security & investment advisory services offered through sagepoint financial, inc., member...

Security & Investment advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC & a registered investment advisor. Bice Wealth Management is not affiliated with SagePoint Financial, Inc. or registered as a broker-dealer.

Security & Investment advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC & a registered investment advisor. Bice Wealth Management is not affiliated with SagePoint Financial, Inc. or

registered as a broker-dealer.

The indices mentioned in this seminar are unmanaged and not available for direct investment. Past performance is no guarantee of future results.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information contained in this commentary has been obtained from sources that are reliable. This presentation is for

information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal

advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

FORMALITIES

Putting the S&P 500 in PerspectiveFactors Affecting the Stock Market in

2014The U.S. Economy in 20142015 Forecasts

AGENDA

Our goal today is to educate you about some of the factors we, and the world’s financial analysts, are watching. While it would be impossible for us to cover every item out there, we will try to touch on the most relevant factors. And while past performance provides no guarantee of future results, we can pick up on trends to help guide a decision making process when investing. Here’s what we’re going to talk about today.

Let’s start off by talking about how to treat the S&P 500 as a gauge of investment performance.

AGENDA

• Why didn’t my portfolio beat the index?• Are stocks overpriced?• Is another major correction imminent?• Have we reached the all-time high?

BENCHMARKING THE S&P 500

When you turn on CNBC at night, you hear everyone talking about the S&P did this or that, the S&P returned 11.4% last year. What is the S&P 500? The S&P 500 is an unmanaged stock index of 500 large American companies that is designed to reflect overall stock market performance.

When you hear commentators talk about S&P 500 performance, you might be wondering…. Why didn’t my portfolio achieve those returns? Why didn’t my portfolio outperform these indexes?

Well, the answer is that you shouldn’t be comparing your portfolio to the S&P 500 or any other benchmark too closely because indexes don’t tell the whole story. They don’t include any diversification, the effects of taxes, or any transition costs. They also carry a lot more risk than most clients are comfortable with.

You also might ask: Are stocks overpriced right now? Have we reached all-time highs?

While we certainly can’t predict the future, we’re going to try and answer these questions for you today.

BENCHMARKING THE S&P 500

COMPARING RETURNS ACROSS ASSET CLASSES

Source: Russell, MSCI, Standard & Poor's, NAREIT, Barclay's Capital, JP Morgan. Diversification cannot assure a profit or protect against loss in declining markets.

2007 2008 2009 2010 2011 2012 2013 2014MSCI Barclays MSCI Russell 2000 NAREIT Equity NAREIT Equity Russell 2000 NAREIT Equity

Emerging Markets Aggregate Bond Emerging Markets Growth REIT Index REIT Index Growth REIT Index39.78% 5.24% 79.02% 29.09% 8.3% 19.7% 42.77% 28.0%MSCI Diversified Russell 2000 NAREIT Equity Barclays MSCI Russell 2000 S&P 500EAFE Portfolio Growth REIT Index Aggregate Bond Emerging Markets 37.23% Growth

11.17% -27.28% 34.47% 27.9% 7.84% 18.63% 13.01%S&P 500 Russell 2000 MSCI Russell 2000 S&P 500 Russell 2000 Russell 2000 S&P 500Growth Value EAFE 26.85% Growth Value Value 11.39%9.13% -28.92% 31.78% 4.65% 18.05% 31.96%

Russell 2000 Russell 2000 S&P 500 Russell 2000 S&P 500 S&P 500 S&P 500 S&P 500Growth -33.79% Growth Value 2.11% Value Growth Value7.05% 31.57% 24.50% 17.68% 30.14% 9.61%

Barclays S&P 500 NAREIT Equity MSCI Diversified MSCI S&P 500 Diversified Aggregate Bond Growth REIT Index Emerging Markets Portfolio EAFE 29.64% Portfolio

6.97% -34.92% 28.0% 19.20% 0.15% 17.32% 7.76%Diversified S&P 500 Russell 2000 S&P 500 S&P 500 Russell 2000 S&P 500 Barclays

Portfolio -37.00% 27.17% Value Value 16.35% Value Aggregate Bond5.70% 15.10% -0.48% 28.28% 6.00%

S&P 500 NAREIT Equity S&P 500 Diversified Russell 2000 S&P 500 MSCI Russell 20005.49% REIT Index 26.47% Portfolio Growth 16.00% EAFE Growth

-37.7% 15.40% -2.91% 23.30% 4.94%S&P 500 Russell 2000 Diversified S&P 500 Russell 2000 S&P 500 Diversified Russell 2000

Value Growth Portfolio 15.06% -4.18% Growth Portfolio 4.90%1.99% -38.54% 24.74% 14.61% 19.65%

Russell 2000 S&P 500 S&P 500 S&P 500 Russell 2000 Russell 2000 NAREIT Equity Russell 2000-1.57% Value Value Growth Value Growth REIT Index Value

-39.22% 21.17% 15.05% -5.50% 14.59% 2.9% 2.15%Russell 2000 MSCI Russell 2000 MSCI MSCI Diversified Barclays MSCI

Value EAFE Value EAFE EAFE Portfolio Aggregate Bond Emerging Markets-9.78% -43.38% 20.58% 7.75% -12.14% 13.58% -2.00% -1.80%

NAREIT Equity MSCI Barclays Barclays MSCI Barclays MSCI MSCIREIT Index Emerging Markets Aggregate Bond Aggregate Bond Emerging Markets Aggregate Bond Emerging Markets EAFE

-15.7% -53.18% 5.93% 6.54% -18.17% 4.21% -2.30% -4.50%

Let’s take a look at some historical returns since 2007. We thought you might like to see how some other benchmarks are performing. First of all, what is a benchmark? Well, a benchmark index is a standard that you can use to compare the performance of a given investment or portfolio. In the investing world, there are hundreds, if not thousands, of indexes that can be used as benchmarks. The S&P 500, the Dow Jones Industrial Average, and the Russell 2000 are all used as benchmarks for different asset classes.

