Weekly Market Review September 1, 2017 Chart of the Week Talking Points 2,600 2,500 2,400 2,300 2,200 S&P 500 - Trailing 90 Days Global equity markets were led by Russia, with low singledigit returns. The US, UK, and Japan were up modestly, while other major European markets were down slightly. The Treasury yields fell through Thursday. Intermediate-term yields, in particular, were down. 2,100 2,000 Jun-17 Jul-17 Aug-17 Weekly Highlights Revised second quarter gross domestic product (GDP) surprises to the upside. The Bureau of Economic Analysis (BEA) second estimate of annualized quarter-over-quarter Q2 GDP growth came in at 3% the upper end of economists expected range. Consumer spending and nonresidential investment were positives, while residential investment and government purchases contracted. August payrolls disappoint. Nonfarm payrolls increased by 180,000 in August, but grew less than economists had predicted. Additionally, both June and July s figures were revised higher. Accordingly, the unemployment rate rose to 4.4%. Average hourly earnings increased a marginal 0.1%. EIA Petroleum Status Report: crude inventories fall. The Energy Information Administration s (EIA) weekly report for the week ended August 25 showed crude inventories dropping sharply as refineries upped capacity before Hurricane Harvey made landfall. Commodities rose over the week. Hydrocarbons and metals, both precious and industrial, rose over the course of the week. Agricultural commodities were largely up, with a few exceptions (e.g. cocoa and live cattle). The US Dollar strengthened against a basket of major trade partners currencies, but the index is still near lows not reached since late 2014. In other economic news: Consumer confidence increased in July. The MBA Mortgage Applications report showed applications for home mortgages falling 3% in the week ended August 25. The ISM Manufacturing Survey exceeded expert s expectations in August. 1
PMC Weekly Market Review September 1, 2017 Market Dashboard Last Price Change % Chg. YTD % Last Price Change % Chg. YTD % S&P 500 2,476.55 33.50 1.37% 10.6% Russell Global EM 3,413.54 14.13 0.42% 25.0% Dow Industrials 21,987.56 173.89 0.80% 11.3% 10-Year US Treas. 2.16-1 bps NM NM Nasdaq 6,435.33 169.69 2.71% 19.5% DJ UBS Comm. Idx. 84.98 1.68 2.02% -2.9% Russell 2000 1,413.57 36.12 2.62% 4.2% Gold $1,325.76 $33.59 2.60% 15.5% Euro Stoxx 376.14 2.07 0.55% 4.1% Crude Oil $47.31 -$0.54-1.13% -17.0% Shanghai Composite 3,367.12 35.60 1.07% 8.5% Dollar 92.85 0.09 0.10% -9.2% Russell Global 1,983.04 15.81 0.80% 13.2% VIX 10.13-1.15-10.20% -27.8% ; % change is based on price. S&P 500 : Trailing 180 Days 2500 One Week YTD Value Growth Value Growth 2450 L 0.78% 1.44% 2.04% 3.37% 11.57% 19.63% 2400 2350 0.90% 1.45% 2.20% 3.66% 8.00% 13.59% 2300 2250 3/6 3/20 4/3 4/17 5/1 5/15 5/29 6/12 6/26 7/10 7/24 8/7 8/21 S 1.71% 2.62% 3.51% -1.85% 4.16% 10.84% Sector Performance: S&P/Global Industry Classification Sectors (GICS) % Wgt in S&P 500 Week % Chg. YTD % Chg. Consumer Discretionary 12.1 1.56% 10.4% Consumer Staples 8.5 0.51% 6.1% Energy 5.7 0.77% -16.1% Financials 14.3-0.10% 6.1% Health Care 14.6 2.98% 17.6% Industrials 10.1 1.50% 8.3% Information Technology 23.4 2.08% 25.0% Materials 2.9 1.67% 10.9% Real Estate 3.1 0.46% 6.7% Telecom Services 2.1-1.35% -11.1% Utilities 3.2-0.64% 12.0% 17 16 15 14 13 12 11 VIX : Trailing 180 Days 10 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Wealth Growth of $1: Trailing 24 Months 1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 S&P 500 Dow Industrials Small Cap EAFE Emerging Mkts. 0.7 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 2
