MARKET UPDATE AND COMMENTARY
May 17, 2015


US markets continue to struggle to find their footing in 2015 as continued sluggish economic data for April casts doubt on the strength of current economic growth. Some of the recent data cited as worrisome include Industrial Production (-0.3%), the Producer Price Index (-0.4%), and Retail Sales (0.0%). Offsetting some of the negative effects of weaker economic data was the April Employment Situation report that showed job growth rebounding in April to 223,000 new, non-farm payroll jobs created and the unemployment rate dropping 0.1% to 5.4%. The Federal Reserve generally considers an unemployment rate around 5% to be full employment.

Source: The Wall Street Journal (Past performance is not indicative of future returns). As of market close May 15, 2015.

The first quarter earnings season is wrapping up. As of May 8th, FactSet reported that with 89% of S&P 500 companies reporting earnings, 71% have exceeded the median estimated growth rate. This is better than many analysts projected; however, FactSet also suggested that part of this success was attributable to massive downward revisions early in the quarter that substantially lowered the bar for most companies. Energy companies in particular have suffered earnings declines more than any other sector. To get a perspective on what has happened in the energy sector, I examined the first quarter 2014 and 2015 revenue and net income data of the five largest energy companies (based on market capitalization) which are ExxonMobil (XOM), PetroChina (PTR), Chevron (CVX), Petrobras (PBR), and British Petroleum (BP). The combined quarterly revenues of these big five fell from $374 billion in Q1 2014 to $249 billion in Q1 2015, a drop of $125 billion (-33.4%). Net income fell from $22.6 billion in 2014 to $11.2 billion a drop of $11.4 billion (-50.5%). Numbers this large will have an impact throughout the economy, especially on Gross Domestic Product (GDP). The money not flowing to the energy companies is more money in the pockets of consumers, however, an improvement in consumer spending has yet to materialize.

Looking at sector performance, the Health Care sector continues to lead among the ten major economic sectors with a gain of 8.3% so far in 2015. Following the Health Care sector is Consumer Discretionary (+6.0%), and Materials (+5.6%). The Utility sector is lagging all others having lost 6.7% year-to-date. The Financial sector is down -0.3% making it the only other negative sector tracked by Standard and Poors. The third worst performing sector is Energy that has thus far eked out a 0.2% gain.


International markets continue to perform well. The European-heavy STOXX 600 index leads the major indexes I track with a year-to-date gain of nearly 16%. Since the start of the 2nd quarter on April 1st, the STOXX 600 is down -0.2%, however. This drop in the STOXX corresponds with a 6.7% increase in the Euro. This rise in the Euro makes European exports more expensive and is considered a potential drag on earnings by some investors.

Source: The Wall Street Journal (Past performance is not indicative of future returns). As of market close May 15, 2015.

The Emerging Market region has also performed well in 2015 primarily on the strength of China’s market performance (+33.2%). China has the largest single country exposure in the Dow Jones Emerging Market region index with a weighting of 16.5%. South Korea (14%) and Brazil (12%) are the second and third largest holdings and these countries are up 10.0% and 14.5% respectively year-to-date helping propel this index forward. China’s market in particular has struggled recently (-3.0% since the start of May) and this is reflected in the Emerging Region index’s flat month-to-date performance.

Oil continues to perform well in 2015. WTI Oil closed Friday at $59.69 and is now up 12% for the year and a whopping 26% since April 1st. The number of oil rigs operating in the US continues to fall with just 660 active rigs last week compared to 1069 in October 2014. This sharp reduction in rigs gives some insight on why investors have bid the price of oil back up from its low of $47.06 on March 17th. Another factor influencing the price of oil is the strength of the US Dollar. A stronger US Dollar tends to help push the price oil and other commodities down because nearly all global commodity transactions are priced in US Dollars. As the US Dollar rises compared to other currencies, it raises the price to all international buyers. Anytime the price of a good goes up, the demand for that good falls all other things being equal. This appears to be the case with oil. The US Dollar reached its recent peak to all other currencies on March 13th and oil the price of oil bottomed on March 17th. As the US Dollar has weakened since March, the price of oil has risen sharply.

