R e t r e a t s & R e c o v e r i e s. S a m S t o v a l l, J u l y 2 5,

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1 R e t r e a t s & R e c o v e r i e s S a m S t o v a l l, J u l y 2 5,

2 Stock Market Headwinds & Tailwinds Headwinds Aging bull market & elevated equity valuations Aging economic cycle & rising interest rates Republicans & recessions Tailwinds V-shaped recovery in EPS + tax-cut possibility Stock yields versus bond yields Low inflation supports high P/Es Investment Ideas Nervous Nellies & the Henny Penny Portfolio International reawakening Reversion to the mean Growth or Value? Try the Barbell Approach Seasonal Rotation is now an S&P Custom Index Income investors: Think like a landlord, not a trader Source: CFRA. 7/21/

3 Pullbacks, Corrections & Bear Markets Years Between Market Declines of 5% or More Since WWII Average Number of Years Between Market Declines Since WWII Pullbacks (-5% to - 9.9%) 2.8 Corrections (-10% to -19.9%) Bears (-20%+) Source: S&P DJ Indices. Past performance is no guarantee of future results. Source: CFRA, S&P Dow Jones Indices. Past performance is no guarantee of future results. Data: 12/31/1945-7/21/

4 Republicans & Recessions Every Republican President Since 1901 Had a Recession Start in Their First Term President Recessions Roosevelt ( ) , Taft ( ) , Wilson ( ) , Harding/Coolidge ( ) Coolidge ( ) Hoover ( ) Roosevelt ( ) , 1945 Truman ( ) Eisenhower ( ) , , Kennedy/Johnson ( ) None Johnson ( ) None Nixon/Ford ( ) , Carter ( ) 1980 Reagan ( ) Bush-41 ( ) Clinton ( ) None Bush-43 ( ) 2001, Obama ( ) None Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. Data: 12/31/ /31/

5 Recessions & Bear Markets Two out of three bear markets since WWII have been accompanied by recession <- Recession Bear -> Market Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. Data: 4/30/1949-7/21/

6 Recession Indicators Low Readings Up to Three Months Prior to the Recession's Start Year-Over-Year % Change in 6 Month % Change in Yield Curve Recession Housing Consumer Leading (10 Year Note- Dates Starts Sentiment Indicators One-Year Bill) 4/60-2/61 (32) (0.31) 12/69-11/70 (25) -- (2.3) (0.75) 11/73-3/75 (33) -- (3.0) (1.42) 1/80-7/80 (27) (22) (4.5) (2.14) 7/81-11/82 (18) 19 (2.4) (2.10) 7/90-3/91 (18) (4) (1.0) /01-11/01 (10) (19) (6.2) (0.36) 12/07-9/09 (37) (18) (3.8) 0.38 Average (25) (9) (2.8) (0.79) Today Source: CFRA, S&P DJ Indices, NBER, Census Bureau, Federal Reserve, Conference Board. Past performance is no guarantee of future results. Data: 7/31/1957-7/21/

7 Progression of EPS Estimates Full-year 2017 EPS Estimates are not collapsing as they did in 2015 and % 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY 2015 FY 2016 FY % Prior Current Year Source: CFRA, S&P Capital IQ. Past performance is no guarantee of future results. Data: 12/31/2013-7/21/

8 S&P 500 EPS Actuals vs. Estimates Actual Qtly EPS exceeded estimates in 21 of 21 quarters by an average of 3.6% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Estimate Actual Average (3.6%) Source: CFRA, S&P Global Market Intelligence. A=Actual, E=Estimated. Past performance is no guarantee of future results. Data: 6/30/2014-7/21/

9 Stocks Still Look Attractive vs. Bonds Average S&P 500 Price Change 12 Months After Dividend Yield vs. 10-Year Yield Differentials 20% 18% 18% 16% 14% 13% 12% 11% 10% 8% 6% 4% 5% 3% 2% 0% Div. Yld. >10Y Yld. 10Y> Div. Yld. by 0% to 1% 10Y> Div. Yld. by 1% to 2% 10Y> Div. Yld. by 2% to 3% 1% 10Y> Div. Yld. by 3% to 4% 10Y> Div. Yld. by More Than 4% Source: CFRA, S&P DJ Indices. Data: 5/31/1953-6/30/

10 Inflation & Valuations Average P/Es Within Core CPI Quintiles X 25X 23X 25X 22X Today 20X 16X 15X 10X 11X 5X 0X Lowest 20% (<=1.7%) Next 20% (1.8%-2.3%) Next 20% (2.4%-3.3%) Next 20% (3.4%-5.1%) Highest 20% (>=5.2%) Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data: 12/31/1947-7/21/