PMC Weekly Market Review September 1, 2017 The Economy and Markets A Macro View August Monthly Recap Domestic equity market returns were mixed in August, with the large and mid cap core indices ending the month essentially flat and small cap core down roughly 1.0%. Volatility made a surprise appearance during the month after a positively sleepy June and July. This was driven by a sharp rise in geopolitical tensions early in the month, as President Trump and North Korea s Kim Jong Un traded threatening statements for several days. Cooler heads appeared to prevail for several weeks as the rhetoric fell off, only to come flying back (literally) in the last week of the month after another missile test launch by the North Koreans, this time through Japanese airspace. Further complicating the domestic macroeconomic picture, hurricane Harvey hit the Texas coast, flooding most of Houston and its surroundings before moving on to Louisiana s coastal region. Total damage from Harvey will take months to add up, particularly in terms of its impact on the domestic refining industry. Oil prices actually fell during the first few days of the storm before rebounding on the last day of the month. On the economic data front, US gross domestic product (GDP) for the second quarter was revised higher to 3.0%, from an initial estimate of 2.6%. Consumer spending continues to be the main driver of GDP, estimated at a 3.3% growth rate in the second quarter. However, the same report showed the Personal Consumption Expenditures (PCE), the Federal Reserve s (Fed) preferred measure of inflation, fell to a 1.6% annual rate during the second quarter. This puts its planned third interest rate hike of the year in question, as the Fed has been targeting at least 2.0% inflation. July s employment report (released in early August) was positive, with more than 200,000 new jobs added and the unemployment rate at 4.3%. Housing data remained mixed, as July s new housing starts and new housing permits for future building both were more than 4% lower than June s numbers. New housing starts were 5.6% lower than July of last year, but the first seven months in total are about 2.5% ahead of 2016 s pace. However, mortgage rates fell to new lows for the year during the month, which could stimulate growth in this area. And after months of negative headlines for the retail sector, July s retail sales numbers were up 0.6% over June and were up 4.2% for the trailing 12-month period, close to the five-year average. Within this context, domestic equities were mostly lower for the month, with the exception of the large cap growth segment. The Russell 1000 Growth gained just over 1.0%, while the Russell 1000 and Russell Midcap es were essentially flat for the month. Hardest hit were the Russell 2000 Value, down over 3.0%, and the Russell Midcap Value, down over 2.0%. This is a significant change from last month, when all nine of the Russell domestic indices had a positive return. The Bloomberg Commodity as a whole was down nearly 1.5% in August, as the rally in gasoline and natural gas prices in the wake of hurricane Harvey couldn t offset the losses in the metals and agricultural sectors. The Dow Jones U.S. Select REIT was down more than 1.0% despite falling yields in the US. International equity markets were mixed in August, with the developed markets down slightly, while emerging