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Economic & Market Commentary

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Market Update – February 2015 February was a great month for global stocks! The S&P 500 (U.S. large cap stocks) was up 5.7% and U.S. small stocks (Russell 2000) gained 5.9%. The U.S. jobs report was strong and the unemployment rate ticked down to 5.5%. Developed international stocks outperformed U.S. stocks across the board as large stocks returned 6.0% and international small stocks returned 6.1%. Emerging markets returned a more modest 3.1%. Bond returns were negative as the 10‐year U.S. Treasury yield rose to 2.0%, up from 1.7% last month. U.S. intermediate‐term bonds declined 0.7%, international bonds fell 0.5%, and inflation‐protected bonds fell 1.2%. REIT returns were negative (‐1.6%), but commodities gained 2.6%. Economy The second estimate of fourth‐quarter U.S. real GDP growth

came in at 2.2%, slightly below the initial estimate of 2.6%. Inflation (CPI) in the most recent month was negative at ‐0.7%

bringing the year‐over‐year inflation rate to ‐0.1%. The February jobs report was strong with 295,000 jobs added in

February. The U.S. unemployment rate ticked down to 5.5%. Stocks The S&P 500 Index returned 5.7% and U.S. small stocks returned

5.9%. Returns were strong across all sectors except for utilities (‐6.4%).

Developed international large cap stocks returned 6.0%. Progress with Greece’s creditors and the anticipation of quantitative easing in the Eurozone provided a tailwind.

Emerging markets gained 3.1% as Russia recovered and lifted the index with a 22.8% gain.

Bonds The 10‐Year U.S. Treasury yield rose substantially to 2.0%, up

from 1.7% the month prior. As a result, bond returns were generally negative in February.

The Federal Reserve also confirmed that if economic conditions continue to improve, they will raise short‐term interest rates.

Alternatives REITs declined 1.6% and commodities gained 2.6% helped by

higher energy prices.

NASDAQ Reaches 5000: Another bubble? It’s amazing it was only 15 years ago. All the hype. All the excitement. And all the profits! The technology industry was booming in the 90s and everyone wanted to be a part of it. Sure there were still disciplined index investors, but at the time those investors felt like they were being lapped. When their portfolios returned “only” 10% for the year, they would have been happy if their neighbor wasn’t bragging about a company he tripled his money on. The rapid rise in technology startups gave way to some of the most exciting times in investment history. But on March 10, 2000, that was all about to change. The NASDAQ peaked at 5,133 and didn’t bottom out until October 8, 2002, falling all the way to 1,110. Take a second to catch your breath, that’s nearly an 80% drop. And that’s for the investors wise enough to at least diversify among their technology holdings. Investors with just a handful of holdings may have watched their portfolios go to $0 as companies that were expected to make millions went bankrupt and never made a penny. So it is understandable why investors may express concern rather than excitement when they see the NASDAQ reach the 5,000 level again 15 years later. But in hindsight the explanation for the decline is simple. Stock prices were not supported by earnings. So the big question is: are prices better supported today? And the answer is absolutely. Toward the peak of the tech bubble the P/E (price/earnings) ratio of the NASDAQ soared well above 100. In other words, stocks were very expensive compared to the earnings they were generating. For reference, the average historic P/E ratio for the NASDAQ is 24.4, and the index currently sits at 23.0 (as of 3/6/2015). This means that stocks today are selling at a discount to historic averages even as corporate earnings appear strong and continue to grow. So as we pause in a moment of silence for the money lost, it is important that we learn from the mistakes of others. Some people will always prefer a flashy investment strategy because of the thrill that comes from gambling. But for those of us who want a more secure future, diversification will always be the best strategy. Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply

Management, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo,

Yahoo! Finance, BofA Merrill Lynch, wsj.com

Investment Research Team Update Building Ideal Futures

Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-Bloomberg Commodity Index.

Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

WorldStockIndex(AC)

S&P500

U.S.LargeValue

U.S.Small

U.S.SmallValue

Int'lLarge

Int'lLargeValue

Int'lSmall

Int'lSmallValue

EmrgMkts

TIPSShort-TermBonds

Inter-TermBonds

Int'lBonds

GlobalREITs

Comm-odities

1 Month 5.6% 5.7% 5.0% 5.9% 4.8% 6.0% 6.3% 6.1% 6.3% 3.1% -1.2% 0.0% -0.7% -0.5% -1.6% 2.6%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

MARKET RETURNSOne Month as of 2/28/2015

WorldStockIndex(AC)

S&P500

U.S.LargeValue

U.S.Small

U.S.SmallValue

Int'lLarge

Int'lLargeValue

Int'lSmall

Int'lSmallValue

EmrgMkts

TIPSShort-TermBonds

Inter-TermBonds

Int'lBonds

GlobalREITs

Comm-odities

YTD 4.0% 2.6% 0.8% 2.5% 1.8% 6.5% 6.0% 6.6% 7.0% 3.7% 1.9% 0.1% 1.0% 1.4% 3.8% -0.8%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

MARKET RETURNSYear-To-Date as of 2/28/2015


1 Month YTD 1 Year 3 Years 5 Years 10 Years 15 YearsEQUITIESS&P 500 5.7% 2.6% 15.5% 18.0% 16.2% 8.0% 4.9%U.S. Large Value 5.0% 0.8% 13.3% 17.1% 14.9% 7.1% 7.5%U.S. Small 5.9% 2.5% 5.6% 16.6% 16.0% 8.3% 6.6%U.S. Small Value 4.8% 1.8% 7.7% 16.6% 15.3% 8.2% 11.7%Int'l Large 6.0% 6.5% 0.0% 9.4% 7.8% 4.8% 3.2%Int'l Large Value 6.3% 6.0% -1.6% 9.4% 6.9% 4.2% 4.8%Int'l Small 6.1% 6.6% -0.9% 11.8% 11.0% 7.0% 7.1%Int'l Small Value 6.3% 7.0% -1.3% 12.4% 11.3% 7.3% 9.8%Emerging Mkts 3.1% 3.7% 5.0% -0.3% 3.6% 7.9% 7.2%World Stock Index (AC) 5.6% 4.0% 6.9% 11.7% 11.0% 6.6% 4.1%FIXED INCOMETIPS -1.2% 1.9% 3.1% 0.4% 4.4% 4.6% 6.5%Short-Term Bonds 0.0% 0.1% 0.0% 0.1% 0.2% 1.9% 2.4%Interm-Term Bonds -0.7% 1.0% 2.8% 2.0% 3.4% 4.2% 5.2%International Bonds -0.5% 1.4% 9.1% 5.5% 4.9% 4.9% 5.2%ALTERNATIVESGlobal REITs -1.6% 3.8% 19.1% 14.7% 15.7% 7.8% 12.5%Commodities 2.6% -0.8% -22.8% -11.2% -5.0% -2.7% 2.2%

MARKET RETURNS - Longer Term Annualized as of 2/28/2015

Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-Bloomberg UBS Commodity Index.Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

WorldStockIndex(AC)

S&P500

U.S.LargeValue

U.S.Small

U.S.SmallValue

Int'lLarge

Int'lLargeValue

Int'lSmall

Int'lSmallValue

EmrgMkts

TIPSShort-TermBonds

Inter-TermBonds

Int'lBonds

GlobalREITs

Comm-

odities

1 Year 6.9% 15.5% 13.3% 5.6% 7.7% 0.0% -1.6% -0.9% -1.3% 5.0% 3.1% 0.0% 2.8% 9.1% 19.1% -22.8%

-25.0%

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-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

MARKET RETURNSOne Year as of 2/28/2015



Source: Morningstar Direct. Country returns are the MSCI country index (gross) returns.

Japan UK France Australia Germany Switz. Spain Italy Sweden Netherl.

