MARKET UPDATE AND COMMENTARY
April 5, 2015


As pessimism appears to have a strangle hold on market sentiment following a series of disappointing economic reports—especially the March Employment Situation report released last Friday, I ask, why would we expect anything different from the economy other than what we have seen over the past couple of years?

The answer to my question is we should not. We should not because nothing has really changed and there is little expectation that anything will in the next few years. The US economy has been stuck in a rut of 2-2.5% annualized real growth since the start of the recovery in 2009. There has been no change to fiscal policies since the Obama administration took office six years ago. The Republicans have been unable to force any of what they consider pro-growth policy changes because they lack the ability to override presidential vetoes. The passage of the Keystone Pipeline bill and subsequent veto is an example of this. The financial regulatory burden on US business has grown unchecked. The Federal Reserve has entered and exited three different cycles of quantitative easing (QE) and has kept the Fed Funds rate at near zero since mid-December 2008. While the unemployment rate has fallen to 5.5%, the actual number of people working has fallen to levels last seen in the 1970’s.

Yet, despite the ongoing mess in Washington, the S&P 500 is up 16.13% per year going back six years (April 4, 2009). This seems hardly consistent with all of the negativity surrounding the economy, but this is precisely what has happened. The explanation to this seeming inconsistency is really at the heart of what has been happening in the US over the past six years, and I would argue is what matters today looking forward.

First, consider that the S&P 500 was rising off an incredible low in 2009. The Great Recession of 2008-2009 wiped away nearly 13 years of growth in the markets. Let me say that again—13 years of growth! Stock valuations were crushed and the bar was set very low for company performance going forward. Second, companies reacted to the Great Recession by rebuilding balance sheets and squeezing out every penny of unnecessary expenses from daily operations. This in turn helped corporate profitability, and corporate profitability is, in my view, the key to rising stock valuations. Third, technology and entrepreneurship has led to a new wave of product and industrial revolution. Everything from Apple’s continued capability enhancement of their successful iPhone franchise to a multi-generational technological change in oil and natural gas production has forever altered the economic landscape in the United States. These factors and more have helped restore stock valuations to current levels even as many naysayers were predicting another great collapse in markets.

I continue to remain optimistic that the entrepreneurial drive and spirit of Americans will continue to grind the economy forward despite the many headwinds. What I also believe is that this road forward will come with inevitable pitfalls and stumbles. The past six years are a perfect example of this. I noted that the S&P 500 index has averaged a 16% gain over the past six years, however, only two of those years actually exceeded the 16% average return (2009 and 2013 with gains of 23.4% and 29.6% respectively), and included one year with no gain at all (2011). Finally, I do not expect economic growth to look much different than it has since the recovery began because the economic and fiscal policy environment today is not conducive to much more than sluggish growth. Do I think we will continue an annual pace of 16% growth in stock markets? I do not, however, I do believe that the current trend of positive long-term gains in the markets will continue for now.


1st QUARTER REVIEW

The first quarter of 2015 is in the books. Below is a summary of some of the key US indexes I follow:








The DJIA and S&P 500 returns are not much different from the same period in 2014. The biggest difference has been the strong performance of smaller capitalization stocks (Russell 2000), and the solid strength of many technology stocks (NASDAQ). The best explanation I have observed for these two indexes doing markedly better than the previous year period is that smaller capitalization stocks have less exposure to export-driven earnings and thus less affected by the stronger US Dollar, and certain technology areas continue to display strong growth prospects.

For the quarter, seven of the eleven major economic sectors outperformed the S&P 500 index. The Health Care (+9%), Consumer Discretionary (+5%), and Real Estate (+5%) sectors were the best performing. The Utility sector significantly underperformed all other sectors losing just over 5% followed by Energy (-1%), Financials (0%), and Industrials (1%).


International stocks, especially European stocks, had a good first quarter:









The strength of European markets (STOXX 600) stands out among key international indexes. While European economies have struggled over the past few years, I believe the announcement of a quantitative easing policy by the European Central Bank (ECB) and a falling Euro has helped boost investor confidence in European stock markets.

The weakness of the Euro has been one of the key stories in the first quarter of the year. The Euro fell 11.3% compared to the US Dollar through March of this year and is now down just over 22% since early May 2014. This weakness has influenced everything from exports, tourism, and energy prices. The Euro rallied just over 4% in the last two weeks of March on US economic weakness and falling US Treasury yields. While a number of economists still anticipate parity between the Euro and the US Dollar by the end of the year, I believe the accuracy of this prediction will be dependent on what action the Federal Reserve takes later this year on interest rate increases. The wider the gap between US and European interest rates with US rates higher, I believe the stronger the US Dollar will become.

The trend of interest rates in March and for the first quarter of the year continues to be lower. The benchmark 10-year US Treasury yield ended March at 1.942% compared to 2.172% at the start of the year. The Barclays US Aggregate Bond index, a broad measure of bond performance, was up 1.7% for the quarter. I believe falling rates reflect the negative economic reports that have trended during the first quarter and are not a positive development. It is hard to imagine rates continuing to remain at such depressed levels, and I believe that with better economic performance later in the year coupled with the prospect of the Federal Reserve possibly raising rates this summer or fall, interest rates may move higher by the end of the year.

The Commodities category continues to be the weakest performing major asset category I follow. The Dow Jones UBS Commodity index finished the quarter down 6% following a loss of 17% in 2014. Energy was the primary contributor to this poor performance. WTI Oil lost 11.1% in the quarter after losing nearly 46% in 2014. Natural Gas fell 11.6% in the quarter after falling 29% in 2014. The impact on lower oil prices is rippling through the economy hurting oil-related stocks in particular. Lower oil prices have not translated into higher retail sales in other sectors as many were expecting, however, I do believe there will be some improvement for the consumer assuming oil prices continue at these low levels. One more point about oil prices. Over the past 40-years, the kind of political turmoil currently on display in the Middle East would have sent oil prices soaring. The resurrection of energy production in the US coupled with Saudi Arabia’s unwillingness to cut production for the benefit of the likes of Iran, Iraq, and Russia, has removed most of what I believe to be the terrorist premium in oil prices for now.