markets continued their dominant run on the year. The MSCI EAFE was down about 0.5% for the month, but returns from country to country varied widely. Italy, Greece, and France showed modest gains, although the UK and Spain both were down more than 1.0%. The MSCI Emerging Markets posted a gain of more than 2.0% for the month, with strength in Russia, China, and Latin America. Domestic and global fixed income markets posted another solid month in August, though not without a fair amount of volatility. The tensions between the US and North Korea, as is the case with most global incidents, had investors seeking the safety of US Treasurys. The yield on the 10-Year Treasury Note fell sharply from 2.29% to 2.19% during the first exchange, before rebounding as tensions eased. Yields fell again in conjunction with the missile test, reaching an intra-day low below 2.10% on the August 29. This fall in yields led Treasurys, especially longer maturities, to be the best-performing segment of the Bloomberg Barclays Aggregate for the month, up 90 basis points. Investment-grade corporates and Agency Mortgage-Backed Securities (MBS) both posted solid months as well, up 61 and 60 basis points respectively. Investment-grade municipal bonds outperformed corporates, up 75 basis points, led by A- and BBB-rated issues. The Global Aggregate ex USD was 1.10% in August (0.90% if the currency impact was hedged out), led by European sovereign debt. The emerging markets joined the party as well, with the Emerging Markets USD up 1.13% and the Local Currency (Government) up 0.65%. US high yield was the only major sector to post a negative return for the month, down 19 basis points, as the average spread in the widened by roughly 30 basis points. Nathan Behan, CFA, CAIA SVP, Investment Research 3
PMC Weekly Market Review September 1, 2017 Economic Data Real GDP Growth Rate - Annualized - 12 Qtrs. 6.0 Non-Farm Payrolls-Trailing 12 Mos. 300 5.0 250 % 4.0 3.0 2.0 Thousands 200 150 100 1.0 50 0.0 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 0 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 % Unemployment Rate-Trailing 12 Mos. 5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Monthly % Chg. Consumer Price -Trailing 12 Mos. 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0-0.1-0.2-0.3-0.4 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Headline CPI Core CPI Initial Jobless Claims-Trailing 12 Wks. 255 250 245 Consumer Board Confidence - Trailing 12 Mos. 140.0 120.0 100.0 Thousands 240 235 230 80.0 60.0 40.0 225 20.0 220 6/9 6/23 7/7 7/21 8/4 8/18 0.0 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 4
Eurozone SELECTED EUROPEAN SOVEREIGN YIELD PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Germany 10-Yr. Govt. 0.38 0 bps NM NM France 10-Yr. Govt. 0.68 1 bps NM NM Greece 10-Yr. Govt. 5.48 1 bps NM NM Ireland 10-Yr. Govt. 0.69 3 bps NM NM Italy 10-Yr. Govt. 2.07 2 bps NM NM Portugal 10-Yr. Govt. 2.81 3 bps NM NM Spain 10-Yr. Govt. 1.59 0 bps NM NM Netherlands 10-Yr. Govt. 0.51 0 bps NM NM Belgium 10-Yr. Govt. 0.68 2 bps NM NM U.K. 10-Yr. Govt. 1.06-1 bps NM NM Basis points (bps) 0.70 Germany 10-Year Government Bond Yield 1.9 Spain 10-Year Government Bond Yield 0.60 1.8 0.50 1.7 1.6 0.40 1.5 % 0.30 % 1.4 0.20 0.10 1.3 1.2 1.1 0.00 6/28 7/12 7/26 8/9 8/23 1.0 6/28 7/12 7/26 8/9 8/23 2.5 Italy 10-Year Government Bond Yield 5.8 Greece 10-Year Government Bond Yield 2.3 5.6 2.1 5.4 5.2 1.9 5.0 % 1.7 % 4.8 1.5 1.3 4.6 4.4 4.2 1.1 6/28 7/12 7/26 8/9 8/23 4.0 6/28 7/12 7/26 8/9 8/23 5