Now, you can’t invest directly into an index, but this chart highlights how value stocks performed when compared with growth stocks, international stocks, bonds, etc., as represented by different indexes. As you can see, international and emerging markets assets got hit pretty hard this year, while REITs and S&P growth stocks did quite well in comparison.




2008 2009 2010 2011 2012 2013 2014Barclays MSCI Russell 2000 NAREIT Equity NAREIT Equity Russell 2000 NAREIT Equity

Aggregate Bond Emerging Markets Growth REIT Index REIT Index Growth REIT Index5.24% 79.02% 29.09% 8.3% 19.7% 42.77% 28.0%

Diversified Russell 2000 NAREIT Equity Barclays MSCI Russell 2000 S&P 500Portfolio Growth REIT Index Aggregate Bond Emerging Markets 37.23% Growth-27.28% 34.47% 27.9% 7.84% 18.63% 13.01%

Russell 2000 MSCI Russell 2000 S&P 500 Russell 2000 Russell 2000 S&P 500Value EAFE 26.85% Growth Value Value 11.39%

-28.92% 31.78% 4.65% 18.05% 31.96% Russell 2000 S&P 500 Russell 2000 S&P 500 S&P 500 S&P 500 S&P 500

-33.79% Growth Value 2.11% Value Growth Value 31.57% 24.50% 17.68% 30.14% 9.61%

S&P 500 NAREIT Equity MSCI Diversified MSCI S&P 500 Diversified Growth REIT Index Emerging Markets Portfolio EAFE 29.64% Portfolio-34.92% 28.0% 19.20% 0.15% 17.32% 7.76%S&P 500 Russell 2000 S&P 500 S&P 500 Russell 2000 S&P 500 Barclays-37.00% 27.17% Value Value 16.35% Value Aggregate Bond

15.10% -0.48% 28.28% 6.00%NAREIT Equity S&P 500 Diversified Russell 2000 S&P 500 MSCI Russell 2000

REIT Index 26.47% Portfolio Growth 16.00% EAFE Growth-37.7% 15.40% -2.91% 23.30% 4.94%

Russell 2000 Diversified S&P 500 Russell 2000 S&P 500 Diversified Russell 2000Growth Portfolio 15.06% -4.18% Growth Portfolio 4.90%-38.54% 24.74% 14.61% 19.65% S&P 500 S&P 500 S&P 500 Russell 2000 Russell 2000 NAREIT Equity Russell 2000

Value Value Growth Value Growth REIT Index Value-39.22% 21.17% 15.05% -5.50% 14.59% 2.9% 2.15%

MSCI Russell 2000 MSCI MSCI Diversified Barclays MSCIEAFE Value EAFE EAFE Portfolio Aggregate Bond Emerging Markets

-43.38% 20.58% 7.75% -12.14% 13.58% -2.00% -1.80%MSCI Barclays Barclays MSCI Barclays MSCI MSCI

Emerging Markets Aggregate Bond Aggregate Bond Emerging Markets Aggregate Bond Emerging Markets EAFE-53.18% 5.93% 6.54% -18.17% 4.21% -2.30% -4.50%

Why can’t you perfectly replicate index performance?

Liquidity issues

Transaction costs

Taxes RISK

Let’s look a little more closely at the performance of different asset classes over time.

In 2009, you can see that emerging markets and international stocks were top performers, returning about 79% and 32%, respectively. Emerging market stocks were on fire that year as investors went looking for growth opportunities overseas. However, in 2010 these asset classes were knocked off the podium. And by 2011, they fell to the bottom of the pile.

Let’s look at another example: In both 2011 and 2012, real estate investment trusts, REITs, turned in the best performance of the bunch. But then in 2013, the asset class didn’t crack 3%. In 2014, there it was at the top of the pile again, returning 28% for the year. What does this tell us? In any given year, the top, middle, and bottom performers change. You never know which one will be the top performer. In fact, the top performer one year can be at the bottom the next.


When you look at the headlines and the market chatter, all you hear about is the S&P 500 is doing this, alternatives are doing this, and it can be frustrating to take a look at your own portfolio returns. What they don’t tell you is that those exact returns are impossible to achieve because they ignore real-world factors like liquidity – you can’t always get your money out of certain investments when you want – trading fees and transaction costs, taxes, and many other issues. Capital gains taxes are a big deal for investors in today’s environment; depending on how long you hold a particular investment, your after-tax returns could be much, much less than the pre-tax return.

Another reason is risk. If you take a shotgun approach, you won’t hit your target all the time. Sure, looking back you might have wanted to be all-in for 2013, when the S&P returned almost 30%. But what about 2008? Are you prepared to lose 37% of your portfolio? That’s a lot of risk to be taking on.

We don’t take a shotgun approach, we are snipers. We do a lot of research and choose the options that are right for you and diversify them. Over time, you will have a portfolio that hopefully performs with less severe ups and downs.