LOOKING AHEAD

I believe that markets will continue to limp along for now. As I noted at the beginning of my report, there is a fair amount of pessimism within investors. I fully expect the first quarter earnings reporting season which kicks off this week will be unspectacular reducing the expectation of stronger markets for the near-term.

I also believe the kind of volatility we have experienced so far this year will continue. Again, the issues investors faced in the first quarter remain and this uncertainty can drive larger daily moves in the major indices. I have been watching the negotiations between Greece and the European Union (EU) and remain very concerned about the trend there. While I have said that both parties have much to lose if Greece pulls out or is expelled from the EU, their disagreements appear to be growing. Greece may simply run out of money to meet its obligations in the next 30 to 45-days. This will trigger any number of unpleasant options for both parties and possibly lead to Greece’s departure from the EU. I do not know how all of this will work out, but this issue has not gone away.

There are only a handful of key economic reports due out over the next couple of weeks. The Federal Reserve Open Market Committee (FMOC) minutes will be released this Wednesday and will provide economists with greater insight on the Fed’s most recent thinking about interest rate hikes. The question about when they will raise rates remains of great interest to most investors. However, I expect that earnings reports will be the dominant theme for the next few weeks as companies and analysts all talk about the impact of the stronger US Dollar and oil prices on earnings. Earnings are important and drive stock valuations so I will be following the news closely.

Finally, I will remind everyone that the data remains very supportive for equities. The primary data I follow provides long-term guidance and does not react to the day-to-day or even week-to-week ups and downs. The Money Market category remains ranked at 122 out of 133 sectors I follow. This means that nearly 92% of the stock, bond, commodity, and currency categories I track are doing better on a relative strength basis than your money market account. Stocks remain the dominant major asset category with Small and Mid-Capitalization stocks favored and Growth-oriented stocks are preferred over value stocks. The other Dorsey Wright & Associate indicators I follow also suggest more of the same ahead.

If you have any questions or comments, please do not hesitate to reach out to me.




Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of sub indices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

MARKET UPDATE AND COMMENTARY
March 15, 2015


Volatility has returned to the markets in 2015 or has it? Compared to the previous three years—yes it has. Compared to a longer view of the markets, the year is shaping up to be average. I will come back to this thought shortly.

The Dow Jones Industrial Average (DJIA) and the S&P 500 are each down about 2% month-to-date and are slightly negative for the year. The Russell 2000 (smaller companies) has continued to maintain its February gains and is now up about 2.3% for the year. The tech-heavy NASDAQ is up about 2.9% for the year also holding on to gains from a strong February.

The Utilities and Energy sectors remain under pressure losing nearly 7.6% and 5.7% respectively so far in 2015. Utilities are down primarily due to higher interest rates, while the Energy sector continues to lose ground on weak oil prices. Year-to-date, WTI Oil is now down 15.8% closing Friday at $44.84 per barrel marking a nearly 10% drop in March alone.

As expected, the European Central Bank (ECB) began purchasing bonds in its own version of Quantitative Easing (QE) sending the Euro tumbling against the US Dollar. The Euro is now down 6.2% for the month and 13.25% for the year. Friday’s close of 1.049 Euros to the US Dollar is the lowest this exchange rate has been since early 2003. I do not anticipate the Euro will gain much ground against the US Dollar in the coming months due to a stagnate European economy and continued QE by the ECB. I believe Greece will continue to challenge investors in Europe and here at home as Greek efforts to resolve their economic mess fails to meet European creditors’ expectations.

Interest rates remain volatile. The benchmark US 10-Year Treasury yield has added almost 8 basis points since the start of the month closing Friday at 2.103%. Friday’s close, however, is a 14 basis point pullback from the recent high of 2.245% on March 6th. These moves in interest rates have been influenced, in my view, by a negative mixture of recent economic data including falling consumer sentiment, a decline in the February Producer Price Index (PPI), and continuing declines of retail sales all weighed on investors. Concerns over modest economic growth here and abroad may keep a lid on interest rates for now.










The year is off to a mushy start following a slew of mixed economic reports and ongoing worries over my big four economic issues (Federal Reserve raising interest rates, the Greece problems, Geopolitical concerns, and Domestic political concerns) which still do not appear to be close to resolution. Investors must remain patient.

VOLATILITY?

I don’t know about you, but this year seems to be more volatile to me than recent years. To see if my hunch was true, I did some research on daily changes of the S&P 500 going back 35 years. Here are some of the key takeaways from my work:

 The average daily change during the first 49 trading days in 2015 is 0.71% either up or down. This compares to a daily average change of 0.53% last year, 0.54% in 2013, and 0.59% in 2012. So yes, we have been experiencing greater volatility than in recent years.
 The most volatile decade since the start of 1980’s was the first ten years of this millennium. From 2000 to the end of 2009 the average daily move of the S&P 500 was 0.94% either way.
 Over the past 35 years, the average daily move of the S&P 500 is 0.75%, not much different from the start of this year.

I also discovered a couple of other interesting facts:

 The good news is that over the past 35 years, there have been 4765 (53.7%) up days and 4113 (46.3%) down days. This relationship remains fairly consistent especially in years when the market goes up.
 The bad news is that over the past 35 years—down days typically move more to the downside (-0.77%) than up days move to the upside (+0.74%). This difference is even more pronounced over the past five years (2010 to 2014) where downside moves have averaged -0.73% and upside moves averaged +0.67%.
 Going back to the start of 2000, there have been four down years—2000 (-10.1%), 2001 (-13.0%), 2002 (-23.4%), and 2008 (-38.5%). The first three of these down years averaged 46.7% up days while you might be surprised to learn that 2008 actually had more up days (127) than down days (126).
 However, in 2008, the down days were much larger in magnitude than the up days -1.9% vs. +1.6%.
 The worst three days in the past 35 years were: October 19, 1987 when the S&P 500 lost 20.5%, October 15, 2008 and December 1, 2008 when the S&P 500 fell 9.0% and 8.9% respectively. The best three days were October 13 and 28, 2008 with 11.6% and 10.8% gains, and October 21, 1987 with a 9.1% gain. The takeaway from this observation is that during periods of extreme volatility, the markets may move both ways—not just down.

