The document provides an overview and analysis of the current state of the markets in June 2018. It summarizes that while earnings growth remains strong, expectations are that growth may be peaking. It also notes that interest rates have risen and volatility has normalized this year after an unusually low-volatility 2017. The conclusion is that the market environment is normalizing, which should create continued volatility, so investors need flexibility to capitalize on opportunities.

1. Market Perspective – June 2018
Experience Insight Impact
Overview: As we approach the middle of 2018, we look back and evaluate the state of the markets.
This month we focus on the current environment for earnings growth, the normalization of
volatility and other factors which may be driving current trends.
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2. Earnings Update
Experience Insight Impact 2
With Q1 earnings season complete, one can see that companies in the S&P 500 demonstrated
strong operating performance with sales up 8.16% and earnings up 23.72%.
With earnings expectations high in the midst of anticipated benefits from tax reform, it is easy to
dismiss the health of the underlying fundamental growth. The year over year revenue growth
was the highest first quarter growth since 2011. Also, all sectors continue to advance profitability.
Energy and Materials sectors continue to rebound and Technology growth remains robust.
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Source: Bloomberg

3. Earnings Growth Projections
Experience Insight Impact 3
The chart above shows historical sales and earnings growth (to the left of Calendar Quarter 1, 2018
noted by “CQ1 18”), current quarter growth (CQ1 18), and future trends (to the right of CQ1 18). As
reflected, analysts expect current CQ1 18 to potentially be a peak, although growth should remain
strong through early next year.
Source: Bloomberg

4. As Labor Markets Tighten…
Experience Insight Impact 4
Labor markets continue to tighten, potentially putting pressure on margins down the road.
In the meantime, the economy continues to look strong with labor trends improving.
Source: Bloomberg

5. Interest Rates Are Rising
Experience Insight Impact 5
In addition to the potential that earnings growth has peaked (albeit remaining quite strong),
interest rates have also risen. Above, the chart to the left shows the Fed Funds rate rising while the
chart on the right shows the expectations for future increases.
Source: Bloomberg

6. Volatility Has Normalized Entering 2018
Experience Insight Impact 6
With rates rising (and a less supportive monetary policy), earnings growth potentially
peaking and labor markets tightening, market volatility appears to be normalizing in
2018 following an unusually non-volatile 2017. The chart above shows that through
mid-June, we have already seen 35 days where the S&P 500 has moved more than 1%
(either positive or negative). Last year there were only 7 such days.

7. Market Perspective – June2018
Experience Insight Impact
Conclusion: Currently, growth remains strong in U.S. equity markets. However, market
participants are always attempting to discount future expectations. The environment
appears to be normalizing, which should create continued volatility. Investors should
remain flexible in order to capitalize on a wide variety of opportunities in various
asset classes, as they undoubtedly will present themselves going forward.
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8. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
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