2007 2008 2009 2010 2011 2012 2013 2014MSCI Barclays MSCI Russell 2000 NAREIT Equity NAREIT Equity Russell 2000 NAREIT Equity

Emerging Markets Aggregate Bond Emerging Markets Growth REIT Index REIT Index Growth REIT Index39.78% 5.24% 79.02% 29.09% 8.3% 19.7% 42.77% 28.0%MSCI Diversified Russell 2000 NAREIT Equity Barclays MSCI Russell 2000 S&P 500EAFE Portfolio Growth REIT Index Aggregate Bond Emerging Markets 37.23% Growth

11.17% -27.28% 34.47% 27.9% 7.84% 18.63% 13.01%S&P 500 Russell 2000 MSCI Russell 2000 S&P 500 Russell 2000 Russell 2000 S&P 500Growth Value EAFE 26.85% Growth Value Value 11.39%9.13% -28.92% 31.78% 4.65% 18.05% 31.96%

Russell 2000 Russell 2000 S&P 500 Russell 2000 S&P 500 S&P 500 S&P 500 S&P 500Growth -33.79% Growth Value 2.11% Value Growth Value7.05% 31.57% 24.50% 17.68% 30.14% 9.61%

Barclays S&P 500 NAREIT Equity MSCI Diversified MSCI S&P 500 Diversified Aggregate Bond Growth REIT Index Emerging Markets Portfolio EAFE 29.64% Portfolio

6.97% -34.92% 28.0% 19.20% 0.15% 17.32% 7.76%Diversified S&P 500 Russell 2000 S&P 500 S&P 500 Russell 2000 S&P 500 Barclays

Portfolio -37.00% 27.17% Value Value 16.35% Value Aggregate Bond5.70% 15.10% -0.48% 28.28% 6.00%

S&P 500 NAREIT Equity S&P 500 Diversified Russell 2000 S&P 500 MSCI Russell 20005.49% REIT Index 26.47% Portfolio Growth 16.00% EAFE Growth

-37.7% 15.40% -2.91% 23.30% 4.94%S&P 500 Russell 2000 Diversified S&P 500 Russell 2000 S&P 500 Diversified Russell 2000

Value Growth Portfolio 15.06% -4.18% Growth Portfolio 4.90%1.99% -38.54% 24.74% 14.61% 19.65%

Russell 2000 S&P 500 S&P 500 S&P 500 Russell 2000 Russell 2000 NAREIT Equity Russell 2000-1.57% Value Value Growth Value Growth REIT Index Value

-39.22% 21.17% 15.05% -5.50% 14.59% 2.9% 2.15%Russell 2000 MSCI Russell 2000 MSCI MSCI Diversified Barclays MSCI

Value EAFE Value EAFE EAFE Portfolio Aggregate Bond Emerging Markets-9.78% -43.38% 20.58% 7.75% -12.14% 13.58% -2.00% -1.80%

NAREIT Equity MSCI Barclays Barclays MSCI Barclays MSCI MSCIREIT Index Emerging Markets Aggregate Bond Aggregate Bond Emerging Markets Aggregate Bond Emerging Markets EAFE

-15.7% -53.18% 5.93% 6.54% -18.17% 4.21% -2.30% -4.50%

You can see that the model diversified portfolio, though it didn’t beat the top performers each year, was able to mitigate a lot of the extremes. A quick note here: This isn’t an actual client portfolio, it’s just a model created using a mix of the asset classes you see here. We only build customized client portfolios that include investments that we believe are the correct choice for your unique needs.

Since it’s impossible to predict with any certainty which asset class will win in any given year, we invest in a mix of stocks, bonds, alternatives, and international assets to help iron out the extreme highs and lows over time.

The problem is that diversification isn’t exciting. It’s much more fun to try and beat the index. It’s much more exciting to phone up your friends and brag about the hot stock you picked that just shot up 400%.


Here’s the thing: investing shouldn’t be fun or exciting. Our job isn’t to have fun with your money, it’s to try and help protect it and grow it. We build portfolios that are designed to help you achieve your long-term financial goals, not beat an index that isn’t accessible in the real world.

So, what’s the bottom line? Don’t worry too much about what indexes are doing. You can’t invest directly in them and they exclude the effects of important factors like transaction costs and taxes. You can see that a diversified approach helps reduce highs and lows, which is why we work with our clients to choose a mix of investments that are right for them.


DISCLOSURES

The indices mentioned on the previous slide are unmanaged and not available for direct investment. Past performance is no guarantee of future results. All data is sourced from Yahoo Finance and MSCI unless otherwise noted. All data are as of 12/31/14.

The "Diversified Portfolio" model is a weighted average of the following: 25% in S&P 500, 25% in Barclay's Aggregate, 10% in Russell 2000, 10% in MSCI EAFE, 5% in MSCI EME, 5% in Russell 2000 Growth, 5% in Russell 2000 Value, 5% in S&P 500 Growth, 5% in S&P 500 Value, and 5% in NAREIT Equity REIT Index.

S&P 500 measures the performance of large capitalization U.S. stocks. The S&P 500 is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ. The weightings make each company’s influence on the Index performance directly proportional to that company’s market value.

S&P 500 Growth and S&P 500 Value measure the performance of the growth and value styles of investing in large cap U.S. stocks. The indices are constructed by dividing the market capitalization of the S&P 500 Index into Growth and Value indices, using style “factors” to make the assignment. The Value Index contains those S&P 500 securities with a greater-than-average value orientation, while the Growth Index contains those securities with a greater-than average growth orientation. The indices are market-capitalization-weighted. The constituent securities are not mutually exclusive.