All in all, it appears that while the increased volatility we have experienced so far in 2015 is not pleasant, it certainly is not out of the ordinary, just the opposite, it is typical.


LOOKING AHEAD

My most important message this week is do not let the negativity of the news cycle lead you to make bad investment decisions.

The markets are flat so far this year, however, more risky small capitalization stocks are positive and this is a good sign. Additionally, looking at key DorseyWright & Associates data, the Money Market fund category score (1.49 out of 6.00) and ranking (121 of 133) very low among all sectors, tells us that most investments are outperforming the Money Market sector on a relative strength basis. This is a positive sign for the longer term. The US Stock asset category remains firmly in first place of the six major asset classes with Bonds second, and International Stocks a close third. Again, this key relative strength data tells me not to step away from our current commitment to the equity markets.

By far the most significant economic event for the next couple of weeks is the Federal Reserve meeting starting Tuesday finishing with Chairwoman Yellen’s press conference on Wednesday afternoon. There is little expectation that the Fed will raise rates at this meeting, however, there will be obsessive behavior by analysts and talking heads over the wording of the press release and whether or not the word “patient” will be removed. Investors believe that as long as the Fed says they are remaining “patient” about raising rates, the actual move will be at least two Fed meetings away. As I have said before, the Fed must begin to normalize rates, but the continued drop of European interest rates and slack in the economy here at home, makes any increase in interest rates just a little bit more uncertain. I still look for the first 25 basis point increase this summer or early fall, and an uncertain (and possibly negative) reaction by the stock markets.

All of this uncertainty is feeding the greater volatility in the markets. However, as I have said, stay focused on the profitability of companies, the slowly improving nature of the US economy, and the technicals in the market. They are currently indicating a modestly positive year in the markets.

If you have any questions or comments, please do not hesitate to reach out to me.



Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of sub indices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

MARKET UPDATE AND COMMENTARY
February 22, 2015


US and International markets have rallied in February in the face of growing fears that Greece will disrupt the unity of the European Union (EU) by dropping out of this important politico-economic organization. Greece and the EU (along with the International Monetary Fund—IMF, and European Central Bank—ECB) have struggled to find common ground with the newly elected Greek leadership and negotiate new debt service terms agreeable to both sides. However, late Friday it was announced that the parties involved had agreed to a four-month extension of the debt deadline. The agreement provides both parties time to continue negotiating without the immediate threat of Greece’s economic collapse. While the markets cheered this development, the crisis is far from resolved and the retention of Greece within the EU remains uncertain.

The US equity market is now up each of the first three weeks in February reversing January’s negative performance. In addition to reacting favorably to news about Greece, investors were satisfied for now with Federal Reserve Chair Janet Yellen’s recent comments suggesting that raising short-term interest rates remains on hold for now. For the year, the tech-heavy NASDAQ index leads the major indices I follow. Noticeably, smaller capitalization stocks (Russell 2000 index) are holding their own this year after a disappointing performance in 2014.

The top three economic sectors for the year are Health Care (+6.1%), Materials (+5.9%), and Telecommunications (+4.7%) while the bottom three performers are Utilities (-2.9%), Financials (-0.3%), and Energy (+1.6%).

International markets have also rallied in February. Greece certainly is at the forefront of issues facing international markets, but the Russian incursion into Ukraine, and a slowing Chinese economy are also contributing to concerns. Investors appear to be looking beyond these issues for now and overseas markets are strengthening after a poor 2014. Europe-heavy STOXX 600 index leads among all the broad international indices with most European markets up in the 10% to 15% range so far this year. China is flat, Japan is up 5.1%, and India is up 6.3%.

US interest rates continue to rise. The benchmark 10-year US Treasury bond yield has added 43.6 basis points (a basis point is the interest rate equivalent of a penny to a dollar) since the start of February closing Friday at 2.119%. As you can see from the chart below, this is a very significant increase in rates over a relative short period.

The roller coaster move in rates in January (-49 basis points) followed by a 44 basis point jump in February is in part, I believe, driven by investor uncertainty over EU/Greece concerns and timing of US Federal Reserve rate hikes. Fears of a Greek departure from the EU drove investors into US Treasuries creating demand. The more demand there is for anything, the higher the price buyers are willing to pay. In the case of bonds, this demand/price increase pushes yields on bonds down. When negotiations got under way in Europe with the newly elected Greek government officials, bond investors’ sentiment improved lessening the demand for US Treasuries and yields have risen as prices have fallen. Additionally, many bond investors believe the US Federal Reserve will raise short-term rates later in 2015 (mid-summer or early fall) and rates are moving upwards in response. Where interest rates are ultimately headed is still a huge unknown (as it generally is) and how this sorts out will be determined by how my big four economic themes unfold (Greece/EU, US Federal Reserve rate increases, Geopolitical uncertainty, and Domestic political uncertainty) as the year progresses.

One of the immediate effects of higher interest rates has been the decline in the Utility and Real Estate Sectors. Over the past 30 days, the Utility sector has dropped 6.8% while the Real Estate sector has declined 2.3%. Both the Utility and Real Estate sectors are interest rate sensitive, and I believe they will suffer additional pullbacks if rates continue to rise. It is very, very difficult to say how far rates will climb due to the many cross currents influencing bond investors and I would encourage bond investors not to overreact to the current rate jump at this time. Bond markets are too choppy and I believe it is premature to make major adjustments to bond portfolios.

