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LPL Client Letter – June 24, 2016

brexit

Dear Valued Investor:
Today we received the unprecedented news that the United Kingdom (U.K.) has voted to leave the European Union (EU), which had led to significant volatility in the global markets. In situations like these, it becomes more important than ever to remain calm, harness our emotions, and stay committed to our long-term plans. Although this result was unexpected, we are here to offer continued support and guidance through these
challenging market events.

Yesterday, June 23, the United Kingdom (the U.K., comprised of England, Scotland, Northern Ireland, and Wales) undertook an all-country referendum about whether the U.K. should stay in or exit the EU, which it has been a member of since 1975. This vote, referred to as the “Brexit” vote, is done by allowing all citizens to cast their ballot on whether to “remain” or “leave.” In a very close vote, “leave” brought in 51.9%.

In the days immediately before the vote — although it was expected to be close — the polls suggested a slight tilt that the U.K. would remain; financial markets reacted positively, with stocks around the globe rising in value, along with most foreign currencies. Early Friday morning overseas, as it became clear that, in fact, the U.K. had voted to leave, these recent gains were reversed and there have been sharp declines in global equity markets, particularly in Europe and Japan. European currencies have also weakened relative to the dollar. Essentially, the markets were expecting a “remain,” were surprised by a “leave,” and thus are reacting negatively.

Though the questions surrounding exactly how and when the U.K. extrication from the EU will happen has caused near-term financial turmoil, the actual “leave” vote does not create an immediate change in the day-to-day functioning of the markets. Rather, it’s the beginning of a process that may take two years or more to fully execute. However, in the short term, there is some additional uncertainty politically: U.K. Prime Minister David Cameron has already announced his intention to resign. There are also upcoming elections in other European countries, including Spain, this weekend. All of these just raise more questions than the markets typically like to see, which is causing this near-term turmoil.

However, as the market gets over the Brexit shock and answers start to come on other fronts, this turmoil should settle some. The global economic system is better prepared to deal with financial panics than it has been historically. Most global banks are in much better shape than they were leading up to the financial crisis in 2008, and central banks are prepared to extend credit to institutions and countries to help them manage short-term liquidity problems if they arise.

The United States is insulated, though not immune, from events overseas. Although there has been a decline in U.S. stocks early today, it is smaller than the declines in foreign markets. The U.S. economy and the U.S. stock market are built on a foundation of domestic consumption of goods and services. Our economy is impacted by events globally, but it is not dependent on them.

In times of financial market stress, we must remember our investments are for the long term. This is a time for caution, but not panic or overreaction. Although our emotions might be telling us to act, we must resist this urge and strive to maintain a patient, long-term focus on the future. Some volatility may persist in the short term, and although we do not know for certain what lies ahead for the markets, the best course of action is to maintain a steadfast commitment to let reason, not emotion, drive our investment plan.

We are here to help you understand these very challenging times and will continue to keep you informed of all developments. As always, if you have any questions, I encourage you to contact your financial advisor.

Thank you for your continued trust and confidence.

Sincerely,
Burt White
Chief Investment Officer
Managing Director, LPL Research


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any
individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the
investment in a falling market.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk,
geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have
assets or business operations across national borders, they face currency risk if their positions are not hedged.

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC
is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA/SIPC

RES 5542 0616
Tracking #1-510259 (Exp. 06/17)

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LPL Client Letter – June 1, 2016

FOMC

Dear Valued Investor:

June 2016 is full of major market events, which may go a long way toward determining the direction of the stock market for the rest of the year. Although for some, the approach of summer means it’s time to slow down and plan vacations, the markets and global economies are doing anything but that. As we approach the midpoint of this year and the kick-off to summer, events are ramping up — not slowing down — making this a good time for a check-in and look ahead.

The month of June starts off with an OPEC (Organization of the Petroleum Exporting Countries) meeting
and the monthly jobs report, followed by policy meetings for the Federal Reserve (Fed), European Central Bank, and Bank of Japan, as well as the anticipated “Brexit” vote on whether the U.K. will remain in the European Union. These events could be viewed as opportunities to provide clarity and potential resolution to issues that have been years in the making. The path of the Fed’s rate hike campaign could ramp up and place us firmly in the midst of a rate normalization cycle. We have endured a volatile two years for oil prices — another OPEC meeting may provide important confirmation that we are entering a period of greater stability. And after overcoming past threats, such as Greece, the EU may face the first country to exit after its more than 20 years in existence as the U.K. goes to the polls. How the U.S. and global economies react to these events will be watched closely by all market participants.

