Q2 2017 Market Commentary
David Y. Sun, CFA®

As professionals in the Financial Services Industry, we have experienced “headline risk” driven by the technological evolution of
news reporting as part of the new “normal” for many years now. It appears that a combination of the media and politics has
created a purgatory of sorts, holding back any progression with the current administration’s proposed agenda. Due to a constant
barrage of political “breaking news” items, it looks as if financial markets have recently become numb to such announcements
which drove market volatility not long ago. We must not allow current market conditions to lull us into a false sense of security
realizing the inability to reform taxes and increase infrastructure spending would have a negative impact on GDP expectations,
hence creating a possible threat to equity market valuations.

We are comfortable with the path of interest rate increases so far this year, but we are definitely puzzled by the Fed’s insistence
that GDP growth is on track to strengthen as the year progresses. It is humorous to note that when a piece of data does not
support their outlook, it is referred to as “transitory.” We do understand the Fed is trying to stay a step ahead of inflation by closely
monitoring employment data as a method of projecting GDP growth and inflation, but the correlation among the observed variables
leaves a lot to be desired. Improving employment data has not translated into stronger GDP results and inflation has remained
below the Fed’s target of 2%.

At this time, we do not believe increasing rates will have an adverse effect on GDP growth. Therefore, we disagree with the school
of thought of another possible recession on the horizon. On the flip side, we also do not agree with the current administration’s 3%
GDP growth estimates due to the reasons mentioned above. As we ignore the talking heads of Wall Street trying to make ever
changing economic projections, we will continue to make portfolio management decisions assuming a steady and acceptable GDP
growth rate of 2% with a tame inflation rate of less than 2%. Based on these assumptions, our allocation to value stocks will
remain at a weighting greater than growth stocks due to dividends as we trade in a narrow range.

Even though we remain committed to domestic markets, we have taken notice of foreign markets this year which have performed
well due to improving economic factors overseas. Our conservative allocation to foreign markets in the past has been a positive
contributor to overall portfolio returns during recent years where returns on international equities lagged U.S. equities. Moving
forward, our allocation between domestic and foreign equities will remain unchanged. We continue to believe that additional
participation in global consumption patterns can be adequately realized indirectly through investments in large U.S companies with
significant global operations. Also, recent weakening of the U.S. dollar should have a positive effect on U.S. exports and U.S
corporate earnings. Besides the progression of Brexit, we will continue to closely monitor how the world digests the current
administration’s stances and actions on global trade.

Lastly, please note that our fall events are coming up soon. For more information, please reach out to your consultant or contact
Leslie Tritschler at: 484-320-6300. We hope to see you there.


Download Q2-17 Market Commentary