Commodities weakness continues driven in part by falling oil prices. The Dow Jones UBS Commodity Futures index is down 1.5% in 2015 after losing over 17% in 2014. WTI Oil prices fell 9.4% in January, gained 9.4% over the first two weeks in February only to give back 4.6% last week. The net result is that WTI Oil closed Friday at $50.34 per barrel and is down 5.5% so far this year. Oil needs to find a degree of price stability, and the past few weeks may have been the start of a bottoming process. However, as long as supplies continue building (US inventories were up 7.7 million barrels last week), I believe oil prices may continue to come under pressure. Heating Oil prices are the one exception with heavy demand this winter pushing prices for heating oil up over 16% this year.

The US Dollar has found some stability recently among the other key currencies in the world. The US Dollar index is down 0.6% in February after rising 5% in January and 12.8% in 2014. The cooling of the Greek crisis calmed Euro traders. The Euro has gained 0.8% against the US Dollar this month after falling 6.7% in January. While currency stories do not typically lead the news cycle, a global competition is developing between central bankers as they try to push down the value of their currencies to spur exports. The US Federal Reserve, in my opinion, has been held back from raising rates partly due to the European Central Bank’s announcement that it would begin purchasing bonds (quantitative easing--QE) in March. This European version of QE is widely anticipated to put downward pressure on the Euro. February’s moves aside, I believe the US Dollar is likely to move higher relative to other key currencies in the months ahead. If this happens, US exports will be more expensive (bad for US manufacturers), imports cheaper (good for US consumers), commodity prices may continue to drift downward, and investments abroad will face a currency headwind putting a drag on returns.


THE GREEK CONUNDRUM

The Greek problem for the EU and investors is not going away; it has simply been pushed back four months.

The far-left party, Syriza (Syriza is an abbreviation in Greek for Coalition of the Radical Left), has been forced to accept for now, that they must negotiate with Greece’s creditors to find a way out of the economic mess the country is in. Recall that Syriza’s Prime Minister, Alexis Tsipras, was elected on the promise that he would not negotiate with Greece’s creditors and demand an end to the austerity programs the previous Greek government was required to implement in order to secure additional loans to keep the country afloat. The four-month extension agreed to Friday by Greece calls for the Tsipras to provide, by Monday (February 23rd), a list of economic and policy reforms that will satisfy Greece’s lenders. This extension agreement does allow Tsipras to set his own priorities, but it does not fundamentally alter the situation. Greece must make meaningful progress to grow their economy, collect taxes, slash bureaucracies, and ultimately repay all the money they have borrowed if the country wants to remain in the European Union. To me, unless Tsipras adopts solid, growth-oriented policies, he will accomplish nothing. Quoting one of my favorite clichés, all this talking will be like rearranging the deck chairs on the Titanic.

My optimism about Greece is subdued because Tsipras is a radical left-wing politician, a former member of the Greek Communist Party, and his ideological beliefs do not conform with the actions he must implement to put Greece on a solid economic footing. His coalition partner in Greece is the far right wing nationalistic Independent Greeks party that equally hates the austerity measures imposed by the Europeans and who want to leave the EU. Tsipras and his allies must find a way to overcome their internal biases and come up with a solution that satisfies the EU, their own electorate, and actually reforms the economy. This is a tall order for any group of politicians, right, left, or in-between.

I want remind everyone that the European Union has much to lose as well if Greece fails. The turmoil created by Greece’s departure is more political than economic. The latest economic data I have on Greece’s GDP is that this country of just over 11 million people produced about $249 billion in economic output in 2014 (Source: Global Finance Magazine, Stanford University). For comparison purposes, this ranks Greece between Oregon (25th) and Louisiana (24th) in economic output, and the Commonwealth of Virginia (11th) is producing 1.9 times more economically than Greece.

For the EU, the stability of the union is paramount, and a Greek exit from the EU could open the door to other weaker nations like Portugal, Ireland, and even Italy to follow. A shared currency has benefits to all participants, however, it can only happen if each country surrenders some of their sovereignty to a higher power (the EU and ECB) to maintain order. I believe both sides, after political grandstanding and brinksmanship, will give a little and an agreement reached to keep Greece in the EU for now. This has been the way before and I expect it to continue.

LOOKING AHEAD

There have been no changes to my macro view of the markets. US equities and Bonds are the preferred major asset categories followed by International stocks, Money market funds, Currencies, and Commodities. As I noted before, rising interest rates has already had an impact on the Utility and Real Estate sectors and I will be watching rates very closely in the coming weeks to see if this trend will continue hurting these two strong sectors. I prefer the floating rate and high-yield bond sectors and caution investors about any longer-term maturity bonds.

Looking ahead to key US economic events/reports, Fed Chair Janet Yellen will be speaking to Congress on Tuesday and Wedensday mornings. Her comments always attract the interest of investors. Additionally, housing data will be out (slight decreases expected over December data), and the second estimate of the 4th quarter Gross Domestic Product (GDP) will be released this Friday morning. The first estimate disappointed investors dropping from a consensus growth of 3.2% to 2.6%. The consensus anticipates a further revison downward to 2.1%. Anything below 2% would be problematic in my mind.

If you have any questions or comments, please do not hesitate to reach out to me.




Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of sub indices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

MARKET UPDATE AND COMMENTARY
February 8, 2015


Most equity markets reversed their January losses during the first week in February and are now essentially flat after five trading weeks in 2015.

European markets (STOXX 600) continued to rally as the European Central Bank (ECB) embarks on its own version of quantitative easing (QE).

US markets rallied last week primarily upon consistent economic data and strong job growth numbers. On Friday morning, the Bureau of Labor Statistics (BLS) announced that job growth in January grew by 257,000 jobs and revised previous reports upwards as well. According to the BLS, the US has created over 1 million new jobs since November by far the best increase over a three-month period in years. The unemployment rate, however, ticked up from 5.6% to 5.7% due to a jump in the number of formerly unemployed people re-entering the work force. Not everyone is impressed by the jobs numbers including Gallup chairman, Jim Clifton, who wrote an editorial on the Gallup website arguing that the unemployment rate is extremely misleading and under-reports how many people are either unemployed or severely under-employed. He cited his company’s own statistics that report only 44% of Americans 18+ work at least 30 hours per week and receive a regular paycheck. He blames the government’s methodology of not counting those who have not looked for a job in the past 30 days and those severely under-employed as not being in the workforce for making the numbers appear far more bullish than what is really going on in the job market. He may be right, but there is no denying that jobs growth continues.