Equities WORLD MARKET PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % S&P 500 2,476.55 33.50 1.37% 10.62% Swiss Market 8,941.62 35.44 0.40% 8.78% Dow Industrials 21,987.56 173.89 0.80% 11.26% CAC 40 (France) 5,123.26 18.93 0.37% 5.37% Nasdaq Composite 6,435.33 169.69 2.71% 19.55% DAX (Germany) 12,142.64-25.30-0.21% 5.76% Russell Global 1,983.04 15.81 0.80% 13.2% Irish Overall 6,709.23 65.71 0.99% 2.95% Russell Global EM 3,413.54 14.13 0.42% 25.0% Nikkei 225 19,691.47 238.86 1.23% 3.02% S&P/TSX (Canada) 15,191.60 135.61 0.90% -0.63% Hang Seng 27,953.16 105.00 0.38% 27.06% Mexico IPC 51,080.85-292.38-0.57% 11.91% Shanghai Composite 3,367.12 35.60 1.07% 8.49% Brazil Bovespa 71,923.13 849.46 1.20% 19.42% Kospi (S. Korea) 2,357.69-20.82-0.88% 16.35% Euro Stoxx 600 376.14 2.07 0.55% 4.07% Taiwan Taiex 10,594.82 79.31 0.75% 14.50% FTSE 100 7,438.50 37.04 0.50% 4.14% Tel Aviv 25 1,400.94 4.86 0.35% -4.75% IBEX 35 (Spain) 10,325.50-19.80-0.19% 10.41% MICEX (Russia) 2,010.98 31.84 1.61% -9.93% ; % change is based on price. 22,200 Dow Jones Industrial Average -Trailing 90 Days 6,500 Nasdaq Composite-Trailing 90 Days 22,000 21,800 21,600 6,400 6,300 21,400 21,200 21,000 20,800 20,600 6,200 6,100 6,000 5,900 Shanghai Composite -Trailing 90 Days 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 Euro Stoxx -Trailing 90 Days 400 390 380 370 360 350 340 330 320 310 300 6
Equities Emerging and Frontier Markets EMERGING AND FRONTIER MARKET PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Mexico IPC 51,080.85-292.38-0.6% 11.9% Hang Seng 27,953.16 105.00 0.4% 27.1% Brazil (Bovespa ) 71,923.13 849.46 1.2% 19.4% India (Sensex 30) 31,892.23 296.17 0.9% 19.8% MICEX (Russia) 2,010.98 31.84 1.6% -9.9% Malaysia (KLCI ) 1,773.16 0.22 0.0% 8.0% Czech Republic (Prague) 1,021.97-14.59-1.4% 10.9% Singapore (Straits Times ) 3,277.26 5.10 0.2% 13.8% Turkey (Istanbul) 110,010.49 255.40 0.2% 40.8% Thailand (SET ) 1,618.42 42.57 2.7% 4.9% Egypt (Hermes ) 1,209.93 34.33 2.9% 11.1% Indonesia (Jakarta) 5,864.06-30.06-0.5% 10.7% Kenya (Nairobi 20 ) 3,887.28-181.92-4.5% 22.0% Pakistan (Karachi KSE 100) 41,206.99-1434.76-3.4% -13.8% Saudi Arabia (TASI ) 7,258.64 5.12 0.1% 0.7% Vietnam (Ho Chi Minh) 788.73 17.10 2.2% 18.6% Lebanon (Beirut BLOM ) 1,161.56 1.27 0.1% -4.1% Sri Lanka (Colombo) 6,390.74 8.20 0.1% 2.6% Palestine 566.11-0.04 0.0% 6.8% Cambodia (Laos) 1,029.47 10.75 1.1% 1.5% ; % change is based on price. 75,000 Brazil (Bovespa )-Trailing 90 Days 33,000 India (Sensex )-Trailing 90 Days 70,000 32,500 65,000 60,000 32,000 55,000 50,000 31,500 31,000 45,000 40,000 30,500 35,000 30,000 30,000 29,500 1,300 Egypt (Hermes )-Trailing 90 Days 3,400 Singapore (Straits Times )-Trailing 90 Days 1,200 1,100 3,350 1,000 3,300 900 800 3,250 700 3,200 600 500 3,150 400 6/4 6/18 7/2 7/16 7/30 8/13 8/27 3,100 7
Interest Rates SELECTED INTEREST RATES Last Change % Chg. YTD % Last Change % Chg. YTD % 2-Yr. U.S. Treasury 1.34% 0 bps NM NM Prime Rate 4.25% 0.00 NM NM 5-Yr. U.S. Treasury 1.73% -2 bps NM NM Fed Funds Rate 1.25% 0.00 NM NM 10-Yr. U.S. Treasury 2.16% -1 bps NM NM Discount Rate 1.75% 0.00 NM NM 30-Yr. U.S. Treasury 2.77% 2 bps NM NM LIBOR (3 Mo.) 1.32% 0 bps NM NM German 10-Yr. Govt. 0.38% 0 bps NM NM Bond Buyer 40 Muni 3.41% -5 bps NM NM France 10-Yr. 0.68% 1 bps NM NM Bond Buyer 40 G.O. 3.51% NA NM NM Italy 10-Yr. 2.07% 2 bps NM NM Bond Buyer 40 Rev. 3.72% NA NM NM Fed 5-Yr Fwd BE Inf. 1.78% -3 bps NM NM 6.00 5.00 YIELD CURVES 4.00 US Treasury Actives Curve 20170825 US Treasury Actives Curve 20170901 USD Composite (A) BFV Curve 20170902 USD Composite (BBB) BFV Curve 20170902 3.00 2.00 1.00 0.00 1M 1Y 3Y 5Y 8Y 10Y 15Y 20Y 30Y 2.70 10-Year Treasury Yield - Trailing 180 Days 1.70 BBB/Baa- 10-Yr Treas. Spread Rising Line = Risk Aversion 2.50 1.60 2.30 1.50 Yield % 2.10 1.90 1.70 1.40 1.30 1.20 1.10 1.50 1.00 8