Russell 2000 measures the performance of small capitalization U.S. stocks. The Russell 2000 is a market-value-weighted index of the 2,000 smallest stocks in the broad-market Russell 3000 Index. These securities are traded on the NYSE, AMEX, and NASDAQ.

Russell 2000 Value and Russell 2000 Growth measure the performance of the growth and value styles of investing in small cap U.S. stocks. The indices are constructed by dividing the market capitalization of the Russell 2000 Index into Growth and Value indices, using style “factors” to make the assignment. The Value Index contains those Russell 2000 securities with a greater-than-average value orientation, while the Growth Index contains those securities with a greater-than-average growth orientation. Securities in the Value Index generally have lower price-to-book and price-earnings ratios than those in the Growth Index. The indices are market-capitalization-weighted. The constituent securities are not mutually exclusive.

MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.

MSCI Emerging Markets is a Morgan Stanley Capital International Index that is designed to measure the performance of equity markets in 21 emerging countries around the world.

NAREIT Equity REIT Index is a composite index of all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.

Barclays Aggregate Bond Index (formerly the Lehman Brothers Aggregate Bond Index) includes U.S. government, corporate, and mortgage-backed securities with maturities of at least one year.



AGENDA

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

All index returns exclude reinvested dividends. Past performance is no guarantee of future results.

Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance. All data as of December 31st, 2014.

2014 SNAPSHOT

D J M A M J J A S O N D1700

1750

1800

1850

1900

1950

2000

2050

2100

2150

S&P 500 - 2014 Performance

Dec 31 Close: 1,848.36 2013

Dec 31 Close: 2,058.9 2014

11.39%

Here’s a snapshot of the S&P 500 in 2014. The S&P started 2014 at just under 1,850, closed above 2,000 for the first time in history in August, and ended December at 2,058.9.

Overall, 2014 was a solid year for equities. Though we didn’t have a repeat of 2013’s blistering performance, both the Dow and the S&P 500 hit record closes multiple times throughout the year on the back of improving domestic fundamentals. For the year, the S&P 500 returned 11.39%, the Dow grew 7.52%, and the Nasdaq gained 13.40%.

However, the road last year was anything but smooth. You can see that there were many short term dips along the way as well as some bigger declines. Let’s take a look at some of the events that affected market activity.

2014 SNAPSHOT

D J M A M J J A S O N D1700

1750

1800

1850

1900

1950

2000

2050

2100

2150

S&P 500 - 2014 Performance

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

All index returns exclude reinvested dividends. Past performance is no guarantee of future results.

Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance. All data as of December 31st, 2014.

MARKET EVENTS IN 2014

Fed Interest Rate Hike

Jitters

Emerging Markets Selloff

Ebola & Europe

Oil Price Declines

After a great 2013, investors caught a chill in January when emerging market and currency fears caused a selloff, but quickly got back on the horse.

After several positive months, investors got nervous again in July when the Fed started talking about interest rate increases.

You might remember October’s big scare when the Dow plunged 460 points in a single day on fears about Ebola and European economic growth. It may have felt like the sky was falling but, within a couple of weeks, stocks came roaring back and climbed to new record highs. Just in time to get jittery again in December when oil prices plummeted.


What’s the takeaway here? Today’s stock markets are volatile and intra-year declines are quite normal. Even when it feels like the sky is falling, it’s important not to hit the panic button. Sit down, take stock of what’s actually happening in financial markets and make prudent adjustments where necessary.

We’ll talk a bit more about declines later in today’s presentation.

Source:http://www.reuters.com/article/2014/01/31/us-markets-stocks-idUSBREA080LL20140131http://www.reuters.com/article/2014/07/31/us-markets-stocks-idUSKBN0G019T20140731http://www.reuters.com/article/2014/12/12/us-markets-stocks-idUSKBN0JP1DA20141212


Source: BLS, FactSet, J.P. Morgan Asset Management.

Data are as of 12/31/14.

LABOR MARKET PERSPECTIVES

Improvements in the employment situation contributed significantly to equity performance in 2014. The labor market hit a major milestone last year. It regained the 8.8 million jobs lost in the recession and surpassed them. Now, that doesn’t mean that we’re at total employment; demographic trends and population growth mean that we are still under ideal employment numbers. However, psychologically, it’s a milestone that shows how far the economy has come since the bottom of the recession. More jobs means more working Americans, and that typically spells stronger consumer spending and a better demand environment for U.S. companies.

Not only has the economy recovered all of the jobs lost in the recession, but the quality of jobs has also improved. A big concern in the last couple of years has been that much of the job creation was happening in low-paying industries like food service and retail. Many Americans were forced to take part-time or underpaid work because they couldn’t find quality full-time jobs. Well, the jobs are back and many of them are in well-paying industries like IT, finance, and business services. They’re also being created in the manufacturing industry, which is great news for the big industrial centers of the country. These are not low-paying retail or restaurant jobs, these are the kind of jobs that drive the economy.


The ratio of unemployed Americans to open jobs is also roughly where it was before the recession. Looking back at the peak of the recession in 2009, you can see that there were somewhere between 6 and 7 jobless Americans for every available job. As of October of last year, that number was slightly less than two, which is great news for job seekers who don’t have nearly the competition for available jobs.


