Q1 2014 Market Commentary
David Y. Sun, CFA®

We have completed one of the most eventful quarters in recent memory giving us many issues to focus on as we proceed
through the year. We sense that bond volatility is subsiding due to more details surrounding the decision to “taper.” Instead of
being driven by uncertainty, we see bonds trading more along the lines of current and near-term economic conditions. Many of
our fixed-income investments staged a healthy recovery during the first quarter, leading all asset classes as measured by
returns. This was anticipated knowing the rate increase we experienced last year was based on Fed news and not attributed to
inflation. Moving forward, we will remain diligent in our preparation for the possibility of a rising interest rate scenario based on
economic factors including inflation.

In regard to equity markets, our monitoring of projected earnings adjustment trends confirms that we should remain in a trading
range for this year. Based on fundamentals (projected earnings for 2014 and 2015), we see a range of 15,400 to 17,000 on the
DJIA. Our perspective remains unchanged; markets will be considered undervalued should it fall below 15,400, whereas the
opposite is true should the market advance above 17,000. With minimal GDP growth expectations, we are hoping fundamentals
remain intact; however, we can truly appreciate the sensitivity of the global economy as it can be easily thrown off track by any
surprises.

One possible culprit in the first quarter was the type of sanctions to be imposed on Russia as a response to its actions in Crimea.
Beyond what has been announced so far, any real economic sanctions to be imposed would be truly detrimental to the European
economy. This initial concern regarding Europe has been voiced by many analysts, but the reality is that no economy can
escape the negative fallout from any real economic sanctions. Such strategies would inflict as much damage to our own
economies as it would to Russia, thus providing strong reasons to keep a close eye on all localized geopolitical scenarios, i.e.
China/Japan, N. Korea/S. Korea, Ukraine/Russia, etc.

Even though approved sanctions so far will not significantly impact the bottom line of major corporations, the uncertainty
surrounding Russia’s future intentions can be a catalyst in driving market volatility. We have seen certain companies (i.e.
McDonalds, Visa) voluntarily discontinue business operations in the region and would not be surprised if the list continues to
grow. These decisions will definitely have an effect on projected earnings estimates. The challenge is trying to figure how
disruptive such decisions will have on overall operations and financial statements.

This geopolitical situation did present us with another test of the two typical “flight to safety” vehicles, gold and bonds. We did
see a hint of strength in both asset classes during the crisis, but there was no follow through with conviction which reflects the
ongoing concerns in both areas: valuation questions for gold and the expected rise of interest rates.

These issues, with many other topics, will be discussed at our Round Table Discussion scheduled for April 30th. If you are able
to attend or if you have any questions regarding the event, please contact Leslie Tritschler at 484-320-6300. Since seating is
limited, it’s recommended that you make reservations. We hope to see you there.

Download Q1-14 Market Commentary