Currencies SELECTED CURRENCY PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Dollar 92.85 0.092 0.10% -9.18% Chinese Yuan 6.56-0.088 1.34% 5.89% Euro 1.19-0.007-0.55% 12.76% Swiss Franc 0.96 0.008-0.84% 5.58% Japanese Yen 110.29 0.920-0.83% 6.06% New Zealand Dollar 0.72-0.009-1.17% 3.20% British Pound 1.30 0.007 0.56% 4.98% Brazilian Real 3.14-0.016 0.50% 3.40% Canadian Dollar 1.24-0.009 0.74% 8.49% Mexican Peso 17.82 0.200-1.12% 16.34% 104 U.S. Dollar - Trailing Six Months 1.25 Euro - U.S. Dollars per Euro 102 1.20 100 1.15 98 1.10 96 1.05 94 1.00 92 0.95 90 0.90 88 0.85 86 0.80 7.00 Chinese yuan - yuan per U.S. Dollar 116.00 Japanese yen - Yen per U.S. Dollar 6.90 114.00 6.80 112.00 6.70 110.00 6.60 6.50 108.00 6.40 106.00 6.30 104.00 9
Commodities SELECTED COMMODITY MARKET PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % Bloomberg Comm. Idx. 84.98 1.68 2.02% -2.90% Platinum Spot $1,007.58 $32.68 3.35% 11.54% Crude Oil $47.31 -$0.54-1.13% -17.01% Corn 355.25 1.75 0.50% -6.51% Natural Gas $3.06 $0.14 4.75% -14.20% Wheat 438.75 3.50 0.80% -5.65% Gasoline ($/Gal.) $2.52 $0.16 6.78% 7.83% Soybeans 949.50 5.00 0.53% -4.02% Heating Oil 174.68 12.41 7.64% -2.02% Sugar 13.75-0.28-2.00% -26.27% Gold Spot $1,325.23 $33.59 2.60% 15.46% Orange Juice 136.50 1.05 0.78% -26.69% Silver Spot $17.72 $0.65 3.81% 11.24% Aluminum 2,117.00 47.00 2.27% 25.04% ; % change is based on price. Copper 6,788.00 122.00 1.83% 22.63% 60 Crude Oil - Light Crude ($ per barrel) 1,340 Gold - Spot gold price ($ per ounce) 1,320 50 1,300 $ per barrel 40 30 20 $ per ounce 1,280 1,260 1,240 1,220 1,200 1,180 10 1,160 1,140 0 1,120 8,000 Copper 440 Corn - Active Contract 7,000 420 6,000 5,000 4,000 3,000 $ per bushel 400 380 360 2,000 1,000 340 0 320 10
Alternative Investments SELECTED ALTERNATIVE INVESTMENT INDEX PERFORMANCE Last Change % Chg. YTD % Last Change % Chg. YTD % HFRX Global Hedge Fund 1245.44 1.06 0.09% 3.49% HFRX Distressed 1095.12-0.94-0.09% 2.06% HFRX Equity Market Neutral 1006.33 1.44 0.14% 1.93% HFRX Merger Arbitrage 1833.75 4.82 0.26% 1.17% HFRX Equity Hedge 1208.57 1.60 0.13% 4.60% HFRX Convertible Arbitrage 780.16-0.74-0.09% 5.06% HFRX Event-Driven 1648.73-0.17-0.01% 5.39% HFRX Macro CTA 1143.80 3.96 0.35% 0.74% HFRX Absolute Return 1053.49 0.58 0.06% 2.43% IQ Fixed Income Beta Arb 1452.26-0.37-0.03% 2.27% ; % change is based on price. HFRX Global Hedge Fund - Trailing 90 Days 1,250 1,245 1,240 1,220 1,215 1,210 1,205 HFRX Equity Hedge - Trailing 90 Days 1,235 1,230 1,225 1,220 1,200 1,195 1,190 1,185 1,180 1,175 1,010 HFRX Equity Market Neutral - Trailing 90 Days 1,460 IQ Fixed Income Beta Arb - Trailing 90 Days 1,005 1,455 1,000 1,450 995 990 985 1,445 1,440 980 1,435 11
PMC Weekly Market Review September 1, 2017 Portfolio Construction 4.00 S&P 500/MSCI EAFE - Trailing 180 Days 6.50 S&P 500/MSCI EM - Trailing 180 Days 3.90 6.00 3.80 5.50 3.70 5.00 4.50 3.60 4.00 3.50 3.50 3.40 3.00 MSCI EAFE/MSCI EM - Trailing 180 Days 1.65 1.60 1.55 1.50 1.45 1.40 Large Cap/Small Cap - Trailing 180 Days 0.42 0.42 0.41 0.41 0.40 0.40 0.39 0.39 0.38 0.38 0.37 0.86 Growth/Value - Trailing 180 Days 0.84 0.82 0.80 0.78 0.76 0.74 12