LOW GASOLINE PRICES GIVE CONSUMERS A BREAK

$3.77 Jun 2014

$2.63 Dec 2014

$4.11 Jul 2008

Source: U.S. Energy Information Administration. As of 11/24/14

Low gasoline prices also contributed to last year’s performance. From the June average high of $3.77 nationwide, gas dropped to $2.63 in December. To put that in perspective, that’s almost two dollars lower per gallon than the $4.11 a gallon Americans were paying in July 2008.

The gas you put in your car is probably a decent chunk of your monthly household budget. On average, Americans spend over $2,000 per year on gas. The drop in pump prices put money back in consumers’ wallets, giving them more money to spend in other areas like cars, electronics, and other consumer goods.

Sources: LSA Market Outlook 2015

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_NUS_DPG&f=M

http://www.eia.gov/todayinenergy/detail.cfm?id=19211

LOW GASOLINE PRICES GIVE CONSUMERS A BREAK

CORPORATIONS ARE FLUSH WITH CASH

Source: Standard & Poor’s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management.

(Top left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management.


American companies also had a lot more cash to spend last year. As you can see, corporate cash has risen steadily since 2008 and is near record levels.

With overall improvements in the economic and demand picture, businesses started putting that cash to work, building inventories, increasing their hiring, and investing in future growth, boosting economic growth.

We expect to see this continue in 2015 and think it’s an important point in favor of a continued bull market.

Sources:

http://online.barrons.com/article/SB50001424053111904246304579306460202899166.html?mod=BOL_da_wsbm#articleTabs_article%3D1

http://www.bloomberg.com/video/corporate-cash-to-continue-driving-m-a-in-2015-beesley-8y3a1gAJQaSCmv5zMaZTzg.html

CORPORATIONS ARE FLUSH WITH CASH

Source: BLS.gov, online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Survey conducted December 2014. The Wall Street Journal surveys a group of economists throughout the year.

FEDERAL RESERVE RATE HIKES

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

0.11%

0.35%

0.96%

1.58%

2.23%

Federal Funds Rate2007 - est. 2016

Actual Forecast

As we mentioned earlier, investors got jittery about when and how the Fed would start raising interest rates. In this chart you can see that interest rates have been held near zero since 2008. This low rate environment, backed by the Fed’s quantitative easing program contributed to the stock performance in 2013 and 2014. Quantitative easing programs ended in October and the Fed’s next big move will be to start raising interest rates to keep inflation in line with long-term targets.

The Fed hasn’t given us a clear idea of when they will start hiking rates, but it’s not likely to happen before the April FOMC meeting. Though how fast and how far rates will go up is an open question, the Fed has emphasized that they will raise rates slowly in keeping with the economic outlook. The consensus of 50 economists polled by the Wall Street Journal is that rates will remain below 1% until at least the end of 2015.

Sources:

http://projects.wsj.com/econforecast/#ind=fed_funds&r=24

http://www.bloomberg.com/news/2015-01-07/fed-officials-saw-rate-rise-unlikely-before-april-minutes-show.html

FEDERAL RESERVE RATE HIKES

Source: UBS U.S. Equity and Derivatives Strategy 2014 Outlook

RISING RATES AND STOCKS

1986 34.7% over 8 months




Were investors right to worry about interest rate hikes? History suggests probably not. To put things in perspective, consider what the S&P 500 returned over post-rate-hike periods, according to the UBS U.S. Equity and Derivatives Strategy 2014 Outlook research report.

While past returns are by no means a guarantee of future results, we can clearly see from these examples that interest rate hikes don’t necessarily mean calamity for equity markets – contrary to what some naysayers would have you believe. We’ll share more specific forecasts about markets with you later in the presentation.

RISING RATES AND STOCKS

“Historically, bull markets lasting at least 4 years (since 1897) have only ended with a recession—that is, they typically do not end just because ‘everyone is too bullish.’”

Thomas Lee, Former Chief Equity Strategist, JP Morgan

EQUITIES AND THE ECONOMY

Though the stock market and the economy don’t always move in tandem, over the long term, stock market performance tends to mirror the economy. While some folks are out there predicting an end to the bull market, we don’t think it’s going to end this year.

EQUITIES AND THE ECONOMY



AGENDA

Now let’s move on to talking about the U.S. economy. Where many analysts called 2014 the year of the recovery, they are now calling 2015 the year of divergence. Why? Because while the U.S. economy is moving into a sustainable growth phase, other regions of the world continue to struggle.

AGENDA

HOUSEHOLD FINANCES ARE HEALTHIER

Source: BEA, FRB, J.P. Morgan Asset Management. *Revolving includes credit cards. **4Q14 household debt service ratio and 4Q14 household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding. Data are as of 12/31/14.

Along with improvements to the labor market, the overall financial health of American households continued to improve last year. After household net worth declined during the recession, it has climbed above its previous 2007 peak. What does increased net worth mean? It means that home values are up, Americans are back at work, and that they have more money in their bank accounts.

Households have also unloaded a lot of the debt they accumulated in the years before the recession. While it’s terrible that many folks lost houses in the mortgage meltdown, it’s good news for the economy that Americans in general no longer have to service unsustainable levels of debt.

Before the recession, Americans were paying over 13% of their disposable – or after-tax – income in debt payments. As of the fourth quarter 2014, that percent had dropped to just under 10%.

HOUSEHOLD FINANCES ARE HEALTHIER

IS THE NATIONAL DEBT UNSUSTAINABLE?

1946: 113%

1974: 24%

Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.

Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2015 numbers are CBO estimates as of August 2014.


Speaking of high levels of debt, one area that we’re concerned about is the growing national debt.

This chart shows us accumulated federal debt as a percentage of GDP. Going back to the 1940s, we can see that the national debt peaked at 113% of GDP by the end of World War II. Instead of paying it down, the post-war economic expansion allowed the U.S. to essentially grow its way out of that debt over the next decades to hit a low of 24% in 1974. However, you can see that the national debt is growing rapidly again and is projected to reach 74% of GDP in 2015.

How much debt is too much for the economy to sustain? There’s no consensus about that, but federal debt is trending in the wrong direction. Fiscally, the nation needs to get its house in order before the debt starts to weigh on economic growth.

SOURCE: http://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/

IS THE NATIONAL DEBT UNSUSTAINABLE?

THE ECONOMIC RECOVERY REMAINS STRONG

Source: The Conference Board, U.S. Federal Reserve as of 8/31/14.1. The composite index of leading indicators is an index published monthly by the Conference Board, used to predict the direction of the economy’s movements to come. The index is made up of 10 economic components, whose changes tend to predict changes in the overall economy. It is not possibly to invest directly in an index. Past

performance does not guarantee future results.

In spite of the concerning area just mentioned, the U.S. economic expansion continues to look strong.

When analysts and economists start making forecasts about the future, they turn to leading economic indicators that help them project how different segments of the economy will perform in the months ahead. Individually, any given indicator may not tell you much, but by looking at many of them over time, a picture emerges.

This chart shows a composite index of 10 different leading economic indicators. By looking at the overall trend in these indicators, we can get some hints about what’s coming in 2015. As of August of 2014, you can see that the composite is trending strongly upward with no indication of trouble.


Let me draw your attention to two points on the chart. Though past performance can’t predict the future, we can look to history for clues.

The shaded regions in the chart represent recessions. Take a look at the period preceding the two recessions on this chart. Do you see how the index dropped below zero in the months before? That’s a big clue that the economy is heading for a downturn. Now, do you see that pattern appearing now? No, because overall economic fundamentals are trending in a generally positive direction. This supports continued economic growth in 2015.

Source: LSA Market Outlook 2015


IS SENTIMENT TOO HIGH?

Source: University of Michigan, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on

consumer sentiment is based on a multivariate monthly regression between 1/31/2000 – 5/31/2014. Data are as of 12/31/14.

Though we’re confident that the economy is on the right track, we know that the stock market doesn’t always follow the economy.

Consumer sentiment – an important indicator of how Americans are feeling about the economy and their financial prospects – hit its highest level since 2007 at the end of the year on cheaper gas and better job prospects. While this is great for consumer spending, it’s also something that concerns us.

As you can see from the chart, there are numerous times in the past when consumer sentiment has been down when the market has been positive.


Take a look at how consumer sentiment trends before recessions, shown in blue here. Historically, recessions sometimes follow periods of high consumer sentiment. Is that always the case? No, we can see that it wasn’t the case in 1977, 1984 or 2004. But, you can see that it happened in 1972, 2000, and 2007.

It’s something we’re keeping an eye on because it’s an indicator that the market could trend downward. I like how Warren Buffet phrases it: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

In spite of many favorable indicators, we continue to be cautious and prudent about managing risk.


INFLATION IS TAME

Source: BLS, FactSet, J.P. Morgan Asset Management.

Core CPI is defined as CPI excluding food and energy prices.


Let’s talk about inflationary trends for a moment. Inflation is defined as a general rise in the prices of goods and services and is one of the key indicators of economic wellbeing. Though the relationship between inflation and the stock market is complex, all things being equal, stable, modest inflation is better for equities than high or volatile inflation.

If you take a look at the box in the middle of the chart, you’ll see several acronyms. CPI stands for Consumer Price Index and the Headline CPI is the most popular measure of inflation. The Core CPI below it strips out volatile food and fuel prices to focus on long-term inflation trends. You can see that the yellow Headline CPI line jumps around much more than the blue Core CPI line. That’s because food and energy prices tend to be very volatile in the short run.

INFLATION IS TAME

As of November 2014, the Headline CPI was well below historic averages at 1.3% and the Federal Reserve expects it to stay modest in the months to come, which is good news for economic growth. Though past isn’t always prologue, historically, a sudden run up in prices has often presaged or accompanied a recession. Note the huge inflationary spikes during the 70s oil crisis and the 80s recession. These were periods when a number of factors sent prices spiraling out of control, taking years for the economy to recover. Fortunately, that’s not a problem we have to deal with right now.

Source: http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/historical-data/inflation-forecasts.cfm

INFLATION IS TAME



AGENDA

Now that we’ve looked at what happened in 2014, let’s discuss some forecasts for 2015.

AGENDA

Name/Company 2015 S&P 500 Target

David Bianco, Deutsche Bank 2,150

Brian Belski, BMO 2,250

Jonathan Gilonna, Barclays 2,100

Tobias Levkovich, Citigroup 2,200

David Kostin, Goldman Sachs 2,100

Dan Greenhouse, BTIG 2,200

Jonathan Golub, RBC 2,325

Julian Emmanuel, UBS 2,225

Andrew Garthwaite, Credit Suisse 2,100

Savita Subramanian, BofA Merrill Lynch 2,200

Adam Parker, Morgan Stanley 2,275

John Stoltzfus, Oppenheimer 2,311

Tom Lee, FundStrat 2,325

GROUP AVERAGE 2,212 (7.45% growth)

Source: Business Insider, 2015

2015 FORECASTS

So what are the talking heads forecasting for domestic equities in 2015? Let’s take a look. Each year, Business Insider compiles the S&P 500 price targets of Wall Street’s top analysts.

