Market Overview –

Second Quarter 2014

July 2014
 Financial Market Performance Summary: 2014 Year-to-Date
• Equities have posted solid gains for the first half of the year. Stocks in the US were up just over 7%, which is the type of
performance most strategists thought would take a full year to achieve. In a surprising reversal, the top performing areas of
the market were some of the worst performers in 2013. Utilities and real estate were both up more than 15% despite
trailing the stock market by more than 15% last year.
STOCKS 1Q-2014 2Q-2014 2014 Full Year
• Outside of the US, developed market stocks
US Equities (S&P 500) 2% 5% 7%
notched solid performance as well, advancing by
US Small Cap Equities 1% 2% 3%
5% for the year.
International Equities 1% 4% 5%
Emerging Markets Equities 0% 7% 6%
• Emerging market equities have turned markedly
Brazil, Russia, India, China (BRICs) -3% 8% 5%
positive, with the broad index posting gains of 6%
for the year, despite going into the 2nd quarter BONDS 1Q-2014 2Q-2014 2014 Full Year
with modest losses. Within emerging markets,
US Bonds 2% 2% 4%
the  smaller  “frontier  markets”  (countries  like  
Municipal Bonds 3% 3% 6%
Vietnam, Pakistan, Kuwait, Nigeria, Argentina and US Corporate High Yield Bonds 3% 2% 5%
Romania) posted gains in excess of 20% for the Emerging Market Bonds 1% 5% 6%
year.
OTHER ASSET CLASSES 1Q-2014 2Q-2014 2014 Full Year
• After posting their worst year in 20 years last
Commodities 2% -4% 2%
year, the US bond market is up 4% in 2014. The Hedge Funds 1% 2% 3%
biggest surprise has been the strong rally in Master Limited Partnerships 2% 14% 16%
treasuries. The 30 year treasury bond is up 14% Real Estate (REITs) 11% 7% 18%
for the year, defying conventional wisdom.
Data as of 6/30/14
• Commodities have been very volatility, producing significant declines in the 2 nd quarter. Within commodities, the
precious metals (gold, silver) are up more than 8%, energy is flat and agriculture is down considerably.

July 2014 Source: Morningstar, Data as of 6/30/2014 2

Momentum’s  Take…
We have spent the last 3 years waiting for a correction (a decline of more than 10%) in equity markets that has not happened yet. Each day that passes
without such a correction means the odds of it happening the next day is slightly higher. The market, however, does not want to go down – and we are
not  complaining!    The  Federal  Reserve’s  easy  money  policies  have  pushed  interest  rates  to  historic  lows  and  has  continued  to  blow wind into the sails of
the economy. As a result, we are seeing continued strong earnings growth and gains in employment.

Several  events  this  past  quarter  have  tested  the  market’s  resolve.    First,  the  US  economy  surprisingly  posted  a  (revised)  3%  drop in GDP in the first
quarter. Second, there was a ton of geopolitical unrest, namely: Downing of a Malaysian Jet Liner in eastern Ukraine, escalating sanctions against
Russia, the Israeli invasion of Gaza, not to mention civil wars and islamist insurgencies in Syria, Iraq, Afghanistan, Nigeria and Mali. Third, the Federal
Reserve  announced  that  it  would  formally  end  it’s  “quantitative  easing”  program  in  the  fall  of  2014.    At  each  headline,  we  winced, and yet watched the
market continue to march higher.

For the balance of the year, we are watching for the mid-term elections, which, so far, are predicted to be fairly quiet (despite the large number of seats
in both halves of congress up for election). And there is always the specter of full-fledged war to break out. But most importantly, there is no denying
that things are continuing to look better. Housing starts are up, vehicle sales are above average (for the first time in 6 years), home prices have
rebounded, M&A (mergers and acquisitions) activity is strong, and unemployment is finally approaching 6%.

In the long-run, our view of cautious optimism remains intact. We expect to hit some speed bumps along the way, but we are not ready to hit the braes
just yet.

So what are we doing?

1. Staying the course. We have designed our portfolios to withstand a variety of external threats, namely rising rates and bear markets. Although we
will make tactical shifts, we are committed to our long-term strategy which has been customized to fit your unique circumstances.
2. Rebalancing and being defensive. Through the coming weeks, we will be trimming any outsized position to ensure that no individual stock, bond or
fund  can  have  a  major  negative  impact  on  the  portfolio.    Additionally,  we  are  considering  “selling  covered  calls,”  which  is  a way of receiving
compensation today in exchange for future upside stock market appreciation.
3. Continuing to underweight bonds. With bonds rallying the way they have in 2014, our long-term concerns about investment grade bonds are
heightened. We are keeping durations (expected maturities) short to mitigate the impact of rising rates – although this positioning has worked
against us recently as interest rates have declined unexpectedly in the past few months.
4. Continuing to be opportunistic. One area that we are watching really closely is emerging markets. Valuations there are dirt cheap, however,
corporate earnings expectations are also in the dirt. The sectors we like most in the US are: Energy, Technology, Telecom and Financials. We
continue to identify the best ways to express these views through the selection of individual stocks and exchange traded funds.

As always, we appreciate the trust you place in us each day, as we watch your portfolio and sweat the details of the market.
Thank you for your business!

July 2014 Comments as of 5/15/2014 3

Why Is The Market Ignoring Geopolitical Risks?
Historically, wars have not led to bear markets.

July 2014 Source: Goldman Sachs 4

Employment Is Finally Improving
The US economy has finally recovered ALL of the jobs lost in the recession, and the unemployment rate
is  approaching  it’s  long-term average of 6%.

July 2014 Source: JP Morgan 5

Cyclical Areas Of The Economy Are Strong

July 2014 Source: JP Morgan 6

Manufacturing Sentiment Is Strong Across The Globe

July 2014 Source: JP Morgan 7

But…  Valuations  are  High

July 2014 Source: JP Morgan 8

And…  We  have  not  had  a  10%  correction  since  2011!

July 2014 Source: FactSet 9

Legal Disclaimer
This presentation is provided to you for informational purposes only. This report uses information that is considered reliable, but it does not represent that
the information is accurate or complete, and the report July not be relied upon as such. The report is not intended to be either an expressed or implied
guaranty of actual performance. It is not intended to supply tax or legal advice. There is no solicitation to buy or sell securities.

This is not your official monthly statement. In the event of any discrepancy between this report and your statement, the statement will govern. Some
figures contained in this report are rounded to the nearest dollar. Any historical price(s) or value(s) is as of the date indicated. Information and opinions are
as of the date of this material only and are subject to change without notice.

Performance figures were calculated by Morningstar. Morningstar uses daily time-weighted returns to calculate the performance of advisory accounts.
Total portfolio performance returns, unless otherwise indicated, are calculated, net of fees, excluding the effect of taxes, for all accounts. Total asset class
returns July reflect previous investments and July not equal the sum of the returns at a product level.

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outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include,
among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change
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the inclusion of forward-looking statements herein should not be regarded as a representation by Momentum or any other person of the outcomes or results
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