PMC Weekly Market Review September 1, 2017 Portfolio Construction (continued) 0.240 0.235 Info Tech/S&P 500 - Trailing 180 Days 1.88 1.87 1.86 Inv. Grade Bonds/Int. Govt. Bonds - Trailing 180 Days 0.230 1.85 0.225 1.84 1.83 0.220 1.82 0.215 1.81 1.80 0.210 1.79 0.58 High Yield Bonds/Int. Govt. Bonds - Trailing 180 Days 0.316 High Yield/Inv. Grade Bonds - Trailing 180 Days 0.314 0.58 0.312 0.57 0.57 0.310 0.308 0.306 0.304 0.56 0.302 0.300 0.56 0.298 13
PMC Weekly Market Review September 1, 2017 WEEKLY ASSET CLASS PERFORMANCE (Prior 12 weeks ending Thursday) 6/15 6/22 6/29 7/6 7/13 7/20 7/27 8/3 8/10 8/17 8/24 8/31 Equity Domestic Equity Large Cap (R200) Small Cap (R2000) -0.17% 0.23% -0.69% -0.39% 1.58% 1.10% 0.10% 0.05% -1.24% -0.30% 0.35% 1.41% -0.39% -0.39% 0.83% -1.09% 1.77% 1.17% -0.61% -1.98% -2.33% -0.99% 1.10% 2.29% Int'l. Equity MSCI EAFE -0.92% 0.48% 0.52% -0.70% 1.19% 1.73% -0.07% 0.98% -1.43% -0.06% -0.35% 0.59% MSCI Em. Mkts. -1.51% 0.52% 0.52% -0.78% 3.43% 1.79% 0.90% -0.46% -0.74% 0.67% 1.80% 0.49% Fixed Income Commodities Alternatives BarCap Agg. (AGG) High Yield (JNK) Bloomberg Commodity Hedge Funds (HFRX Global) 14.14% -5.67% -3.48% 17.54% -2.37% -1.14% -5.06% -5.48% -7.09% 0.35% 0.52% -1.20% 0.05% -0.56% 0.43% -0.67% 0.68% 0.65% 0.13% -0.53% -1.42% 0.27% 0.73% 0.57% -1.53% -1.93% 2.49% 1.34% -0.60% 2.16% 0.65% -1.06% 0.25% -1.03% 1.01% 1.37% -0.26% 0.32% 0.02% -0.21% 0.59% 0.40% 0.03% -0.14% -0.58% 0.07% 0.34% 0.28% 60/40* 4.65% -1.89% -1.22% 5.74% 0.20% 0.43% -1.76% -2.00% -3.41% -0.03% 0.47% 0.37% Asset Allocation 48/32/20 (w/alts.)** 3.67% -1.45% -0.97% 4.55% 0.28% 0.42% -1.40% -1.63% -2.84% -0.01% 0.44% 0.35% ; *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. Emerging Developed Markets REITs Comm. Int. Bond High Yield Large Cap Core 1.00 0.95 1.15 1.09 1.00 1.18 1.11 1.05 1.19 1.04 0.89 1.03 1.02 1.25 1.06 Large Cap Growth 1.06 1.00 1.21 1.15 1.06 1.25 1.17 1.11 1.25 1.09 0.94 1.08 1.08 1.32 1.12 Large Cap Value 0.87 0.83 1.00 0.95 0.88 1.03 0.97 0.92 1.04 0.90 0.78 0.89 0.89 1.09 0.92 Mid Cap Core 0.92 0.87 1.05 1.00 0.92 1.09 1.02 0.96 1.09 0.95 0.82 0.94 0.94 1.14 0.97 Mid Cap Growth 1.00 0.94 1.14 1.09 1.00 1.18 1.11 1.05 1.18 1.03 0.89 1.02 1.02 1.24 1.05 Mid Cap Value 0.84 0.80 0.97 0.92 0.85 1.00 0.94 0.89 1.00 0.87 0.76 0.87 0.86 1.05 0.89 Small Cap Core 0.90 0.85 1.03 0.98 0.90 1.07 1.00 0.95 1.07 0.93 0.81 0.92 0.92 1.12 0.95 Small Cap Growth 0.95 0.90 1.09 1.04 0.95 1.13 1.06 1.00 1.13 0.98 0.85 0.97 0.97 1.19 1.01 Small Cap Value 0.84 0.80 0.96 0.92 0.85 1.00 0.93 0.89 1.00 0.87 0.75 0.86 0.86 1.05 0.89 Int'l. Developed 0.97 0.91 1.11 1.05 0.97 1.14 1.07 1.02 1.15 1.00 0.86 0.99 0.99 1.21 1.02 Emerging Markets 1.12 1.06 1.28 1.22 1.12 1.32 1.24 1.18 1.33 1.16 1.00 1.15 1.14 1.40 1.18 REITs 0.98 0.92 1.12 1.06 0.98 1.16 1.08 1.03 1.16 1.01 0.87 1.00 1.00 1.22 1.03 Commodities 0.98 0.93 1.12 1.07 0.98 1.16 1.09 1.03 1.16 1.01 0.88 1.00 1.00 1.22 1.04 Int. Bond 0.80 0.76 0.92 0.87 0.80 0.95 0.89 0.84 0.95 0.83 0.72 0.82 0.82 1.00 0.85 High Yield 0.95 0.90 1.08 1.03 0.95 1.12 1.05 0.99 1.12 0.98 0.85 0.97 0.97 1.18 1.00 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