11 S&P 500 Declines & Recoveries On Average, the S&P Equal Weight 500 Experienced Quicker Declines and More Rapid Recoveries from Pullbacks, Corrections & Bear Markets Since WWII Average Peak-to-Trough Declines Months to Type (% Decline) Count % Change Months Recovery Pullbacks (5.0%-9.9%) 56 (7) 1 2 Corrections (10.0%-19.9%) 21 (14) 5 4 All Bears (20%+) 12 (33) >"Garden Variety" (20%-40%) 9 (26) >"Mega-Meltdown" (40%+) 3 (51) Source: CFRA, S&P Dow Jones Indices. Past performance is no guarantee of future results. Data: 12/31/1945-7/21/

12 The Henny Penny (Chicken Little) Portfolio The Benefit of a Hypothetical 60/40 Diversified Portfolio was Improved by Substituting Equity Benchmarks With Their Low Volatility Subsets $44,000 $39,000 $34,000 $29,000 $24,000 $19,000 $14,000 $9, Standard Freq. of Worst CAGR Deviation Annual Rise Month 7.3% % -11.6% 8.2% % -9.2% $46,100 $39,452 30% S&P 500 / 10% S&P MC 400 / 5% S&P SC 600 / 10% BMI-Ex U.S. / 5% BMI-EM / 40% BBBI 30% 500 LV / 10% 400 LV / 5% 600 LV / 10% Int'l Dev. LV / 5% Emerging LV / 40% BBBI Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. Data: 12/31/1997-6/30/

13 MSCI-EAFE: Bouncing Off The Bottom? On a rolling 5-year total return basis, the MSCI-EAFE Index recently bounced off an extreme low: One standard deviation below the S&P Rolling 12-Mo. Relative Strength +1 Std. Deviation (>100=MSCI Outperformance) -1 Std. Deviation (<100=MSCI Underperformance) Source: CFRA, MSCI. Data: 7/21/

14 The Direction of the Dollar Actual and projected values of the Federal Reserve s U.S. dollar index Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17E Q4 '17E Q1 '18E Q2 '18E Source: CFRA, Action Economics. Data: 7/21/

15 Growth or Value? The Barbell Approach Compound Annual Growth Rates (CAGRs) for the S&P 500 and a 50/50 Weighting to the S&P Pure Growth & Pure Value Indices (Rebalanced Annually) CAGR % Freq. of Mkt. Benchmark/Portfolio (w/divs.) Outperformance S&P 500 Index 8.6 NA 50% Pure Growth/ 50% Pure Value % S&P MidCap 400 Index 11.7 NA 50% Pure Growth/ 50% Pure Value % S&P SmallCap 600 Index 10.7 NA 50% Pure Growth/ 50% Pure Value % S&P Composite 1500 Index 8.9 NA 1/6th S&P 500/400/600 PG/ 1/6th Each of PV % Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. Data: 12/31/1995-6/30/

16 Let the Market Take You Where It Wants to Go Compound Annual Growth Rates for Benchmarks and the CFRA-Stovall Seasonal Rotation Custom Indices 25% 20% Benchmark Seasonal Rotation Custom Index 16.1% 15% 10% 5% 7.6% 13.7% 9.4% 10.1% 13.8% 5.7% 11.6% 0% S&P 500 S&P EW 500 S&P SC 600* S&P Global 1200* Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. Annualized data 4/30/90-6/30/17. *4/30/90-6/30/17. 16

17 Feb-90 Jun-91 Oct-92 Feb-94 Jun-95 Oct-96 Feb-98 Jun-99 Oct-00 Feb-02 Jun-03 Oct-04 Feb-06 Jun-07 Oct-08 Feb-10 Jun-11 Oct-12 Feb-14 Jun-15 Oct-16 Income Investors Should Think Like a Landlord Price and Rolling 12-Month Dividend by Exxon (XOM 80***), a Dividend Aristocrat $110 $100 $90 $80 $70 $60 $50 $40 12-Month Income Stream $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $30 $- Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results.. 17

18 Feb-90 Jun-91 Oct-92 Feb-94 Jun-95 Oct-96 Feb-98 Jun-99 Oct-00 Feb-02 Jun-03 Oct-04 Feb-06 Jun-07 Oct-08 Feb-10 Jun-11 Oct-12 Feb-14 Jun-15 Oct-16 Income Investors Should Think Like a Landlord Price and Rolling 12-Month Dividend by Exxon (XOM 80***), a Dividend Aristocrat $110 XOM price (Left Scale) 12-Month Income Stream (Right Scale) $3.50 $100 $3.00 $90 $80 $70 $60 $50 $2.50 $2.00 $1.50 $1.00 $40 $0.50 $30 $- Source: CFRA, S&P DJ Indices. Past performance is no guarantee of future results. 18

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