I believe the biggest story last week was the surge in interest rates. The US Treasury 10-year yield jumped 25.6 basis points (a basis point is 0.01% of a percent, like a penny to the dollar) to close Friday at 1.94%. This was the largest increase since June 2013. The catalyst for the yield increase was the jobs report and its possible impact on Federal Reserve monetary policy (more on that in a moment). Interest rate sensitive sectors like Real Estate (-1.6%) and Utilities (-3.4%) suffered pullbacks as the rest of the major sectors rallied.

Oil rallied both at home and abroad. WTI Oil closed Friday at $51.69 up 13.4% in the past two weeks. A union walkout at several US refineries and a report showing a significant curtailment in operating oil rigs in the US have led investors to reduce anticipated production of crude oil in the coming months. Market Watch reports that US rigs in operation fell 24% since early December and total producing rigs are at their lowest level in five years. This is consistent with my belief that oil producers will make adjustments to bring supply in line with demand. It is the natural ebb and flow of commodity production. Natural gas prices have continued to fall and are now down more than 13% since the start of the year and down over 38% since the start of 2014.

Strength in the US Dollar continues to gather steam as many countries and regions (like the European Union (EU)) are embarking on some variation of QE to help weaken their currencies and improve their competitive edge among other nations. Growing fears of a turbulent falling out with Greece and the EU also contributed to the overall demand for the US Dollar by Europeans. For the year, the US Dollar Index is up 4.5% adding to the gain of 12.8% in 2014. A stronger US Dollar coupled with rising interest rates hurt gold prices pushing the precious metal down 3.5% for the week and cutting the year-to-date gain nearly in half.

THE FEDERAL RESERVE

In my last Market Update and Commentary, I laid out four important issues facing investors in 2015 that could have a real impact on how markets move during the year. Those issues are Greece and the EU, the Federal Reserve’s monetary policy actions, geopolitical uncertainty, and domestic political uncertainty. I want to spend a little more time today looking at the Federal Reserve.

The Fed has kept short-term interest rates in a range between 0% and 0.25% since late 2008. Everything about this policy is unprecedented. The Federal Reserve’s website states it lowered interest rates (and engaged in QE) “in response to the financial crisis to help stabilize the U.S. economy and financial system.” QE has ended but the federal funds rate still remains near zero.

There is little consensus among economists and financial experts about the effectiveness of these actions, and I am not going to debate whether this policy move and duration was proper. What I am interested in is what’s next and what impact will a rate increase have on the markets?

I believe that the Fed will raise the federal funds rate (the rate at which banks lend money held on deposit with the Federal Reserve to other banks) sometime in 2015. Following the January jobs report and continued positive economic reports, consensus now expects the Fed to announce a rate increase of 0.25% on June 17th after the June meeting. Fed Chair Janet Yellen is widely expected to signal this June hike following the March meeting on March 18th. What impact this will have on markets depends a great deal on how you view what happened to the liquidity created by the Fed resulting from its bond purchases and low interest rates.

I have found that there are generally two schools of thought regarding the impact of QE on the stock markets. One is that the liquidity created by the Fed flowed directly through to the stock market, and that the highs made by the stock market over the past couple of years is a result of this liquidity and not by productivity and economic activity. If you believe this, and many do, then you should expect a major market selloff beginning when the Fed signals a rate increase and building until the actual announcement. If you believe, like I do, that the vast majority of the liquidity created by QE went directly on deposit with the Fed as banks and their depositors demanded safety above all else, then you will see the rise in rates as an overall positive to the markets. I support this latter view because inflation has not materialized, the money supply remains on a normal trajectory, and business lending remained subdued during most of this low interest rate period. I will point out that according to the Federal Reserve, commercial lending has jumped 13.7% over the past year and has accelerating to an annualized rate of 15.1% over the past three months. Money is moving into the economy and the demand for safe assets is dropping which will force the Fed to move sooner rather than later.

I believe that those who feel like the markets are at an artificial high will sell into the news and will create some initial downward pressure on the markets. However, I further believe this will be temporary and the markets, all else being equal, will continue to improve as the economy continues to grow.

The Federal Reserve does not act in a vacuum. With the ECB and a number of other countries embarking on their own versions of QE, there is pressure for the Fed not to act out-of-step with the rest of the world. This is a real consideration for delaying any rate hikes, however, I do not believe the Fed can ignore the economic data here and let the money supply and inflation get out of hand. If the Fed does move forward in the face of QE abroad, I believe the US Dollar will continue to gain against other currencies, and I believe that gold prices will fall.

Those of you that follow my writing know that I do not generally try to make predictions because it is so hard to do correctly on a consistent basis. I am making an exception here because I believe this issue is so important that I feel compelled to provide a foundation of knowledge and understanding on this topic as we move towards this extremely important policy change.


LOOKING AHEAD

There have been no changes to my macro view of the markets. US equities and Bonds are the preferred major asset categories followed by International stocks, Money market funds, Currencies, and Commodities. As I noted before, rising interest rates has already had an impact on the Utility and Real Estate sectors and I will be watching rates very closely in the coming weeks to see if this trend will continue hurting these two strong sectors.

Even though bonds remain in the #2 ranked position of the major asset categories, it has been a tough time for bond investors. With the jump in interest rates last week, the Barclays US Aggregate Bond index fell 1.2%. This is the largest single week drop since late June 2013 when the Barclays fell 1.9%. Particularly hard hit were longer duration bonds which have performed so well as rates have fallen. I continue to like the high-yield, bank loan, and multi-sector bond sectors going into 2015.

There is minimal economic reporting due next week and markets will be closed the following Monday (February 16th) for President’s Day. Later the following week there will be reporting on housing, prices, and the release of the detailed minutes of the Fed’s January meeting. The every Thursday Jobless Claims report is always important as an indicator of how the Fed may act with regards to rate increases, so keep an eye on those reports.

