Mid Year Update:A Cut to Equity Exposure and

What We are Watching

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WEALTH MANAGEMENT AND STRATOS WEALTH PARTNERS ARE SEPARATE ENTITIES FROM LPL FINANCIAL.

THE ECONOMIC FORECASTS SET FORTH IN THE PRESENTATION MAY NOT DEVELOP AS PREDICTED AND THERE CAN BE NO GUARANTEE THAT STRATEGI ES PROMOTED WILL BE SUCCESSFUL. ALL PERFORMANCE REFERENCED IS HISTORICAL AND IS NO GUARANTEE OF FUTURE RESULTS. ALL INDICES ARE

UNMANAGED AND MAY NOT BE INVESTED INTO DIRECTLY.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Returns still favor equities year to date

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Removed overweight on

equities

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Cyclical bull intact…but extended

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Watching US inflationary pressures

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching the Fed

Fed moving to neutral. A

steeper path than March ‘18

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching stock and bond

correlations

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching the Yield Curve

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching Earnings growth

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching Leadership:

Getting more narrow.

A new tech bubble?

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Watching Trade

Ned Davis Research Global Trade Monitor

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

US equity market momentum still leans bullish

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

No signal that current environment is evolving into bear market

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Sentiment neutral

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

International equity momentum waning…

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Cut international weighting.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

BWM TacticalPositioning

No strategy assures success or protects against loss.

OVERWEIGHT MARKETWEIGHT UNDERWEIGHT

Stocks

Bonds

Cash

U.S.

Large Cap

Mid/Small Cap

International

Credit

Duration

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Bottom Line

• Believe there are still legs to our secular bull market in stocks

• Cyclical bull at risk if earnings deteriorate

• The Inflation, the Fed, yield curve and trade our the key areas to watch

• Back to benchmark on stocks and bonds.

• Watching our objective indictors closely for further downgrade to equities or more bullish signals to get back to overweight

Questions?

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Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Executive Summary

• Slide 4 - This chart plots the performance of the NDR Global Asset Allocation Recommendations versus a benchmark of 55% stocks / 35% bonds / 10% cash. NDR constrains the recommended equity weighting (which can theoretically range from zero to 100%) to be limited to a minimum of 40% stocks to a maximum of 70% stocks. Such constraints are representative of the types of allocation limits placed on many institutional investors by their portfolio mandates (e.g., no more than 15% away from a benchmark of 55% stocks). Bonds and cash are also included in the NDR Asset Allocation Recommendations. Due to the constraint on equity weighting, the combination of bonds and cash can be weighted no greater than 60% and no less than 30% in NDR's recommendations. The benchmark for bond allocation is 35% and for cash is 10%.The proxy for global stocks is the MSCI World Index in local currency. The proxy for bonds is the Barclay's Global Treasury Bond Index. The proxy for cash is a five-country composite of short-term interest rates. The current allocation is now back to benchmark allocation.

• Slide 5 - This chart compares the price of the Dow Jones Industrial Average (DJIA) from its February 2009 bottom to its price action during the entire 1921-1929 secular bull market and the first halves of the 1942-1966 and 1982-2000 secular bull markets. Since its bottom in 2009, the DJIA has followed a price pattern consistent with the first few years of the three prior secular bulls: extended periods of strong positive performance (cyclical bulls) interlaced with relatively shallow periods of negative performance (cyclical bears).

• Slide 6 – The difference between the unemployment rate and NAIRU is called the unemployment gap. If the unemployment gap is positive, then there is excess supply of labor, which puts downward pressure on wages and inflation. If the unemployment is at or below zero, then there is labor or skill shortages, which puts upward pressure on wages and inflation. If the unemployment gap continues to decline, we could see more inflationary pressure this year.

• Slide 7 – The chart on slide 7 is a chart published by the Federal Reserve which projects where they think median federal funds rate will go. The federal funds rate is the interest rate at which depository institutions (banks) lend reserve balances to other depository institutions overnight. This chart indicates that the Federal Reserve is targeting four rate hikes in 2018.