For the OPEC meeting, the market’s expectations are low and a production freeze seems unlikely, so any
movement toward restraining supply could push oil prices higher. Although we don’t expect much action out of this meeting, with oil prices ranging from as high as over $100 per barrel in June 2014 down to $26 per barrel in February 2016, it still warrants close attention.

Concerning central banks overseas, we do not expect major policy shifts at their June meetings, but a
challenging growth environment in both the Eurozone and Japan suggests we may see further loosening of monetary policy in the coming months. Fiscal policy will also be on watch, such as Japan’s recent decision to push a scheduled sales tax increase all the way back to October 2019.

The markets will be particularly focused on the June 14–15 Federal Open Market Committee (FOMC)
meeting. We believe the market may still be underestimating the probability of an early summer rate hike
and another by year-end — our base case and a potential source of near-term volatility. After years of low
interest rates, the second hike will reaffirm that we are finally normalizing rates. Thus, the outcome of this meeting (or the following one in July) could be the turning point here, as we watch how the U.S. economy and market participants can handle this shift.

Last but not least, should the British people vote to leave the EU, it may be seen as a lack of confidence in the second-largest economic region worldwide, which may spark other anti-EU movements across the continent, drag down economic activity in the U.K., or weaken London’s place as a global financial center. It could also lead to a spike in financial market volatility. The latest polls, however, do show “remain” ahead of “exit.”

All in all, we are in for a busy month in June. Instead of easing into a low-key summer, we will be watching these events and the impact they may have. Coupled with the age of the economic cycle and election-related uncertainty, stocks may experience continued volatility over the summer. Although these ups and downs can make for a bumpy ride, we expect a dip may be an opportunity to buy. As we prepare our market outlook for the remainder of the year, we continue to expect the S&P 500 to deliver mid-single-digit gains for the year and end 2016 slightly above current levels.*

As always, if you have questions, I encourage you to contact your financial advisor.

Sincerely,
Burt White
Chief Investment Officer
Managing Director, LPL Research


RES 5505 0516
Tracking #1-502708 (Exp. 06/17)
Member FINRA/SIPC

*Historically since WWII, the average annual gain on stocks has been 7-9%. Thus, our forecast is roughly in-line with average stock market growth. We forecast a mid-single digit gain, including dividends, for U.S. stocks in 2016 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid-to-high-single-digit earnings gains, and a largely stable price-to-earnings ratio.

Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Economic forecasts set forth may not develop as predicted.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

This research material has been prepared by LPL Financial LLC.

Securities offered through LPL Financial LLC. Member FINRA/SIPC.

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

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LPL Client Letter – April 8, 2016

0906_market-volatility_270x190

Dear Valued Investor:

Spring has arrived in most of the nation. As we enter this new season, we have recently seen a break from
the significant volatility we experienced in the first two months of the year. However, although there is
increased clarity on several issues that cast a cloud of uncertainty over financial markets in January and
February, we cannot forget that heightened volatility is likely not gone for good.

We have just emerged from a historic first quarter for the market. After being down more than 10% at
its lows, the S&P 500 bounced back in March and finished the quarter positive. The S&P 500 hasn’t
erased a 10% quarterly loss to finish positive since the Great Depression. Experiencing market volatility
like this is not easy; yet witnessing this kind of reversal reminds us of the importance of maintaining a
long-term perspective.

So, what changed between January and February and today to help calm markets? The mid-winter market malaise was multifaceted and years in the making, but largely revolved around the Federal Reserve (Fed), China, oil, corporate profits, and the U.S. dollar. The market was concerned that the four 25 basis point (0.25%) rate hikes the Fed projected for 2016 would lead to a recession and exacerbate the imbalances emerging in the global economy. These imbalances stemmed from a series of missteps by Chinese policymakers, the oversupply of oil, weak corporate profits, and unprecedented strength in the U.S. dollar.