1 Month 6.1% 6.3% 6.5% 7.7% 6.1% 4.6% 7.1% 8.4% 6.8% 6.7%

YTD 8.6% 5.2% 7.3% 5.8% 8.0% 5.3% 0.3% 8.4% 9.1% 6.8%

1 Year 9.3% -2.8% -5.3% 0.4% -4.0% 1.0% -6.3% -8.4% -1.0% 3.5%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

INTERNATIONAL EQUITY - DEVELOPED COUNTRIESReturns as of 2/28/2015

China Brazil SouthKorea

Taiwan SouthAfrica

India Russia Mexico Indonesia Malaysia

1 Month 3.2% 2.9% 0.6% 3.7% 0.7% 1.9% 22.8% 7.4% 2.2% 3.4%

YTD 5.6% -3.7% 3.0% 4.7% 5.3% 9.9% 21.9% 1.0% 1.0% 0.8%

1 Year 19.4% -10.4% -5.9% 17.2% 13.2% 36.9% -24.8% 1.8% 11.8% -8.4%

-30.0%

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0.0%

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30.0%

40.0%

INTERNATIONAL EQUITY - EMERGING MARKETSReturns as of 2/28/2015



Source: Morningstar Direct. US Equity indices used: 10 S&P 500 sector indices. Fixed Income indices used: Treasury-Barclays US Treasury Index, Agency-Barclays US Agency Index, Inv Grade Corp-Barclays US Inv Grade Index, MBS-Barclays US Mortgage Backed Securities Index, High Yield-Barclays US High Yield Corporate Index, Int'l Govt Hedged-JPMorgan GBI Global ex US Index Hedged.

Cons DiscrCons

Staples Energy FinancialsHealthCare Industrials Info Tech Materials Telecomm Utilities

1 Month 8.6% 4.2% 4.1% 5.9% 4.3% 5.6% 8.2% 8.0% 6.6% -6.4%

YTD 5.3% 3.1% -1.0% -1.5% 5.6% 1.8% 4.0% 6.0% 5.4% -4.2%

1 Year 15.5% 21.7% -7.2% 14.2% 23.5% 12.6% 22.5% 11.1% 13.3% 16.1%

-10.0%

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25.0%

30.0%

US EQUITY - LARGE-CAP SECTOR RETURNSAs of 2/28/2015

Treasury Agency Inv Grade Corp MBS High YieldInternational

Hedged

1 Month -1.5% -0.8% -1.0% -0.2% 2.4% -0.5%

YTD 1.0% 0.7% 2.0% 0.7% 3.1% 1.4%

1 Year 4.4% 3.1% 6.5% 4.8% 2.8% 9.1%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

FIXED INCOME - SECTOR RETURNSAs of 2/28/2015


3 Month T-Bill 0.0%10 Year Treasury 2.0%30 Year Treasury 2.6%

10 Year TIPS 0.2%

Corporates (A or better) 2.6%High Yield Corporates 6.0%

Municipal Bonds 1.6%

Treasury Yields

Non-Treasury Yields

Source: U.S. Treasury, Federal Reserve Bank of St. Louis, Vanguard. The Treasury ceased publication of the 30-year constant maturity series on February 18, 2002 and resumed that series on February 9, 2006. To estimate a 30-year rate during that time frame, the series above includes the Treasury 20-year Constant Maturity rate and an "adjustment factor," which is added to the 20-year rate to estimate a 30-year rate during the period of time in which Treasury did not sell 30-year bonds.This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

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US Fixed Income Yields

10‐Year Treasury US Corporate A Yield US High Yield

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US Treasury Yields

3‐Month Treasury Bill 10‐Year Treasury 30‐Year Treasury

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US Inflation Expectations

10‐Year Treasury 10‐Year TIPS


Source: Bureau of Economic Analysis. Real GDP data reflects most recently available as of month-end. GDP values shown in top graph are % change vs. prior quarter annualized and reflect GDP revisions since quarter-end. GDP values shown in bottom graph are % change vs. one year ago and reflect GDP revisions since quarter-end. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

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Real GDP(% Change From Prior Quarter at Annual Rate)

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Real GDP(% Change from One Year Ago)

� The second estimate of fourth quarter U.S. economic growth (real GDP) came in at 2.2%. Increases in consumer spending and inventory investment contributed to the growth. Consumer spending increased by 4.3% compared with the third quarter increase of 3.2%.

� U.S. real GDP year‐over‐year has been positive and is currently 2.4%. The current year‐over‐year growth is just below the long‐term average of 2.6%.

20 Year Avg: 2.6%


Source: St. Louis Fed, Department of Labor: Bureau of Labor Statistics. CPI data reflects most recently available as of month end. CPI values shown in top graph are % change vs. prior month seasonally adjusted. CPI values shown in bottom graph are % change vs. one year ago.This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

‐2.0%

‐1.5%

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

J‐00 J‐01 J‐02 J‐03 J‐04 J‐05 J‐06 J‐07 J‐08 J‐09 J‐10 J‐11 J‐12 J‐13 J‐14 J‐15

U.S. CPI(% Change Monthly)

‐3%

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J‐00 J‐01 J‐02 J‐03 J‐04 J‐05 J‐06 J‐07 J‐08 J‐09 J‐10 J‐11 J‐12 J‐13 J‐14

U.S. CPI(% Change from One Year Ago)

� Inflation (CPI) for the month of January was negative at -0.7%, held down by cheaper energy prices.

