1 1Q2017

Disclosures:Theinformationprovidedinthispaperisforgeneralinformationalpurposesonlyandshouldnotbeconsideredanindividualizedrecommendationofanyparticularsecurity,strategyorinvestmentproduct,andshouldnotbeconstruedasinvestment,legalortaxadvice.CapitalInvestmentAdvisoryServices,LLCmakesnowarrantieswithregardtotheinformationorresultsobtainedbythirdpartiesanditsuseanddisclaimanyliabilityarisingoutoforrelianceontheinformation.Thisinformationissubjecttochangeand,althoughbasedoninformationthatCapitalInvestmentAdvisoryServices,LLCconsidersreliable,itisnotguaranteedastoaccuracyorcompleteness.Sourceinformationisobtainedfromindependentfinancialdatasupplies.Pastperformanceisnoguaranteeoffuture

results.SecuritiesofferedthroughCapitalInvestmentGroup,Inc.AdvisoryservicesthroughCapitalInvestmentAdvisoryServices,LLC100E.SixForksRd,Ste200,Raleigh,NC28609919/831-2370MemberFINRA/SIPC

QUARTERLY NEWSLETTER

January 2017

It happened again! Another year came and went. 2017 is here for good and looking back, it is

quite possible that 2016 will go down as one of the most significant, dynamic and truly

fascinating years of the modern era. Expectations for the global economy and the political

landscape were in constant flux around the world last year. Once considered low probability

events became reality and consensus opinion on the future fluctuated wildly throughout the

year. (And we’re still all sane around the office!)

The following is a brief summary of the year that was, with a focus on broad financial markets

and the intersection of politics and economics:

2016 kicked off with extreme fear as stock markets around the globe fell sharply on widespread

anxiety of a Chinese economic collapse and a plummet in the price of commodities and

corporate bonds. This dynamic sent U.S. Treasuries higher (yields lower) as investors across the

world flocked to American government securities on fears of further drops in the equity

markets. Stabilization occurred in the first half of February on the back of a massive Chinese

stimulus and further support from central banks of various countries. Our own Federal Reserve

lowered their outlook for rate hikes significantly around this time and calmed what had been a

long running and truly massive rise in the value of the US Dollar versus nearly all other

currencies.

Commodities and various other assets that had lagged for many years rebounded dramatically

as investors scrambled to buy “beat up” assets such as Emerging Market stocks. Money

simultaneously flocked into defensive areas of the U.S. stock market, such as Utilities and

Consumer Staples, based largely on the belief that interest rates were destined to stay lower

for longer. This trend continued into the summer as global stocks and bonds moved upward at

the same time as interest rates in many developed world countries were touching historical

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lows; some even going into negative territory. Falling interest rates were further justified by

market consensus in the summer as the U.K’s vote to “Brexit” from the European Union was

ultimately seen as a buying opportunity for both stocks and bonds.

Despite the surprise outcome in the U.K. over the summer, the prediction community with all

their advanced analytics continued to give Donald Trump a low chance of actually winning the

Presidential race in November. Furthermore the common opinion as the U.S. election

approached was that a Trump victory would equal a disaster for global stocks in general. As

the election approached, bonds continued to do well and attract capital as worldwide deflation

remained on the minds of many. Stocks often rallied on poll numbers supporting Hillary Clinton

and dropped when Mr. Trump was seen rising in popularity. When now President-elect Trump

ultimately won the early November election, the U.S. stock market moved quickly and

dramatically higher as interest rates spiked as a result of a rapidly newfound belief that pro-

business policies would lead to significantly higher inflation and surging economic growth.

Investors shunned areas of the market that had been popular in favor of those that were

previously viewed destined to continue underperforming. Contradictions were everywhere in

markets as the US Dollar surged higher along with rising commodity prices and falling

emerging market stocks as Trump was all the sudden viewed as good for U.S. economic

growth while simultaneously bad for much of the globe due to “alleged” pending free trade

restrictions. What has been even more incredible than the price action across markets has been

the dramatic, and often comical, 180-degree change many have exhibited regarding their

forward outlook. Just as we’ve seen before, talking heads and much of the industry simply

change their analysis to match recent price action. All of this leads us to what is now a relatively

bullish consensus outlook for U.S. stocks and the domestic economy amidst a less positive

collective view for much of the outside world. Love for bonds has now turned to hate as fears

of deflation have been replaced by the joy of (potential) future inflation.

Amidst any reactionary emotions across the investment industry, we have maintained a patient

and grounded approach. Having been positioned to take advantage of falling U.S. government

bond yields early in the year, we moved slowly in subsequent months to adjust our fixed

income holdings to reflect what has become a backdrop characterized by rising inflation from

low levels. This change in inflation expectations has been mostly due to the fact that

companies are now starting to pay employees more and the Organization of Petroleum

Exporting Countries (OPEC) has enacted an agreement to curb the output on approximately

60% of the globe’s oil production. These two things in of themselves justify both interest rates

and inflation being higher than the historically low levels seen early in 2016.

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Disclosures:Theinformationprovidedinthispaperisforgeneralinformationalpurposesonlyandshouldnotbeconsideredanindividualizedrecommendationofanyparticularsecurity,strategyorinvestmentproduct,andshouldnotbeconstruedasinvestment,legalortaxadvice.CapitalInvestmentAdvisoryServices,LLCmakesnowarrantieswithregardtotheinformationorresultsobtainedbythirdpartiesanditsuseanddisclaimanyliabilityarisingoutoforrelianceontheinformation.Thisinformationissubjecttochangeand,althoughbasedoninformationthatCapitalInvestmentAdvisoryServices,LLCconsidersreliable,itisnotguaranteedastoaccuracyorcompleteness.Sourceinformationisobtainedfromindependentfinancialdatasupplies.Pastperformanceisnoguaranteeoffuture

results.SecuritiesofferedthroughCapitalInvestmentGroup,Inc.AdvisoryservicesthroughCapitalInvestmentAdvisoryServices,LLC100E.SixForksRd,Ste200,Raleigh,NC28609919/831-2370MemberFINRA/SIPC

Much of the recent gains in the markets have been concentrated in a small number of U.S.

stocks and sectors with much of the rest of the world (as well as commodities and bonds)

seemingly struggling by comparison. We continue to maintain a diversified global portfolio as

to avoid risk concentration. Although such an approach may appear less attractive when select

markets are leaping higher, it is grounded primarily in risk management and based on a

historical perspective. At the current time, we are poised to buy certain areas of the market on

pullbacks while maintaining exposure to various global markets, which have underperformed

for some time and could offer some long-term value.

Finally, we’re often asked for a prediction about the markets for the year to come. Here is ours:

Markets will go up and down throughout the year and the only constant will be the need to

remain focused on your own financial journey of life! (We’ll all also get a year older this year.)

With your best interests’ front and center, we will stay the course as we start a new year

together. As market sentiment continues to swing dramatically, we will remain grounded and

process oriented. We continue to believe that when it comes to long-term investment & risk

management, it is the turtle that wins the race.

Whenever you find yourself on the side of the majority, it is time to pause and reflect.

-Mark Twain

Thank You,

J. ANDY INGRAM