Interest rates play a major role in the value of the US Dollar. A major component for the demand of US Dollars by international investors comes from their desire to own higher-paying US Treasury bonds. If the spread (the difference between two similar bonds issued by two different countries) widens, investors will typically sell the lower-yielding bonds and purchase the higher-yielding bonds. A common trade recently has been owners of German 10-year Bunds (German treasuries) selling those bonds which have yielded as little as 0.08% on April 17th and purchasing US 10-year Treasury bonds which were yielding 1.85% on that day. It takes US Dollars to buy US Treasuries, so the demand for US Dollars increases. Today, the US 10-year bond is yielding 2.15% and the German 10-year Bund is yielding 0.62%. Spreads have narrowed and the demand for US Dollars has fallen.

A QUICK REVIEW OF THE BIG FOUR ISSUES FOR 2015

At the start of the year, I said there were four issues overhanging the markets and would likely affect markets both good and bad, and that markets would remain volatile and fail to get traction until some of these issues were resolved. I will review the status of each as I see them today.

1) When and by how much the Federal Reserve raises interest rates? This has been the number one focus of investors so far in 2015 and remains an unanswered question. Consensus built earlier in the spring for a June rate increase of 0.25%. Falling interest rates in Europe as the European Central Bank started its version of quantitative easing coupled with uncomfortably weak economic data at home has more and more investors believing any interest rate increase will not come before September or even early 2016. While I personally believe it is time to start raising rates and get ahead of inflation, I believe rates will more likely increase in September than June. I also believe that raising rates 0.25% should not have a negative long-term impact on stock valuations; I am not prepared to suggest that there will not be a short-term negative impact to markets.

2) Will Greece stay in the European Union (EU)? Greece managed to pay for its most recent bond obligation to the International Monetary Fund (IMF) last week by borrowing from the IMF. You read that correctly, Greece borrowed money from the IMF just to give it right back. The account Greece borrowed came from funds previously reserved for Greece so the IMF agreed to allow this transaction. Unfortunately, that account is nearly empty and Greece faces three separate repayments in June including €1.6 billion ($1.8 billion) to bond holders on June 12th. It will be hard to see how the Greeks can work around these payments because I have read they do not have the funds to meet their obligations. As negotiations between the Greeks and European officials have progressed this year, I believe the Europeans are not going to accommodate the Greeks. This raises the likelihood of Greece leaving the EU and returning to the Drachma, but many believe this will not be a crisis for the markets as was feared several years ago. So while this remains an important issue, it may be less of a problem than previously perceived.

3) Will geopolitical problems affect markets? At the start of the year the global situation looked grave, particularly in the Middle East with the spread of ISIS. Since then there has been little improvement, but impacts on financial markets has been negligible. I believe this status quo will remain in place for now and not have a major impact on markets.

4) Will the newly elected Congress achieve progress towards passing pro-growth fiscal policies or will Washington continue partisan fighting? I said back in January that I was not optimistic about any improvement in the domestic political situation, and unfortunately, this view has proven to be true. I continue to believe that Washington will not make any move towards implementing pro-growth fiscal policies unless there is a change in the White House in 2016. I do not expect any market improvements attributable to improving fiscal policies.




LOOKING AHEAD

There has been a lot of discussion in the financial media regarding the current valuation of US markets. Some analysts are suggesting that we are in a Fed-induced bubble and that asset prices are wildly overvalued. Part of their reasoning is that the lack of a major correction since that Great Recession (we have had several 10% corrections since 2011) means we are due for a big one at some point. While I do not believe we are free of periodic corrections, I also do not believe we are due for another major correction. The numbers simply do not justify that conclusion.

The May 8th FactSet discussion of corporate earnings puts the 12-month forward price/earnings ratio (a widely used measure of value in stocks) of the S&P 500 at 16.8. The five-year average has been 13.8 and the ten-year average is 14.1. Clearly stocks are more highly valued, but not to the extreme. Additionally, the DorseyWright & Associates Overbought/Oversold status reading of the S&P 500 is +29% (>+100% indicates significant overvalue) meaning stocks are fairly valued base on the most recent ten-weeks of trading activity. What these numbers mean is that buying into this market is still okay, but outsized returns like we had in 2013 are most likely behind us. Markets can still grow from here, however, it is going to be harder to make money than it was in the early stages of this current bull market.

US stocks and International stocks are still ranked one and two of the six major asset categories I track. Equal weight indexes are favored over capitalization-weighted indexes. Small and Mid Capitalization stocks are favored as is Growth over Value. Within sectors, Health Care, Industrials, and Consumer Discretionary are favored.