Overview & Key Definitions Fed, The Fed or FED refers to the Federal Reserve System, the central bank of the United States. The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System. Fed Funds Rate, the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The European Central Bank (ECB) is the central bank for Europe's single currency, the euro. The ECB s main task is to maintain the euro's purchasing power and thus price stability in the euro area. The euro area comprises the 19 European Union countries that have introduced the euro since 1999. 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. 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. The Consumer Price (CPI) measures the change in the cost of a fixed basket of products and services. The Producer Price (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services. Core CPI is an additional CPI, excludes energy and food item price changes, and measures the core or underlying rate of inflation. The PCE (Personal Consumption Expenditure) of Prices is a US-- wide indicator of the average increase in prices for all domestic personal consumption. Using a variety of data including U.S. Consumer Price and Producer Price prices, it is derived from personal consumption expenditures; essentially a measure of goods and services targeted towards individuals and consumed by individuals. The Purchasing Managers' (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. Brexit is a commonly used term for the United Kingdom's withdrawal from the European Union. The Kansas City Fed Manufacturing Survey monitors manufacturing plants selected according to geographic distribution, industry mix and size in the Tenth Federal Reserve District. The Dow Jones Industrial Average (DOW or DJIA) is an unmanaged index of 30 common stocks comprised of 30 actively traded blue chip stocks, primarily industrials and assumes reinvestment of dividends. 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 US Dollar is a measure of the value of the United States dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar's value relative to other select currencies (Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona (SEK) & Swiss franc). The FTSE 100 (FTSE 100) is a share index of the 100 companies listed on the London Stock Exchange (LSE) with the highest market capitalization. The Bloomberg Commodity (formerly the Dow Jones-UBS Commodity ) tracks prices of futures contracts on physical commodities on the commodity markets and is designed to minimize concentration in any one commodity or sector (currently 22 commodity futures in seven sectors). The Barclays Capital US Credit is an unmanaged index considered representative of publicly issued, SEC-registered US corporate and specified foreign debentures and secured notes. The Barclays Capital US Aggregate Bond is a market capitalization-weighted index of investment-grade, fixed-rate debt issues, including government, corporate, assetbacked, and mortgage-backed securities, with maturities of at least one year. The Barclays Capital 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 Capital 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 Barclays Capital 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 Barclays Capital U.S. 5-10 Year Corporate Bond measures the investment return of U.S. dollar denominated, investment-grade, fixed rate, taxable securities issued by industrial, utility, and financial companies with maturities between 5 and 10 years. Treasury securities, mortgage-backed securities (MBS) foreign bonds, government agency bonds and corporate bonds are some of the categories included in the index. The Barclays Capital U.S Corporate High-Yield is composed of fixed-rate, publicly issued, non-investment grade debt. The Barclays Capital U.S. Corporate 5-10 Year includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, & financial companies, with maturities between 5 & 10 years. 