Beyond the US, I will continue to watch Greece’s efforts to get free money out of the rest of the EU. The Germans who have given the most money to Greece till now do not seem particularly inclined to give away anymore of their money. Pressure will be mounting on both sides to get some kind of deal done following the elections because the Greeks are likely to run out of money to pay their bills within the next couple of months. How this situation is handled will, in my view, have significant repercussions on the EU and possibly our markets here at home.

If you have any questions or comments, please do not hesitate to reach out to me.



Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of sub indices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

MARKET UPDATE AND COMMENTARY
January 25, 2015


The first three weeks of 2015 reminds me a bit of watching season 5 of Downton Abbey—lots of different plot lines at work, some surprises, and the expectation that there is a lot more excitement on the horizon.

US markets generally had their first positive week of the year this past week, but except for the NASDAQ Composite index, all the major indexes I follow remain in negative territory for the year.

The quantitative easing (QE) program announced Thursday by the European Central Bank (ECB) generally helped international stock markets—especially those in Europe (STOXX 600).

Other markets also reacted to the QE announcement. The Euro fell 3.1% last week and is now down 18.5% since the start of 2014. The Euro closed Friday at $1.12 the lowest level since the fall of 2003. Interest rates fell across Europe with the 10-year German Bund closing Friday at 0.36% with France (0.54%), Spain (1.38%), and Italy (1.53%) falling as well. Greek 10-year bonds closed Friday at 8.17% indicating investor nervousness over the ability of Greece to make good on their obligations. I will talk more about Greece shortly. The price of gold continued to rise gaining 1.2% for the week and is now up 9.2% for the year. I believe this rise is due to a weakened Euro and the continuing decline of interest rates in Europe. A number of European countries (Germany, Belgium, France, and the Netherlands) currently have negative interest rate yields on their 2-year notes making a 0% returning gold bar a more attractive investment than a negative yielding government bond for some investors.

Oil continues to fall. WTI Oil fell 6.4% last week and is now down 14.4% for the year closing Friday at $45.29 per barrel. WTI Oil peaked last June 25th at $100.36 and has fallen 54.9% six months. The death of King Abdullah bin Abdulaziz al Saud, the 90-year old monarch of Saudi Arabia, has raised some concerns among oil traders over the stability of an already unstable region. After a brief increase in oil prices on Thursday when the King’s death was announced, oil prices continued to fall. Prices have not found a firm bottom but I believe they will find a floor soon or at the very least, the rate of decline will slow.

UNCERTAINTY AND THE MARKETS

Investors dislike uncertainty. They also dislike the volatility that uncertainty brings. As we start 2015 we have a number of very serious, big issues that may impact the markets. How and when these issues will be resolved or clarified contribute to the overall nervousness of the markets. Here are the four biggest issues facing investors today in my view:

Greek Parliamentary Elections. The Greeks went to the polls today (Sunday, January 25, 2015) to vote for a new government. As I write this, the leftist party, Syariza, appears headed to take the majority of seats in the

parliament. The leader of the Syariza party, Alexis Tsipras, has vowed to overturn the austerity agreements reached between the previous majority party, The New Democracy Party, and the European Union (EU), the International Monetary Federation (IMF), and the ECB. Tsipras believes that the austerity agreements have hurt Greek citizens and hindered economic recovery and he ready to take on the rest of Europe to accomplish his goals. There is just one little problem—Greece is broke and they cannot pay their old debts or any new ones they incur.

Mr. Tsipras has said that he intends to renegotiate the terms of the €240 billion ($269 billion) of loans provided to Greece by the EU/IMF/ECB. He wants to cut taxes, increase spending, and do all of this with the cooperation of Greece’s lenders. I believe that Mr. Tsipras will get his agenda pushed through in the parliament because he will have the majority necessary to pass. What is uncertain is how the European governments and creditors will react. My view is that other Europeans will not be willing to offer Mr. Tsipras much in the way of concessions.

The EU is in a tough spot. If they renegotiate with Greece and cave on Greece’s demand, there will be no way for the EU to credibly impose sanctions on other weak and non-conforming countries. If the EU does not negotiate, it is hard to see how Greece remains in the EU. Without the ability to print money, Greece will simply run out of Euros and will be forced to default on not only their bond payments, but on pensions, civil servant pay, and other components of the Greek government. If the Greeks leave the EU, it is very, very difficult to anticipate the consequences on the rest of the EU both politically and financially. Could this be the beginning of the end of the EU and the Euro, or is it more like culling the heard of weaker members leaving the remaining countries in a stronger

position? The potential pain for both the Greeks and Europeans is such that I sincerely hope they can reach a compromise and find a way to move forward.

What I believe Greece and other European countries need are vibrant private sectors that ultimately come from lower taxes, less government spending, and flexible labor laws. I have not seen much progress made on these issues in Greece or anywhere else in the EU. Therefore, expect more of the same with QE giving political leaders more time to reform their economies.

US Federal Reserve Short-term Interest Rates

I discussed this topic in my last Update and Commentary so I will not spend a great deal of time on the subject. What I do want to bring up is the growing uncertainty of when a rate increase is likely. The ECB’s launching of a 12-month QE program would put the ECB and Fed policy at opposite ends. Central bankers typically like to work in unison not at odds with each other. Additionally, inflation is very low and not likely to increase much over the next six months. Oil prices have greatly helped hold inflation down. With inflation subdued and US economic growth below 3%, it is hard to understand what the urgency is for the Federal Reserve to raise rates. However, I believe that the Federal Reserve will raise rates at some point this year. The greatest uncertainty in my opinion will be the impact the eventual raise will have on stock markets. A small, 0.25% increase should have a minimal impact on stock prices, but we just do not know at this point.

Global Geopolitical Uncertainty

The world remains very unstable. The terrorist attacks in Paris, the collapse of the Yemeni government, and the beheading of a Japanese citizen by Isis are just a few reminders of how fragile the Middle East is. Putin and the Ukraine is another hot spot, and the apparent murder of an Argentinean prosecutor remind us that other troubles exist as well.

