $ perbushel , , ,800 8/21 9/21 10/21 11/21 12/21 1/ /21 9/21 10/21 11/21 12/21 1/21 10

11 Alternative Investments SELECTED ALTERNATIVE INVESTMENT INDEX PERFORMANCE Last Change % Chg. YTD% Last Change % Chg. YTD % HFRX Global Hedge Fund % 0.93% HFRX Distressed % 0.86% HFRX Equity Market Neutral % 0.78% HFRX Merger Arbitrage % 0.01% HFRX Equity Hedge % 2.12% HFRX Convertible Arbitrage % -0.69% HFRX Event-Driven % 0.27% HFRX Macro CTA % 0.73% HFRX Absolute Return % 0.99% IQ Fixed Income Beta Arb % 0.20% ; % change is based onprice. HFRX Global Hedge Fund - Trailing 90 Days 1,330 1,340 1,320 1,320 1,310 HFRX Equity Hedge - Trailing 90 Days 1,300 1,300 1,290 1,280 1,270 1,260 1,280 1,260 1,250 1,240 1,240 1,230 1,220 1,200 11/20 12/4 12/18 1/1 1/15 1/29 2/12 11/20 12/4 12/18 1/1 1/15 1/29 2/12 1,220 HFRX Equity Market Neutral - Trailing 90 Days 1,025 1,485 IQ Fixed Income Beta Arb - Trailing 90 Days 1,020 1,480 1,015 1,010 1,005 1,000 1,475 1,470 1, , ,455 11/20 12/4 12/18 1/1 1/15 1/29 2/12 11/20 12/4 12/18 1/1 1/15 1/29 2/12 11

12 Portfolio Construction 3.90 S&P 500/MSCI EAFE - Trailing 180 Days 6.00 S&P 500/MSCI EM - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/ /21 9/21 10/21 11/21 12/21 1/ MSCI EAFE/MSCI EM - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/21 Large Cap/Small Cap - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/ Growth/Value - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/21 12

13 Portfolio Construction (continued) Info Tech/S&P Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/ Inv. Grade Bonds/Int. Govt. Bonds - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/ High Yield Bonds/Int. Govt. Bonds - Trailing 180 Days High Yield/Inv. Grade Bonds - Trailing 180 Days /21 9/21 10/21 11/21 12/21 1/ /21 9/21 10/21 11/21 12/21 1/21 13

14 WEEKLY ASSET CLASS PERFORMANCE (Prior 12 weeks ending Thursday) 11/30 12/7 12/14 12/21 12/28 1/4 1/11 1/18 1/25 2/1 2/8 2/15 Equity Domestic Equity Large Cap (R200) Small Cap (R2000) 1.89% -0.38% 0.83% 1.16% -0.02% 1.42% 1.65% 1.29% 1.45% -0.43% -8.67% 5.89% 1.81% -1.53% -0.89% 2.66% 0.12% 0.44% 2.00% -0.63% 1.58% -1.36% -7.35% 5.01% Int'l. Equity MSCI EAFE 0.31% -1.10% 0.94% 0.85% 0.47% 2.24% 1.15% 1.35% 2.10% -1.48% -6.11% 1.78% MSCI Em. Mkts % -1.81% 1.88% 1.17% 1.69% 3.38% 0.37% 2.55% 2.93% -1.17% -6.85% 3.40% Fixed Income Commodities Alternatives BarCap Agg. (AGG) High Yield (JNK) Bloomberg Commodity Hedge Funds (HFRX Global) 11.44% 3.87% 3.72% 47.24% % 1.05% -9.17% % 0.12% 0.12% -2.20% -2.12% -0.05% -0.54% -0.14% -0.35% 0.27% 0.90% -0.19% % 0.22% -1.19% -1.70% 0.87% -1.54% -2.22% 0.04% 1.72% 2.84% 0.99% -0.30% 0.44% 1.99% -0.66% % 1.41% 0.02% -0.38% 0.10% 0.90% 0.11% 1.06% 0.61% 0.21% 0.86% -0.23% -2.28% 0.75% 60/40* 4.66% 0.81% 1.69% 17.32% -3.63% 1.39% -2.33% % 1.11% -0.56% -5.45% 2.01% Asset Allocation 48/32/20 (w/alts.)** 3.73% 0.57% 1.37% 14.03% -2.89% 1.32% -1.74% -1.21% 1.06% -0.50% -4.82% 1.75% ; *60/40 portfolio = 30% Large Cap/10% Small Cap/15% EAFE/5% Emerging Markets/35% BarCap Agg./5% High Yield. **48/32/20 portfolio = 24% Large Cap/8% Small Cap/12% EAFE/4% Emerging Markets/28% BarCap Agg./4% High Yield/20% HFRX Global. Large Cap Core Large Cap Growth Large Cap Value Mid Cap Core RELATIVE STRENGTH MATRIX (BASED ON 30-DAY RSI) Mid Cap Growth Mid Cap Value Small Cap Core Small Cap Growth Small Cap Value Int'l. Developed Emerging Markets REITs Comm. Int. Bond High Yield Large Cap Core Large Cap Growth Large Cap Value Mid Cap Core Mid Cap Growth Mid Cap Value Small Cap Core Small Cap Growth Small Cap Value Int'l. Developed Emerging Markets REITs Commodities Int. Bond High Yield The Relative Strength Matrix provides an indication of how the various asset classes have performed relative to one another over the past 30 days. A number greater than 1.0 indicates that the asset class in the far left column has outperformed the corresponding asset class in the top row over the past 30 days. A number below 1.0 means the asset class on the left has underperformed the asset class at the top. The green shading indicates outperformance, and the red shading indicates underperformance. 14