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 3000. 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 1000. 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 University of Michigan Consumer Sentiment (MCSI) is a survey of consumer confidence conducted by the University of Michigan using telephone surveys to gather information on consumer expectations regarding the overall economy. 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 EAFE is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. 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 EM (Emerging Markets) Latin America is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets in Latin America. The MSCI World ex-u.s. captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries - excluding the US. With 1,002 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. 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 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 Intermediate US Government/Credit Bond is a market capitalization-weighted index of investment-grade, fixed-rate debt issues, including Treasuries, government-related and U.S. corporate securities, with maturities of at least one year and less than 10 years. The Philadelphia Fed Manufacturing is a regional Federal Reserve Bank index measuring changes in business growth and is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The ISM Non-Manufacturing is an index based on surveys of more than 400 non-manufacturing firms' purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM) and also 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 Housing Market (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. In May 2007, Markit s U.S. PMI research was extended out to cover producers of metal goods. In October 2009, Markit s U.S. Manufacturing PMI survey panel was extended further to cover all areas of U.S. manufacturing activity. The NY Empire State is an index based on the monthly survey of manufacturers in New York State known as the Empire State Manufacturing Survey conducted by the Federal Reserve Bank of New York. The headline number for the NY Empire State refers to the survey s main index, which summarizes general business conditions in New York State. The Industrial Production is an economic indicator that measures real output for all facilities located in the United States manufacturing, mining, and electric, and gas utilities (excluding those in U.S. territories). The Dow Jones U.S. Select REIT tracks the performance of publicly traded REITs and REIT-like securities and is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. 15
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. Envestnet PMC 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 Envestnet, Envestnet PMC 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. 2017 Envestnet Asset Management, Inc. All rights reserved. ABOUT ENVESTNET Envestnet, Inc. (NYSE: ENV) is the leading provider of intelligent systems for wealth management and financial wellness. Envestnet s unified technology enhances advisor productivity and strengthens the wealth management process, delivering unparalleled flexibility, accuracy, performance, and value. Envestnet enables a transparent, independent, objective, and fiduciary standard of care, and empowers enterprises and advisors to more fully understand their clients and deliver better outcomes. For more information on Envestnet, please visit www.envestnet.com. 16