Over the next several weeks some of the key economic reports due out will be the release of the Federal Reserve’s Open Market Committee minutes (May 20th) from their last meeting on April 29th. The second revision of first quarter’s GDP report will be issued on May 29th (some are expecting the revision to be downward to a negative growth number), and Jobless Claims released every Thursday morning continue to excite investors.

As I have said before, whenI look out onto the horizon, I continue to see more of the same. Some growth, a lot of headwinds due to poor fiscal policies, and a belief that Americans always adapt and overcome. The markets have not made much in the way of gains this year, but sometimes a pause is not a bad thing. I will continue to monitor events and markets and will keep you appraised of my observations.

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.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

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
April 20, 2015


Following more volatility last week, markets had a sharp sell-off on Friday prompting the doom-and-gloomers to come out in force Friday evening and over the weekend. While last week was a down week for most major US stock indexes, year-to-date the markets remain positive.

Source: The Wall Street Journal (Past performance is not indicative of future returns)

The Dow Jones Industrial Average (DJIA) and the S&P 500 are essentially flat seventy-three trading days into 2015 while the small-cap heavy Russell 2000 and tech-heavy NASDAQ are showing gains around 4%. This is a quite a turnaround from last year when at this same time the S&P 500 was outperforming the NASDAQ by 3.4% and the Russell 2000 by 5.1%. The DJIA, however, was up a similar amount (0.03%).

The best performing major economic sector remains Health Care (+9%) followed by Consumer Discretionary (+4%) and Energy (+4%). The lagging sectors are Utilities (-6%), Financials (-1%), and Industrials (+1%). This same time last year, Real Estate (+11%), Utilities (+11%), and Energy (+6%) were the top performers with Consumer Discretionary (-4%), Information Technology (0%), and Financials (0%) lagging. Sectors routinely come in and out of favor in the course of a year or two so this is not out of the ordinary. Energy’s strength of performance has been concentrated in just the past month (+9%) but remains negative over the trailing year (-11%) and now lags the S&P 500 on a 1-, 3-, and 5-Year basis.

International markets, especially Europe, have been rebounding smartly this year. Friday’s poor performance overseas (STOXX 600: -1.6%) was attributed primarily to renewed concerns over Greece. Let me reiterate my opinions about Greece and the European Union (EU). Greece is broke and has no hope of paying its debts or current expenses and the Europeans know this. However, maintaining the integrity of the EU is of paramount importance to most of European politicians and negotiations will continue despite the acrimony between Greece and its creditors. The EU and Germans in particular have, in my view, a limit to their patience with Greece, but I believe minimal concessions by the Greeks will appease the EU for a while. In the meantime the Greeks have extended an olive branch to Vladimir Putin and may receive up to €5 billion ($5.4 billion) in “pre-payments” from Russia for future pipeline revenue (I do not have enough space to discuss the pipeline deal) which may alleviate Greece’s more immediate need for cash. However, the Greek problem can return on short notice and with a vengeance so I continue to stress the importance of keeping attention on what is happening in Greece. The eventual outcome remains to be seen and is unpredictable at this time, in my view.

Source: The Wall Street Journal (Past performance is not indicative of future returns)

Oil has rebounded strongly in April with WTI Oil up 17.7% per barrel to close Friday at $55.74. There are differing accounts of why oil has rebounded including expectation of increased demand from China, lower future production and exploration in the US, and a slightly stronger Euro. Ultimately, all of these and more factors could apply, however, oil prices trade on supply and demand fundamentals, and for now, supply and demand has found a price range between $45 and $60 to trade within.

I noted that the Euro has rebounded slightly in the past few weeks. The Euro closed Friday at $1.08, an increase of just under 3 cents from its low on April 15th at $1.058. The Euro relationship with the US Dollar is influenced by investor perception of economic growth, expected inflation, and monetary policy here and in Europe. I believe the overarching issue right now is monetary policy, and with the slew of slightly negative US economic reports from March, investors are betting that the Federal Reserve will hold off raising rates in June to later in the fall which helped push the Euro higher last week. I will have more to say about Fed policy in future Updates. My view is the European Central Bank’s (ECB) decision to engage in quantitative easing (QE) has made it more difficult for the Fed to raise rates for now.

Interest rates have continued to trend lower with the benchmark 10-year US Treasury yield closing Friday at 1.85% down from 1.94% at the end of March and from 2.17% at the start of the year. Lower yields has lifted the Barclays US Aggregate Bond index 2.2% in 2015. Longer maturity bonds continue to perform well (with greater risk) with the drop in interest rates along with the High Yield and Floating Rate bond sectors. The World Bond sector is the weakest performing bond sector in 2015 followed by Short Duration.