Of course, as we stated earlier in the presentation, we are not trying to foretell the future. No one knows for sure what equities will do in 2015. That being said, we are glad to see that many of the leading minds agree on one thing: That stocks are likely to end the year in positive territory again. We won’t be surprised to see some ups and downs. We may even see a correction of 10% or more. Ultimately though, as we’ve discussed, the underlying fundamentals look strong enough to support continued growth in equity markets. Let’s take a look at why.

SOURCE: http://www.businessinsider.com/wall-street-2015-sp-500-forecasts-2015-1

2015 FORECASTS

2015 INTEREST RATE FORECASTS

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management

*Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for federal funds rate which is a medium estimate.


We talked earlier about how many people have been worried about the Federal Reserve raising interest rates. However, you can see in this chart that we’re talking about very tiny raises. By the end of 2015, the Fed anticipates raising interest rates by just one percent. Predictability is key to avoid a market overreaction. The Fed has been doing a great job of telegraphing its plays and giving investors time to adjust to future changes. The Fed also expects the economy to grow at a nice, steady pace. Not too hot, not too cold.

2015 INTEREST RATE FORECASTS

HISTORICAL S&P 500 GROWTH PATTERNS

Source: Robert Shiller, FactSet, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only. Data are as of 12/31/14.

You may have heard a number of pundits talk about the dangers of reaching all time highs in the stock market and how the rally can’t be sustained at these new levels.

However, if you take a look at long-term trends, you can see that from 2000 onward, the S&P 500 has been flat. That’s more than 10 years without significant growth. The market experienced the same pattern between 1937 and 1948 and again between 1966 and 1974. What happened after those periods? The market experienced extended periods of growth. While we can’t predict the future, there’s no reason to believe that this pattern won’t continue and we can add it to the pile of evidence that supports continued stock market growth.

ARE STOCKS OVERVALUED?


Source: Standard & Poor’s, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do

not include the reinvestment of dividends. Past performance is not indicative of future returns. Data are as of 12/31/14.

If you watch the financial news, you’ll hear analysts talking about price-to-earnings ratios, or P/E ratios. This is a measure of how high a company’s stock price is relative to its annual earnings. As P/E ratios go up, people start to ask if the stock market is overpriced. Looking at this chart of inflection points in the S&P 500, we can see that P/E ratios often peak before a drop in the market. The forward P/E was 25.6 in March of 2000 and the market fell 49%. In October of 2007, the P/E ratio was at 15.2 times earnings and the market dropped 57%.

The long-term average P/E ratio for the S&P 500 is about 15.5. At the end of December, the forward looking P/E ratio was at 16.2 times earnings. Now, just because we’re above the average does not mean that stocks can’t go higher. For example, take a look at December 1996 where the P/E ratio was 16 times earnings and the S&P still ran up 106%.


Bottom line, P/E ratios may not be too high. Although stocks are no longer a bargain, we believe they offer better value than other financial assets and should outperform cash, bonds, inflation in 2015.

Source: http://www.businessinsider.com/jpm-sp-500-inflection-points-chart-2015-1

Long-term P/E average courtesy of Robert Shiller.


BULL MARKET RETURNS AND RECORD HIGHS

Source: Standard & Poor’s, J.P. Morgan Asset Management. Valuations are based on real earnings yield for the S&P 500 which is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Period after average valuation defined by 15-day moving average passing below average real earnings yield. *As depicted on the left hand chart, the return to peak price for the current bull market is 0% as the S&P 500 has yet to cross its long run average real earnings yield. The

S&P 500 would need to appreciate over 22% to reach its long-term average real earnings yield of 2.5%. Data are as of 12/31/14.

Looking at average valuation, represented here in the chart on the left by average real earnings yield, which accounts for inflation, you’ll see that even when the market achieves its average valuation, there’s often still opportunity for growth. If you were to decide that the S&P 500 couldn’t go any higher after it reached its average valuation and pulled out of the market, you would have missed out on 49% of additional return in 1982 and 83% in 1990.

Another thing I want to point out is that even though the market has grown 204% since 2009, it hasn’t even reached its long-term average valuation yet as measured by real earnings yield. In fact, the S&P 500 would need to appreciate another 22% to cross the long-term average. This is another argument in favor of the bulls.

When you turn on CNBC and you hear market commentators say that the market’s near record highs, or at record highs, it might make you think that the market can’t go any higher. But, a record high doesn’t necessarily mean too high.


The chart on the right shows during different periods of time how often the stock market stayed near its high. Since 2009, the S&P 500 has been within 5% of a record high 78% of the time. 42% of the time, it has been within 1% of a record high. To put that another way, if there are about 250 trading days in a year, we can expect to see the S&P 500 close to a record for almost 200 of them.

Markets are frequently pushing new highs. Don’t let that scare you.


INTRA-YEAR DIPS ARE NORMAL

Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2014.


Of course, we may see some dips. That is normal. Last year, the stock market experienced several minor dips and a couple of bigger declines. However, history shows that these drops are typical. In fact, the S&P 500 has experienced average intra-year declines of 14.2% since 1980. Despite those declines, annual returns were still positive in 27 out of 35 years.