� The year-over-year inflation level as of January dropped significantly to -0.1%, well below the Federal Reserve's long-term inflation target of 2%.


Source: St. Louis Fed, Department of Labor: Bureau of Labor Statistics, Wells Fargo . Unemployment data reflects most recently available as of month end. Non-farm payrolls values are the monthly change in non-farm payrolls (in thousands), seasonally adjusted.This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

� The unemployment level ticked down to 5.5% in February. The unemployment rate is considerably below the original 6.5% threshold the Federal Reserve was looking for as a signal of a strong, sustainable economy.

� The economy added 295,000 jobs in February, beating consensus estimates of 240,000 jobs. The economy added nearly 3.0 million jobs in 2014, making it an indisputably stronger labor market than a few years ago.

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No

n-F

arm

Pay

rolls

(ch

ang

e, i

n 0

00s)

Un

emp

loym

ent

(%)

Labor Market

Unemployment (%) Non-Farm Payrolls


Source: National Association of Home Builders, U.S. Census Bureau. Housing starts are the number of privately-owned housing starts (in 000s) each month at a seasonally adjusted annual rate. The U.S. Single Family Home Prices reflect the percentage change in the median sale prices on a year-over-year basis in thousands of dollars, not seasonally adjusted. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

� Housing starts dropped to an annual level of 1,065,000. This remains at the low end of the estimated range of 1.0 to 1.5 million needed to help the housing market keep pace with population growth and replacement housing.

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Housing Starts(Number in 000s, Annual Rate)

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0.0%

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15.0%

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2009

2010

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Jan 2015

U.S. Single Family Home Prices(Median, % Change from Prior Year)

New Home Prices % Change YOY Existing Home Prices % Change YOY

� The January housing report showed that median new home prices rose 9.1%, and existing home prices rose by 6.3% from one year ago. Low inventories should be supportive of home prices going forward.


Source: The Conference Board, Bureau of Economic Analysis. The Conference Board Consumer Confidence Index data is shown in the top graph through month end. Real disposable personal income and personal consumer spending are the % change from the prior month, seasonally adjusted.This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

� Consumer confidence fell to 96.4 in February, down from 103.8 the month prior. Strong consumer confidence has been critical to the higher consumer discretionary spending.

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J‐91

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Consumer Confidence

� U.S. household debt service as a percent of disposable income peaked in 2007 at a high of 14% and is down to 9.9% as of the fourth quarter of 2014. The U.S. personal savings rate remained stable in 2014 ending the fourth quarter at 4.6%, up from 4.4% last year end.

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U.S. Personal Savings Rate and Household Debt Service Payments(% of Disposable Income)

U.S. Household Debt Service U.S. Personal Savings Rate


1 Month YTD 1 Year 3 Years 5 Years 10 Years 15 Years

Bloomberg Energy 8.4% 1.1% -42.2% -16.7% -14.2% -15.2% -3.4%

Bloomberg Grains 4.3% -4.8% -19.4% -6.6% 0.7% 0.6% -0.2%

Bloomberg Livestock -2.7% -10.9% -10.9% -3.6% -0.8% -6.5% -3.6%

Bloomberg Precious Metals -4.9% 3.2% -12.3% -14.3% 0.9% 9.5% 9.0%

Bloomberg Industrial Metals 1.1% -4.3% -8.1% -11.5% -6.7% 2.5% 4.8%

Month End:$49.84

Month End:$1,205.00

BROAD COMMODITY MARKET RETURNS

Returns as of 2/28/2015

Source: Commodity returns-Morningstar Direct. Oil Prices-St. Louis Fed, U.S. Energy Information Administration, Gold Price-World Gold Council.This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

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Oil Price, $US per barrel (WTI)

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Gold Price, $US per ounce (London pm fix)

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Investment Research Team UpdateBuilding Ideal Futures€¦ · Investment Research Team Update Economic & Market Commentary Building Ideal Futures For questions call 866.489.0500 For