2018 Outlook

As we begin to close the book on 2017, and start to peer into the looking glass to see what 2018 may bring,
we think it is wise to reflect upon the year to see if there are any themes that may continue to hold into the
New Year.

2017 has been a year that has continued a recent trend of decreasing market responses to political
headlines, and increasing market responses to company associated news such as earnings growth and
economic data. While it is hard to believe that news from North Korea no longer moves the market, and the
paradigm could change at any time, we think as long-term investors that the change is healthy nonetheless.

Turning to the improving fundamentals that have driven markets in 2017, for the first time since the Great
Recession we have achieved what many are calling “Synchronized Global Growth”, which means that most of
the world is improving economically at the same time. This has brought about strong returns for
international and emerging market equities that have been further aided by a weakening dollar exchange
rate. In addition, despite strong growth, which included multiple quarters of GDP growth above 3%, bond
yields actually declined (which means higher returns) as the result of weak inflation data.

This combination of strong growth and weak inflation has created what Goldman Sachs has called a
“Goldilocks” state. A Goldilocks state describes a state of the markets where strong growth has helped
stocks rally, while weak inflation data has created a rally in bonds, oil, and even gold. The result is a market
where all asset classes rally in unison.

This backdrop leads us to our outlook for 2018. Our view for 2018 is one of increasing volatility (from
historically low levels currently), lower returns, but persistent robust economic data.

We see no signs of a recession for the economy on the horizon, and tax reform should be a further tailwind
to GDP growth. With that being said, valuations across asset classes are on the higher end of historical norms,
and we believe that much of the good news that is set to come in 2018 is already priced into the markets. In
addition, Goldilocks states are inherently fragile, and as a result we favor increasing diversification of asset
classes in our clients’ portfolios.

Should tax reform clear the conference committee, which we believe it will, some have estimated an 8%
increase in earnings impact for the S&P 500.

Should tax reform clear the conference committee, which we believe it will, some have estimated an 8%
increase in earnings impact for the S&P 500 (Deutsche Bank Asset Mgmt). We believe that the best case
scenario for the markets is one where returns stay low, and earnings growth brings valuations back towards
historical averages. However, 2017 performance has been very strong, and we would not be surprised if the
market continued to rally past what the fundamentals may warrant.

These ongoing questions in the domestic equity market further enhance our positive feelings about
international equities, as a weakening dollar, earlier cycle economies, and positive news out of Europe has
brought the bull market globally.

Thank you for your continued trust in our team, and we look forward to working for you into the New Year.