So, what does that tell us? Even when we see small retracements, it’s not a big deal. Try not to panic.

INTRA-YEAR DIPS ARE NORMAL

THE PRESIDENTIAL CYCLE REAL CHANGE IN S&P 500

Source: New York Times, Standard & Poor’s, Bureau of Labor Statistics, Bloomberg, Blue Chip Economic Indicators. Average GDP growth of 3.2% based on figures for 1946 to 2010. Figures show total return, assuming reinvestment of dividends, adjusted for annual change in Consumer Price Index.

Another interesting piece of history: Research suggests that there is some correlation between stock market performance and the presidential election cycle. As it turns out, history shows that the third year of a presidential term is often good for stocks. Since 1947, stocks have ended the year higher 94% of the time. The S&P 500 returned a median of 18% in the third year of a term. Now, let’s not forget that there are many other factors influencing markets, such as the Federal Reserve, the economy, and what’s happening overseas. However, we can treat this indicator as one more tick in the pro-bull column for 2015.

Please note: Presidents who are in their second term in the White House may negatively affect the values. Take for example 2000 and 2008. Both years were the final year that the President could serve in the White House and the return on those years was negative. Since President Obama is in his 3 year, 2nd term, there is a likely change the market will not perform very well based on similar circumstances. Also, our Democratic President is currently outnumbered by Republicans in both the Senate and House of Representatives which could negatively affect the markets.

THE PRESIDENTIAL CYCLE REAL CHANGE IN S&P 500

FOREIGN MARKET OPPORTUNITIES

Source: MSCI, FactSet, J.P. Morgan Asset Management. Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM),and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns. Data are as of 12/31/14.

Finally, even if you still think that U.S. stocks are overvalued, there’s some good news. We don’t put all your money in the U.S. stock market. Because of the divergence in growth prospects between the U.S. economy and other regions of the world, we see some opportunities overseas. Looking at emerging markets and Europe, we see that valuations are much lower than the S&P, making them look cheap in comparison.

FOREIGN MARKET OPPORTUNITIES

DIVERGING INTEREST RATE ENVIRONMENTS

Source: T. Rowe Price. As of September 30, 2014.Chart is for illustrative purposes only, and does not reflect actual interest rates. As of September 30, 2014.

We’re a firm that looks at the global picture. Domestic bonds benefited last year from international demand for U.S. assets. Security situations in Ukraine and the Middle East and worsening economic conditions in China and Europe made U.S. bonds very attractive to nervous foreign investors.

However, we’re moving into a rising rate environment, and as we’ve talked about in the past, when rates go up, bond prices go down. The new interest rate environment makes us cautious about investing in certain bonds, particularly long-term bonds. However, the rate picture is quite different outside the U.S.

Note that in Europe, interest rates are heading lower as the European Central Bank tries to stoke economic growth. Australia and Canada are in a stable interest rate environment.

Source: LSA Market Outlook 2015

DIVERGING INTEREST RATE ENVIRONMENTS

WHERE DO WE GO FROM HERE?

So let’s summarize by outlining what we think the global economy could do this year. Based on some interesting economic analysis done by the team at Oppenheimer Funds Distributor, Inc., we think the economy could take one of three paths in 2015:

1: The economy could stagnate and grow below trend. For all the reasons we’ve discussed, we think the probability of this is low. However, if the economies of our major trading partners in China and Europe collapse or credit markets seize up, we could see the economy slow.

2: It could expand rapidly if a number of things come together like a sudden consumption boom in China, strong consumer spending boosted by low oil prices, or if major financial reforms occur in Europe.


Or 3: It could grow moderately, in which case we see increased corporate earnings growth but inflation remains tame. In my opinion, and that of the economists at Oppenheimer, this third way is the most likely. A strong U.S. dollar will likely support growth in emerging markets and other economies in which U.S. companies business. Central banks overseas will probably pick up where the Fed left off and inject liquidity into the global economy. However, weak economic growth in China and Europe has the potential to keep U.S. economic growth modest and prevent a more rapid expansion.

If the U.S. economy continues to grow moderately, we would expect stocks to generally outperform bonds. However, we also expect to see divergence in growth paths where some sectors and asset classes will grow more rapidly than others and investors will have to be choosy and look for the right opportunities.

Source: https://www.oppenheimerfunds.com/advisors/doc/2015_Outlook.pdf?dig_asset_metrics=done&cb=77187590688


A Mix of Strategies

Passive Management

Active Management

Tactical Asset Allocation

Tax-efficient Investments

Diversification Across Asset

ClassesDiversification Within Asset

Classes

Global Diversification

Alternative Investments

Insurance

Estate Planning

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining value.

NO SINGLE SOLUTION

So what is the most important thing to take away from today? This: There is no single solution that is right for everyone. You cannot invest in an index, so don’t compare your portfolio performance to a single index. Your personal investment risk tolerance, time horizon, investment objectives, and many other factors, will ultimately determine your outcomes.

Nothing we’ve shared in this presentation was intended to be investment advice. But if something we’ve said has raised questions, please fill out the comment card in front of you and we will contact you to provide answers. Also, if you are a guest here today and you would like a complimentary second opinion of your current investments, please fill out the card and someone will contact you.

NO SINGLE SOLUTION

UNTIL NEXT TIME…

This concludes today’s presentation. For more information and timely updates, please follow us on social media. Our URLs are printed on the information in your packet. We hope that you enjoyed the information we shared, and we’ll be around to answer your questions.

UNTIL NEXT TIME…

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