Domestic Political Uncertainty

After watching the State of the Union speech last Tuesday, I came away with the belief that Washington, DC, will remain divided and new growth-oriented fiscal policies will be minimal and hard won in 2015. I believe it is difficult for investors to determine how federal regulation and legislation will change in the current Congress, and how those changes will impact their bottom lines. I also believe that the next 22 months will be all about posturing for the 2016 elections.

These are four issues I can see today. As it looks to me, we may see much of the same kind of markets we had last year only with a bit more volatility. There is always the possibility of some unanticipated event propelling the markets in directions or magnitudes completely unexpected. That is the nature of investing.


LOOKING AHEAD

I have laid out some of the major issues that I believe may affect the market in the future. What does the market look like today?

US stocks remain the favored major asset category of the six I follow. Here is a graph of the current rankings:


This chart provides a graphical representation of how the major asset categories rank on a relative strength basis. This chart is “slow” meaning it is designed to be a true long-term indicator of the strength between the major asset categories. There has been a very slight weakening in the US (Domestic) Equities ranking falling from 342 to 336 last month.

Within the US Equities category, Small Cap Growth, Mid Cap Growth, and Mid Cap Blend are the strongest on a relative strenght basis of the size/style categories. Large Cap Growth, Blend, and Value are the weakest. Again, it is important to recognize that relative strength rankings are generally longer-term indicators so you may find some inconsistency with the rankings and short-term performance.

Finally, within the US stock space, the current sector relative strength ranking system is as shown:

Health Care continues to do extremely well while we all know the story of what has happened to the Energy sector over the past six months.

Looking forward to the coming week, the Federal Reserve Open Market (FOMC) is meeting on Tuesday and Wednesday. The markets will be waiting for the Wednesday, 2 PM, news conference with Chairwoman Janet Yellen. I believe that the market will be expecting a change in language to suggest that the FOMC’s timeframe for raising rates is diminishing. Also, the FOMC’s view of the economy is important to investors as well. The first estimate of the 4th Quarter 2014 Gross Domestic Profit (GDP) will be released Friday morning. This is a very important number to the Federal Reserve and will no doubt influence their thoughts during their meetings on Tuesday and Wednesday. The consensus is anticipating a quarterly growth rate of 3.2%, down from the 3rd quarter’s 5.0% increase.

There is a lot of information for the markets to absorb next week. Europe, the Middle East, the FOMC may all contribute to movements in the markets next week. I remain committed to US stocks as the best place to be in the market for now.

Do not let the volatility in the markets hinder you from making good investment decisions. If you have any questions, do not hesitate to reach out.



Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of sub indices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

MARKET UPDATE AND COMMENTARY
January 12, 2014


With 2014 completed, I will spend a few moments discussing the year and then shift my focus to my thoughts regarding 2015. In my view the top three stories for 2014 was the fall in interest rates, the strength of the US Dollar, and the collapse in oil prices worldwide. I will address these stories in greater detail momentarily.

Below is an up-to-date look at key US equity index performance:

 Source: The Wall Street Journal (Past Performance is Not Indicative of Future Returns). Year-to-date returns are through January 9, 2015.

International markets under-performed the United States for a second consecutive year.

Source: The Wall Street Journal (Past Performance is Not Indicative of Future Returns). Year-to-date returns are through January 9, 2015.


Looking broadly at equity markets in 2014, it was a challenging time for diversified investors. Small capitalization stocks (Russell 2000) significantly underperformed large cap stocks after small caps led all key equity segments in 2013. Owning the S&P 500 index to the near exclusion of all other asset classes led to the best broad market performance in 2014. According to Morningstar®, less than one in four active managers in the large cap blend category were able to beat the S&P 500 index.

The Utility sector led the major economic sectors with a return of just over 24%, followed by Health Care (23%), and Technology (16%). Energy was the worst performing sector losing nearly 11% for the year.

Much like the equity markets, bond investors were not treated equally. The Barclay’s Aggregate Bond index which represents a broad swath of US bonds gained 5.9%. According to Morningstar® the volatile Long Duration US Treasury sector was the best performing bond sector gaining over 21%, followed by Long Duration Corporates at 12%, and Preferred Stocks at 11%. However, many other bond sectors under-performed. Emerging Markets bonds (-1%), Ultrashort bonds (0.3%), Bank Loan (0.5%), Short Government (1%), High Yield (1%) and World Bonds (1.7%) were the weakest performers

The UBS Commodity index, a broad indicator of commodity prices fell 17% in 2014 led by the collapse of oil and natural gas. West Texas Intermediate (WTI) crude oil fell 46% and natural gas lost 31%. Gold fell 1.6% in a choppy sideways market. Corn and wheat fell 6% and 3% respectively, and Cattle jumped 23%. A mixed bag but clearly driven by the drop in oil prices.

TOP STORIES IN 2014

Top Story #1--the drop in interest rates was not anticipated by investment professionals. The yield on the benchmark 10-year US Treasury fell from 3.03% at the end of 2013 to 2.17% at the end of 2014. This drop was unexpected because most economists felt that the end of bond purchases by the Federal Reserve (referred to as Quantitative Easing or QE) would reduce demand for new bond purchases and yields would rise to attract buyers. Clearly this did not happen. I believe this did not happen because the impact of QE on bond yields was not understood by most investors, and because of increased demand of US Treasuries by both domestic and international buyers anticipating higher yields in the US than abroad.

Top Story #2—the broad US Dollar (USD) index gained 12.8% in 2014, a large move in currencies. Looking at the two largest currencies beyond the US Dollar, the Euro and the Yen, the US Dollar gained 11.4% and 14.3% respectively. You have to look back to 2005 to see USD/Euro rates at this level. The stronger US Dollar is simply the result of demand exceeding supply. Demand is coming from international and domestic investors who are moving international investments here to the US. The why is up for debate, but I believe it is attributable to extremely low interest rates in Europe, a slowing Chinese economy, and renewed fears of a European Union (EU) crisis in Greece. Greek voters are returning to the polls January 25th to form a new government. The socialist party currently has a small lead and their leaders have threatened to destabilize the EU by reversing many of the austerity measures favored by the Germans and International Monetary Fund (IMF). There is an outside possibility, in my view, that Greece might exit the EU causing unknown consequences for investors.

