2018 Q2 Market & Economic Overview Mario Nardone, CFA

Available on the XYIS Knowledge Base

Positive Signals Reasons for Concern U.S. has strong economic growth, strong labor market, inflation finally around levels targeted by Fed Stocks often perform well when economic growth is solid and rates rise from low levels Emerging markets are still in early stages of economic recovery Higher interest rates are good for savers Rising trade tension could have impact on global growth Flattening U.S. yield curve as Fed raises short term rates; concerns about possible inversion Currency volatility impacting global markets Are we in later stages of economic cycle? Geopolitical concerns

U.S. Historical Protectionism U.S. tariffs have been falling since the 1930’s Rising trade escalation today is likely a lose-lose with rising consumer prices and lower global economic growth economic growth

Tariffs Have an Impact on Large Cap U.S. Companies Today What will be the long-term impact globally of the current tit-for-tat escalation of tariffs? Source: Wall Street Journal, Thomson Reuters Datastream

Low Unemployment Signals U.S. Economy is Running on all Cylinders The unemployment rate is near its lowest level since 2000

Inflation Expectations Moving Higher But don’t confuse “higher” inflation with “high” inflation

Inflation Numbers Hit Fed Targets Still well below historical average

Yield Curve The yield curve flattens as the Fed continues to raise short-term rates Source: Bloomberg

10 Year – 2 Year Spreads Narrow to Post-Crisis Low Source: Federal Reserve Bank of St Louis

Global Fixed Income Source: Morningstar

Volatility is Back in 2018…and is Normal 2017 was the outlier when we didn’t see much of any downside volatility Source: Factset, April 30, 2018

Investors Need to Stay Disciplined as Even “Good” Years Have “Bad” Periods

U.S. Equity by Size and Style Source: Morningstar

International Developed, Emerging and Frontier Equity Source: Morningstar

U.S. Equity Valuations Remain Reasonable, Non-US Valuations are Below Average

Benefits of Diversification Source: Morningstar

Maintain Your Focus on What Really Matters Financial planning is a process, not an endpoint Concentrate on long-term goals and objectives Focus on reaching goals, not on beating benchmarks Maintain a disciplined approach, in good and bad markets Invest broadly and globally; asset allocation is key Reduce investment and tax costs where possible Rebalance as necessary