• Slide 8 - This chart gives perspective on how the stock market's daily changes have correlated with daily changes in benchmark 10-year Treasury note yields. Historically, stock prices tend to be negatively correlated with bond yields. Although yields have risen slightly, they have not yet started to negatively affect stock prices.

• Slide 9 – This chart compares the price of the S&P 500 to the yield curve. The yield curve is an excellent longer-term monetary indicator measuring the relationship between long-term and short-term interest rates. The monetary environment is considered healthy when short-term interest rates are lower than long-term interest rates (a steep yield curve). This has been a good indicator at predicting recessions.

• Slide 10 – The chart below shows analysts’ consensus projections for S&P 500 earnings per share for calendar years 2012 through 2019. The average equity analyst tends to start each year with excessively rosy expectations for corporate earnings which are progressively tempered over time. These downward revisions can clearly be seen in the chart. The anomaly in the upper right corner of the chart is the 2018 and 2019 projections. Rather than adjusting earnings estimates downward, the analysts have revised their projections upward for 2018 and 2019. Earnings growth is positive for equities.

• Slide 11 – This chart looks at the top 10 stocks as a percentage of the ACWI (All Country World Index). The market cap of the ACWI’s top 10 stocks now account for 12% of the total market cap, with the chart at right reminiscent of the late 1990s. It would be premature to say we are in a similar kind of tech bubble experienced in the late 1990s, it should be noted that 8 of the top 10 stocks are tech-related stocks.

• Slide 12 – This chart shows NDR’s “Global Trade Monitor”. This tool is made up of a number of indicators that ty to gauge the health of the trade environment. This tool can be used to identify an unhealthy trade environment before companies report poor earnings due to trade restrictions.

• Slide 13 - The chart in this slide analyzes how healthy the market is, known as “Market Breadth”, from a technical perspective. The model, plotted in the lower clip of the chart on the right, aggregates the signals of over 100 component indicators and generates a reading between 0% and 100%, reflecting the percentage of the component indicators which are currently giving bullish signals for the S&P 500 Index. The indicator still remains in the “bullish” zone.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Executive Summary

• Slide 14 – This chart is the NDR bear market watch indicator. The chart still remains in “healthy” territory, however it has deteriorated slightly this year but has improved slightly as of late. The top clip plots the global stock price index, which is a blend of the MSCI World Index price returns prior to 1988 and the MSCI ACWI price returns thereafter. The bottom clip plots the percentage of Bear Watch indicators that have reached key bearish levels historically. As shown in the table at the bottom of the chart, there have been eight cases since October of 1985 where the percentage of indicators have risen above 40% for the first time in at least six consecutive months. The median drawdown over the next 12 months for all cases has been very high.

• Slide 15 - This chart is designed to highlight short-term swings in investor psychology. It combines a number of individual indicators in order to represent the psychology of a broad array of investors to identify trading extremes that may be used for contra or hedging trades. Historically, returns have been poor when there is excessive optimism. As can be seen, excess optimism has been relieved and the indicator is currently in the neutral zone.

• Slide 16 – This chart measures the momentum of international equities (not including the U.S.). International Market internals were more favorable at the start of 2018 but the health has deteriorated as of late. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

• Slide 17 – This chart compares the momentum of international equities to the momentum of U.S. equities. When the momentum of U.S. equities is stronger than international equities, the indicator will have a negative reading. When the internals of international equities is more favorable than U.S equities, there will be a positive reading. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

• Slide 18 – We are at benchmark weightings for stocks, bonds and cash. Within equities, we are overweight U.S. stocks –primarily overweight large cap, marketweight mid/small cap, and underweight international equities. Within fixed income, we are overweight credit and have a focus on owning bonds with shorter duration.

• The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

• Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

• Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results. All entities are separate and not affiliated with LPL Financial.