VOLATILITY

Volatility is a pain. No one likes it; in fact volatility leads investors to make poor investment decisions. By bad investment decisions, I mean selling low and buying high. Unfortunately, volatility is part of the investing landscape and coping skills are important.

It is important to understand investor behavior in order to be a better investor. There are complete books written on this subject, but for brevity, I will attempt to distill some of the most essential principles down to a couple of paragraphs.

I believe there are two primary reasons that are at the core of poor investor behavior. First investors lack confidence in their investments, and second they have not aligned their risk tolerance with their portfolio.

Lack of confidence in a particular investment stems from not understanding its value, understanding the inherent volatility of the investment in context to the broad market or its sector, or knowing when to sell. Each of these issues can be dealt with by both fundamental research and point and figure charting. I am particularly fond of point and figure charting for analyzing whether an investment is overbought or oversold (how is the price relative to the past ten weeks of trading history), what the current demand is for the investment relative to the broad market, sector, or other investment options, and whether the investment is on a long-term positive or negative trend. All of this data put together can help investors decide if an investment should be bought or sold. I will be happy to sit down with any of you to discuss how this process works with a specific investment in your portfolio or something you are considering purchasing. This information ultimately helps take out some of the uncertainty of decision making because it is more rules-based process.

Matching risk tolerance to your actual investment portfolio is critical and often misunderstood. For most investors their typical experience in deciding risk tolerance is to complete a questionnaire. While I believe questionnaires have a valid purpose (and required for compliance purposes), it is sometimes hard to match words or scores to feelings when you are experiencing a correction in the markets. Let me give you an example of a typical question on most questionnaires, “If your portfolio fell by 20%, would you….a, b, or c?” Whatever options a, b, or c are, my experience is that most of us just want to make as much money as possible when the markets are going up and minimize losses when the markets are going down. A 5% correction feels terrible to most of us, let alone a 20% correction. However, if a 15% or 20% correction is clearly more than you are emotionally able to handle or cannot afford to lose 20% of your overall portfolio value because of impending spending needs, then you must take smart steps to build a portfolio that avoids jeopardizing your portfolio’s value by reducing volatility. Accepting this strategy, do not, however, beat yourself up if you do not exceed the return of the S&P 500 if half of your portfolio is invested in bonds. Be realistic in your expectations. This is key.

Good investors take a longer perspective with the market than just a day or week or two. Market fluctuations can and do occur. Be prepared to accept some volatility, however, understand your investments, your portfolio’s risk characteristics, and remain focused on your objectives--not short-term volatility found in all markets.

LOOKING AHEAD

The economy slowed down in the first quarter. Corporate profits will likely be lower on lower sales. There are lots of reasons for this including the west coast dock strike, sharply lower energy earnings, and the bitterly cold winter. However, I believe this is temporary and corporations will continue to deliver solid earnings within our slowly growing economy.

We are in the middle of the first quarter reporting period for corporate earnings. According to FactSet, of the 56 S&P 500 companies that reported earnings through April 17th, 77% reported earnings above the mean estimate and 46% have reported sales over the mean estimate. The lower sales growth is, in my view, a direct reflection of the big three factors I described in the previous paragraph. However, 77% of companies continue to meet or exceed earnings estimates, and that is a big positive.

There are a handful of key economic reports due out over the next couple of weeks. The Thursday unemployment claims number is always watched closely. This volatile number, however, should be viewed in the context of moving averages and not week-to-week changes. Existing and New Home Sales reports for March will be released Wednesday and Thursday respectively. I don’t anticipate much market changing news from these reports. The March Durable Goods orders report being released this Friday is expected to show an increase of 0.5% after a poor February (-1.4%). Finally, the first quarter 2015 Gross Domestic Product (GDP) report will be issued on Wednesday, April 29th. This is always an important report with market implications. It is a little early for consensus numbers to be published, however, based upon what I have been reading, I would expect this to be a weak number under 2%. If the GDP falls below 1% that would not surprise me, but it could be problematic short-term with the markets.

My critical Dorsey Wright & Associates data continues to favor stocks. In fact, the International Stock major asset category just slipped ahead of Bonds for the first time since mid-December 2014, to take over the number two position out of the six I follow within the Daily Asset Level Indicator matrix.









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
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.