15 INDEX OVERVIEW The S&P 500 is an unmanaged index comprised of 500 widely held securities considered to be representative of the stock market in general. The S&P/Case-Shiller Home Price Indices measure the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The MSCI EAFE represents 21 developed markets outside of North America. The MSCI EAFE Growth is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The MSCI EAFE Value is an unmanaged index considered representative of value stocks of Europe, Australasia and the Far East. The MSCI Emerging Markets is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Europe is an unmanaged index considered representative of stocks of developed European countries. The MSCI Pacific is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in the Pacific region. The Barclays US Credit is an unmanaged index considered representative of publicly issued, SEC-registered US corporate and specified foreign debentures and secured notes. The Barclays US Aggregate Bond is a market capitalization-weighted index of investment-grade, fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. The Barclays US Corporate High Yield covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody s, Fitch and S&P is Ba1/BB+/BB+ or below. The index may include emerging market debt. The Barclays Capital Municipal Bond is an unmanaged index comprised of investment-grade, fixed-rate municipal securities representative of the tax-exempt bond market in general. The Barclays US Treasury Total Return is an unmanaged index of public obligations of the US Treasury with a remaining maturity of one year or more. The Citigroup World Government Bond is a market capitalization weighted bond index consisting of the government bond markets of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, Norway, Poland, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The DJ-UBS Commodity Total Return SM measures the collateralized returns from a basket of 19 commodity futures contracts representing the energy, precious metals, industrial metals, grains, softs and livestock sectors. The Russell 1000 is a market capitalization-weighted benchmark index made up of the 1000 largest U.S. companies in the Russell The Russell 1000 Growth is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Value is an unmanaged index considered representative of large-cap value stocks. The Russell 2000 is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Growth is an unmanaged index considered representative of small-cap growth stocks. The Russell 2000 Growth is an unmanaged index considered representative of small-cap value stocks. The Russell 3000 is an unmanaged index considered representative of the US stock market. The Russell Midcap is a subset of the Russell It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Growth is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Value is an unmanaged index considered representative of mid-cap value stocks. The HFRX Indices are a series of benchmarks of hedge fund industry performance which are engineered to achieve representative performance of a larger universe of hedge fund strategies. Hedge Fund Research, Inc. employs the HFRX Methodology (UCITS compliant), a proprietary and highly quantitative process by which hedge funds are selected as constituents for the HFRX Indices. The ISM Non-Manufacturing is an index based on surveys of more than 400 nonmanufacturing firms' purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non- Manufacturing tracks economic data, like the ISM Non-Manufacturing Business Activity. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation. The ISM Manufacturing is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. The Consumer Price (CPI) measures the change in the cost of a fixed basket of products and services. The Gross Domestic Product (GDP) rate is a measurement of the output of goods and services produced by labor and property located in the United States. Basis Point(s) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The CBOE Volatility (VIX) is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 option bid/ask quotes. The uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500. The MSCI World ex-u.s. - captures large and mid-cap representation across 22 of 23 Developed Markets DM countries*--excluding the United States. With 1,002 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. (* DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.) The MSCI Japan - is designed to measure the performance of the large and mid-cap segments of the Japanese market. With 320 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Barclays Global Aggregate ex-u.s. - is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The University of Michigan Consumer Sentiment (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy. A separately managed account (SMA) is an individual managed investment account offered typically by a brokerage firm through one of their brokers or financial consultants and managed by independent investment management firms (often called money managers for short) and have varying fee structures. An open-end index fund continuously issues and redeems shares based on investor demand. As an index fund, its investment objective is to duplicate the performance of the index it uses as a benchmark. Investment Grade or Investment Grade Bond The broad credit designation given to corporate and municipal bonds which have a high probability of being paid and minor, if any, speculative features. Bonds rated Baa and higher by Moody s Investor Services or BBB and higher by Standard & Poor's are deemed by those agencies to be "investment grade. Non- Investment Grade - By definition, junk bonds are non-investment grade. A bond rated lower than Baa/BBB, also called a "high-yield" bond. Junk bonds are speculative compared with investment grade bonds. Risk-On Risk-Off - An investment setting in which price behavior responds to, and is driven by, changes in investor risk tolerance. Risk-on risk-off refers to changes in investment activity in response to global economic patterns. During periods when risk is perceived as low, risk-on risk-off theory states that investors tend to engage in higher-risk investments. When risk is perceived as high, investors have the tendency to gravitate toward lower-risk investments. 15

16 The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results. Information obtained from third party sources are believed to be reliable but not guaranteed. Endowment Wealth Management makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index. Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses. Neither Endowment Wealth Management nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor. Copyright Endowment Wealth Management, Inc. All rights reserved ABOUT Endowment Wealth Management, Inc. We are a Multi-Client Family Office whose sole mission is to provide wealth sustainability for individuals, families, retirement plans and institutions through the utilization of the Endowment Investment Philosophy. We manage our client s financial wealth to enhance the human capital of their future generations. We work closely with our clients to develop an integrated long-term wealth plan that maximizes the benefit gained by integrating all of our individuals or families wealth producing assets. We are different from many other firms, in the way we build our portfolios on behalf of our clients. For more information on Endowment Wealth Management, Inc., please call (920) and/or visit 16