Index January Return* 2018 YTD Return % DJIA NASDAQ Composite S&P 500 Index

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1 Charles Sherry Director, Institutional Education Group Blue Ocean Global Wealth 9841 Washingtonian Blvd., #200 Gaithersburg, MD Tel: January Financial Market Update Feb 1, 2018 Stock Roar in January January came in like a lion. The broad-based S&P 500 Index registered 14 new closing highs while the Dow racked up 11 (St. Louis Federal Reserve). It s an impressive start to the new year, but I believe it s fair to say that the current pace is not sustainable. Index January Return* 2018 YTD Return % DJIA NASDAQ Composite S&P 500 Index FTSE Developed ex North America Index 4 Bond Yields Yield - % a/o Jan 31 & Change* Yield - % a/o Dec 29, month T-bill year Treasury year Treasury year Treasury Commodities Jan 31 Price, Monthly Change* Year end 2017 Oil per barrel 5 $64.73 $ Gold per ounce 6 $1, $1, Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC, London Bullion Market Assoc. * Monthly: December 29, 2017 January 31, 2018 Many of the factors that have supported stocks over the last year remain in place, including solid economic growth at home and overseas, an acceleration in profit growth (Thomson Reuters), still low interest rates, and low inflation as measured by the Consumer Price Index. A remark in last month s newsletter

2 Might we see a selloff early in the new year? It s possible, if investors book 2017 stock profits in tax year Following 2013 s outsized 30% gain in the S&P 500 (St. Louis Federal Reserve), shares went sideways in the first three weeks of 2014, then slid 6% over the next couple of weeks. did not materialize in January. But the upward lurch in stocks was primarily driven by the dramatic reduction in the corporate rate from 35% in 2017 to 21% this year and beyond, in my view. The chart below illustrates the almost unprecedented rise in quarterly profit estimates by analysts Figure 1. I ll explain. Analysts were estimating an already-strong 12.2% increase in Q S&P 500 profits on January 1 (Thomson Reuters). By month s end, analysts had raised their forecast to 17.2%. That s an astounding 5- percentage point increase in earnings estimates in just one month. Analysts Ratchet Up S&P 500 Earnings Forecasts (percent change vs year ago) Fig. 1 1-Jan 31-Jan Q Q Q Q4 Data Source: Thomson Reuters as of All forecasts are subject to change And we re not simply witnessing the increase in Q1. It s across the board. With analysts sharply hiking profit forecasts, investors quickly priced in a much rosier earnings outlook. Hence, the sizable gains in stocks we saw as the year began. Legendary investor Warren Buffett summed it up this way in a CNBC interview in the middle of last month. He called it the equivalent to a silent shareholder, in this case the U.S. government, giving up a claim to profits to other shareholders.

3 You had this major change in the silent stockholder in American business, who has been content with 35% and now instead of getting a 35% interest in the earnings (he noted foreign earnings from U.S. firms are more complicated) they get 21% and that makes the remaining stock more valuable, he said. Of course, one could ask are analysts overestimating the impact from tax reform? Probably not, but it s an open question because we haven t had business tax reform of this magnitude in over 30 years. One cloud on the horizon Stocks may not be priced for perfection, but they are priced for many positive events. It leaves less room for disappointment. As stocks have surged in January, we ve experienced an upward creep in bond yields. In particular, the 10-year Treasury bond is reacting to the possibility that inflation will gradually accelerate this year, economic growth will continue at a solid pace, and global central banks may become less accommodative. Note: Treasury bonds have historically performed well in low-inflationary, low-growth environments (bond prices and bond yields move in opposite directions). A rise in the 10-year yield to its highest level in almost four years created modest jitters in shares as the month ended see Figure Year Treasury Yield Percent Fig /31/ /31/ /31/ /31/ /31/ /31/2017 DATA SOURCE: ST. LOUIS FEDERAL RESERVE LAST DATE: It s a reminder of something we already know markets can experience bouts of volatility. Since 1950, the average intra-year pullback in the S&P 500 has been 13.6%, with 91% of intra-year declines of at least 5%, and 54% of at least 10%, according to LPL Research.

4 It s simply a reminder that markets, which have a longer-term upward bias, do experience turbulence. 1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results. 2 The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results. 3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results. 4 The FTSE Developed ex North America Index is an unmanaged index of large and mid-cap stocks providing coverage of developed markets, excluding the US and Canada. It cannot be invested into directly. Past performance does not guarantee future results. 5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results. 6 London Bullion Market Association; gold fixing pricing; Prices can and do vary; past performance does not guarantee future results. It is important that you do not use this publication to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed. All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. DISCLOSURE: Investing involves risk including the potential loss of principal. No strategy can assure success or protects against loss. Past performance is no guarantee of future results. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a nonretirement account, taxable events will be created that may increase your tax liability. Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Non-U.S. securities markets involve possibly greater risk of political instability and greater currency risk in addition to having been more volatile. These risks can be accentuated in emerging markets. Commodities investments are speculative and involve special risks related to weather and international political and economic developments. Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the portfolio. Tactical allocation may involve more frequent buying and selling of assets and will tend to general higher transaction cost. Investors should consider the tax consequences of moving positions more frequently. Beta measures a portfolio s volatility relative to its benchmark. A Beta greater than 1 suggests the portfolio has historically been more volatile than its benchmark. A Beta less than 1 suggests the portfolio has historically been less volatile than its benchmark. Past performance is not a guarantee of future performance. Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

5 The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals. All opinions are subject to change without notice in response to changing market and/or economic conditions. Copyright 2018 Financial Jumble, LLC Blue Ocean Global Wealth All rights reserved