In the past couple of months, many of these issues have started to resolve. At its March policy meeting,
the Fed changed its tune slightly from the December 2015 meeting and reduced its forecast for rate hikes
this year from four to just two, citing concerns around global imbalances and economic growth. This
more market-friendly projection helped to push the dollar lower and oil higher, alleviating some stress in
global financial markets (though oil was already benefiting from supply cuts and speculation of an OPEC
production freeze). Meanwhile, China, which said or did all the wrong things managing its currency,
economy, and financial markets during the second half of 2015 and again in early 2016, has mostly turned that around recently. The weaker dollar, soothing words from China, and the rebound in oil prices helped to renew a slightly more positive corporate profit outlook and sparked an impressive market rebound.

After the market dips, reversals, and dramatic shifts in investor sentiment, what can we expect as we look
ahead? In our view, the second quarter of 2016 — and the rest of the year — may look a lot like the first
quarter, as many of the areas of concern we faced — Fed rate hikes, oil prices, earnings declines — remain in the background.

Although we foresee a continuation of this heightened volatility throughout the rest of 2016, we continue to expect stocks to deliver mid-single-digit returns in 2016 as the U.S. economic expansion continues.* And through this, we emphasize the importance of maintaining a long-term perspective and staying committed to a well-formulated investment plan.

As always, if you have questions, I encourage you to contact your financial advisor.
Sincerely,
John Canally, CFA
SVP, Chief Economic Strategist
LPL Research


*Historically since WWII, the average annual gain on stocks has been 7–9%. Thus, our forecast is roughly in-line with average stock market growth. We forecast a mid-single-digit gain, including dividends, for U.S. stocks in 2016 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid- to high-single-digit earnings gains, and a largely stable price-to-earnings ratio (PE). Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Economic forecasts set forth may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

RES 5434 0416

Tracking #1-485908 (Exp. 04/17)
Member FINRA/SIPC
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC
is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union

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First Quarter 2016 In Review

Q1

VOLATILITY SPIKES, BUT EQUITIES PROVE RESILIENT

U.S. economy weathers market volatility as labor market improves and
manufacturing steadies. Based on data received so far, first quarter 2016
real gross domestic product (GDP) growth is tracking at 1.5 – 2.0%, following
1.4% growth in the fourth quarter of 2015 and 2.0% growth in the third.
Concern about global economic weakness and tightening financial conditions
prompted the Federal Reserve (Fed) to delay further rate hikes and lower its
internal forecast from four 25 basis point (0.25%) rate hikes in 2016 to just two.
Fed policy and a sharp oil rebound have helped stabilize financial conditions.
Consumer strength continues to lead the economy on solid labor market gains.
Services sector growth slowed over the quarter but remains healthy, while
manufacturing, still in contraction, has shown signs of greater stability.

READ FULL REVIEW HERE

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February 2016 In Review

Market Insight Monthly

March Update | As of February 29, 2016

ECONOMY:
STRONG LABOR MARKET SUPPORTS ECONOMIC EXPANSION, BUT RECESSION ODDS ARE MODESTLY HIGHER

Economic Data

Although the odds of a recession have doubled since the start of the year, to around 25 – 30% from 10 – 15%, we do not expect a recession to occur in 2016. U.S. economic data released in February, which largely capture economic activity in January, continue the recent narrative of a healthy labor market and a stable U.S. consumer, offset in part by continued contraction in manufacturing. On the positive side of the ledger are employment figures, which support the case the U.S. economy is not likely to enter a recession in the short run. Weekly initial jobless claims continue to reside in the range of 260,000 – 285,000, which is near recent lows.

Read Full Issue of Market Insight Monthly

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LPL Client Letter – February 17, 2016

stay-focused

Dear Valued Investor:
Staying focused on long-term goals can be difficult during periods of heightened volatility such as we have experienced over the last six months. Although the list of market concerns has grown, it remains important to see the full picture and remain committed to a long-term plan.