Goldman Sachs has come out with a prediction that the Euro will reach parity to the US Dollar sometime in 2016 due to a lack of competitiveness in Europe, quantitative easing by the European Central Bank and generally lower interest rates compared to the US.

Top Story #3—the collapse in oil prices in 2014 was dramatic and has generated an enormous disruption around the world both in the energy markets and has the potential to destabilize some critical geopolitical regions like Russia, Iran, and Venezuela.

After falling 46% in 2014, WTI Oil has continued its slide and closed Friday at $48.36 and is now down another 10% since the start of 2015.

I spent some time discussing this story in the December 14, 2014, Market Update and Commentary so please go back and review if you missed (you can find my previous comments at www.ntrustwm.com). However, I will add that since writing that article, the continued slide in oil prices reflects, in my view, a belief that Saudi Arabia will no longer be the swing producer to help keep oil prices elevated. They have a strong desire to maintain their market share and are benefiting indirectly by putting pressure on Iran and other less-friendly oil-producing countries.

The drop in energy equity prices within the US, in my opinion, reflects concerns over reduced profitability and cost of production issues. I have a great deal of confidence that US energy companies will be able to continue to lead the way forward with technological developments. This in turn should continue to drive down the cost of production and make oil profitable at lower prices.


LOOKING AHEAD

I believe the top economic story for 2015 will be the timing and magnitude of the Federal Reserve’s expected interest rate hike. Keep in mind that the Fed only sets the Federal Funds rate which is the interest rate paid by the most credit-worthy banks for overnight borrowing. This has a great deal of influence on other rates, however, and all other rates are determined by open market transactions.

For the past five years, the Fed has maintained a 0% to 0.25% target for the Fed Funds rate. This is seen as an extremely accomodative monetary position geared to keep cheap cash flowing through the economy. Raising the Fed Funds rate will increase the cost of borrowing and has the potential to slow growth. The debate among economic policy wonks is whether or not an increase is warranted and if so, by how much. Complicating the debate is the fact that rates have never been held so low for so long coupled with such massive quantitative easing. Brian Wesbury, Chief Economist of First Trust Advisors, has said repeatedly that raising rates should have a minimal impact on equity markets because until the Fed Funds rate reaches 3.5% or greater, the policy by the Federal Reserve is simply “less accomodative” rather than restrictive.

It is nothing but speculation to try and peg the timing and the magnitude of Fed rate changes. All I can do is try to read the vast number of stories by economists and investors on this topic and try to gauge some kind of consensus about what the market is thinking. Here is what I currently believe:

1) The Fed Funds rate will be raised in 2015. Late spring/early summer is the market consensus for timing.
2) The Fed will try to telegraph the rate increase as much as possible within their market commentaries in order to allow the markets to come to terms with the new rate.
3) The Fed will keep the rate of increase very small at 0.25%. Additional increases will come slowly.

What is impossible to guage is the stock market’s reaction to the increase. Every hint of a rate increase has tended to push equity markets down which is, in my opinion, unwarranted. However, what I believe is irrealevent. What matters will be the market’s reaction. I will not speculate what that reaction will be until we get closer to the actual rate increase (assuming it happens at all). For bond investors, the key will be a gradual and orderly increase in interest rates. Sharp changes up or down in interest generally rates causes bond prices to fluctuate more than what is usually expected.

The other major story for 2015 is likely to be the continued weakness in oil prices. I believe lower oil prices is actually a significant boost to economic activity and that the fall of stock prices in 2014 and so far in 2015 is an overreaction caused by energy pricing fears. In my view, lower oil prices are positive long-term.

US equities are clearly the top-ranked major asset category on a relative strenght basis of the six I follow. Over the holidays, International equities fell from the second position to third being replaced by Bonds. I contine to recommend avoiding international equities, especially European stocks, due to their under-performance relative to US equities. The big unknown is whether or not the Eurpean Central Bank (ECB) will engage in quantitative easing. The ECB has resisted thus far, however, as the European Union continues to struggle economically, there is mounting pressure for the ECB to ease. If this happens, I would not be surprised to see stocks jump in value even though the fundamentals do not warrant such increases. I would also expect US stocks to rise in conjunction with such a move.

The Money Market asset category remains number four of the major asset categories followed by Currencies and Commodities. I believe the energy sector will remain under pressure for now until oil and natural gas prices stabilize, but keep an eye on precious metals. Even though I think gold is overvalued at this time, there has been a subtle shift upwards in the trend of gold prices.

I will wrap up by saying that I believe volatility will increase this year. Last year’s volatility was clearly an increase from 2013. We had several 5% corrections and one that slid into a 10% correction during the fall. Very normal. Volatility is extremely unpleasant and I am afraid we may see more volatility in 2015 due to the impacts of commodity prices and speculation over the Federal Reserve’s rate increase. That is the bad news, however, I do believe that US equity prices will end the year positive based upon the economic fundamentals with another low, double-digit gain similar to 2014.

I will expand on these themes and provide you up-to-date commentary going forward in 2015.

I wish everyone a very Happy New Year!




Paul L. Merritt, MBA, C(k)P®, AIF®, CRPC®
Principal
NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks. The STOXX® Europe 600 is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 represents large, mid, and small capitalization countries of the European region. The Dow Jones Global ex-US index represents 77 countries and covers more than 98% of the world's market capitalization. A full complement of subindices, measuring both sectors and stock-size segments, are calculated for each country and region.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however, NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.
Emerging market investments involve higher risks than investments from developed countries and involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political, or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities, which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.
The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generally are volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors’ expectations concerning interest rates, currency exchange rates and global or regional political, economic or financial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.