1 3Q2015

October 2015 QUARTERLY NEWSLETTER

Difficult to believe that we are already in the final quarter of the year and the holiday season is right around the corner. So far 2015 has been nothing short of a wild year and unfortunately, less than ideal regarding general return on investments. Several of the key risk factors that we had discussed many months ago either appeared or intensified in the most recent quarter and as a result global stocks experienced a dramatic increase in volatility. Following several years of positive returns and a near unprecedented streak of low volatility after the short bout of uncertainty in January; the benchmark S&P 500 index peaked in July before breaking violently to the downside in August. Both the S&P and Dow each plunged by more than ten percent1 to what are thus far the year’s lows as both American stock benchmarks ultimately turned in their worst quarterly performance in four years. Many global stock markets and various other investable asset classes fared even worse as concerns over global growth and American monetary policy dominated the minds of investors worldwide.2

The following are a few key dynamics that helped shape and/or facilitate what was effectively a tumultuous third quarter:

After many years of historically unparalleled monetary accommodation through quantitative easing and zero bound interest rates; the U.S. central bank has been signaling its desire to begin normalizing policy by raising the federal funds rate.2 This progression has resulted in significant USD strength since last year which has increased downward pressure on various global markets including commodities and emerging nation assets.1 Although there is certainly an argument to be made that the Federal Reserve should get its policy interest rate modestly above near zero; we believe investors from across the globe are struggling with the uncertainty of this transition. In addition, we think the Fed’s many contradictory statements and highly academic methods for determining policy are making market participants nervous in a world economy that we believe is vastly different than times past.

China continues to be under pressure from both a cyclical slowdown and long term transition away from being an economy that is dominated by exports and infrastructure development.2 As the massive quasi communist economy is in transition, many other developing nations are feeling the impact of less demand for certain goods and especially

1 Source: Interactive Data – 10/1/20152 Source: Bloomberg

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment,

legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and,

although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data supplies. Past performance is no guarantee of future

results. Securities offered through Capital Investment Group, Inc. Advisory services through Capital Investment Advisory Services, LLC 100 E. Six Forks Rd, Ste 200, Raleigh, NC 28609 919/831-2370 Member FINRA/SIPC

2 4Q2015

raw commodities. Factor in extremely high levels of USD debt that was borrowed in recent years by various emerging country corporations/governments because of low American interest rates; we think it is clear to see how the wide spread uncertainty has prevailed. In addition, China announced in August policy that allows its currency to depreciate which adds to global deflation while also promoting what was a speculative bubble in its domestic stock market.2

Considering the above two points and the general context of the current global economic environment; the overarching issue in our opinion is deflation. Despite unprecedented amounts of quantitative easing and rate cuts by global central banks since the financial crisis; downward price pressure is still weighing on the vastly interconnected worldwide economy. Although this issue is complicated in nature, we believe it can be simply considered the result of secular change in China, aging population demographics and rapid advancements in technology. Goods, services and especially commodities are now available in abundance2 due to what we believe are low production costs and many countries promoting exports amidst high competition as a means to generate economic growth. This high supply environment also persists in our belief due to relatively weak demand that is the result of both high levels of debt and an aging population that increasingly favors saving over spending/investment in the developed world and to some extent in China. As our Federal Reserve attempts to tighten policy despite little to no upward price pressure while other central banks are attempting to loosen monetary conditions; we view the global macro-economic situation as restricted and uncertain.

Noting the above points that we feel largely explain the recent volatility and challenges to the global economy/financial markets; it is important to state that with rigorous risk management the outlook still appears favorable for investment that does not prioritize the short term. As risk managers first; we are happy to have added some value to many clients by largely avoiding exposure to certain comparatively risky areas of fixed income, energy and emerging markets.

Although periodic downside is unavoidable in the pursuit of long term gains; our job has been, is and will always be to employ dedicated global research in an attempt to dodge proverbial landmines while doing our best to position for yield/capital gains. Looking ahead at the final quarter of 2015, our data driven investment process favors the following approach as a means to posture for balanced, risk adjusted return:

We believe that select developed countries remain attractive over emerging markets at large. We favor areas of the global market that are poised to benefit from stimulus and reforms such as Europe and Japan along with sectors of the U.S. market that benefit from technology and do not require a large increase in inflation and/or economic growth to expand earnings. Our outlook favors a strong degree of USD exposure versus other currencies and thus a sizable portion of our foreign stock exposure is hedged to minimize currency risk.

3 3Q2015

We remain unexposed to physical commodities due to the fact we feel the economic environment is likely to remain unfavorable for these assets especially when considering they do not offer any yield. In fixed income we are tilted towards U.S. treasuries and relatively high quality bonds as a means to provide balance within portfolios as we think the current risky market environment could be moving even further towards deflation.

Cash is to be considered a valuable asset class at the present time for the various reasons discussed throughout this letter.

It is undeniable that these are difficult and uncertain times as compared to several years past. With that being acknowledged; the substantial negative sentiment that currently exists is not and will never influence our core task of trying to help clients reach their financial goals. With a tremendous amount of noise across the internet, television, social media and various other media outlets; it is paramount to remember that much of what you hear is simply opinion and in our view is not grounded in data driven research. In addition there is an entire industry that thrives of sensationalizing the world economy and markets as either extremely good or terrifyingly bad. The truth and ultimate opportunity lives somewhere between these two polar extremes and thus we will continue working hard every day to stay on top of a vastly complex and rapidly changing world. Using data over emotion and process above intuition; we are honored to have your trust as we move forward together. As always, we are here to help any way possible as your financial partner in the truest sense of the word.

Thank You,

J. ANDY INGRAM

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment,

legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and,

although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data supplies. Past performance is no guarantee of future

results. Securities offered through Capital Investment Group, Inc. Advisory services through Capital Investment Advisory Services, LLC 100 E. Six Forks Rd, Ste 200, Raleigh, NC 28609 919/831-2370 Member FINRA/SIPC