There are some legitimate concerns that have played into market uncertainty. U.S. economic growth during the final three months of 2015 was lackluster, fueling recession concerns. Domestic earnings have been falling. The Federal Reserve (Fed) seems intent on pursuing additional interest rate hikes, despite the message from financial markets that it might be a mistake. Oil prices may remain low for some time as we endure the slow process of supply adjustment, which suggests more energy company bankruptcies may be ahead. In addition, the uncertainty surrounding the U.S. presidential election may be weighing on confidence, as some of the candidates’ proposals are not perceived to be market-friendly.

Looking abroad, China has fumbled its attempts to intervene and stabilize its financial and currency markets as the bumpy transition to a more services-based, consumer-oriented economy continues. Meanwhile, China’s economy is probably growing at a rate closer to 5 – 6% than its reported 6.5 – 7%, based on the most reliable and timely economic data available. European economic growth has stalled and the health of European banks is being called into question, largely because of exposure to oil and China. Japan’s economy also contracted in the fourth quarter of 2015.

However, bright spots remain. The U.S. consumer and the services sector of the economy remain solid, evidenced by Friday’s (February 12) strong retail sales report for January 2016. Job gains have been steady and lifted wages, supporting consumer spending and home values. Low gas prices have also helped. Strength in the U.S. dollar, which has hurt exports and weighed on earnings for U.S-based multinational corporations, has abated. We also take some comfort in corporate fundamentals. Corporate profits are pausing — largely because of temporary factors — but are not collapsing. Excluding the commodity sectors, S&P 500 earnings are on track to rise a respectable 4% year over year in the fourth quarter of 2015 based on Thomson-tracked consensus estimates. Overall earnings are potentially poised to resume growth in the second half of 2016, and corporate balance sheets remain in excellent shape outside of the energy sector.

As disappointing as the start to this year has been, the year-to-date decline for the broad stock market, as measured by the S&P 500, is still less than the average maximum decline in any given calendar year (14%) or in any positive year (11%). Going back 40 years, the S&P 500 has been down 5% or more after the first six weeks of the year 10 other times besides this year. The rest of the year was down more than 10% only once, in 2008, so a big drop from here would be extremely rare by historical standards. Also keep in mind the long-term average gain for stocks is about 8%, which includes a lot of ups and downs.

It’s important to remember that the best investment opportunities are often at points when fear is at its highest, which is why we look at sentiment indicators to identify points where the sellers might be exhausted. This idea was captured well by Warren Buffett in October 2008 when he said, “Be fearful when others are greedy, and be greedy when others are fearful.” There is a lot of fear out there, suggesting that greed may be more profitable.

We continue to monitor a variety of market and economic indicators for signs of a recession, and the odds now remain low. What remains key to managing these market environments is maintaining a long-term perspective, staying diversified, and committing to a well-formulated investment plan.

As always, if you have any questions, I encourage you to contact your financial advisor.

Sincerely,

John Canally, CFA
SVP, Chief Economic Strategist
LPL Research

Member FINRA/SIPC

RES 5390 0216
Tracking #1-469126 (Exp. 02/17)


 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Economic forecasts set forth may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure against market risk.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measure, and their value may be affected by the performance of the overall commodities baskets, as well as weather, geopolitical events, and regulatory developments.

 

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC
is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

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LPL Client Letter – January 20, 2016

china-stock-market

Dear Valued Investor:
The market has certainly given us plenty to talk about over the years, and I’ve had the opportunity to write several of these market notes. The majority of these letters have been written during times of market stress. One was written in January 2013, when the market was concerned about the impending fiscal cliff, and then another later in the year, as the market had its “taper tantrum” over uncertainty regarding the Federal Reserve’s (Fed) actions. In 2014, we discussed the harsh winter’s impact on the economy, and the market sell-off due to the outbreak of Ebola and rise of the Islamic State militants. And last year, second-half fears triggered by the decline in oil prices, weakness in manufacturing, and a slowdown in China prompted multiple notes.

Although each of these letters focused on a unique topic and addressed varying market challenges, they all had one common denominator: fear. They all triggered a strong emotional reaction. Emotion is the most powerful fuel in humans. It drives us to love, to mourn, to cheer our favorite team, and to scream during horror films. Emotion is what makes life more than just a day-to-day routine; it makes it an adventure — full of rewards and sometimes disappointments. And while fear is not something we typically embrace, it is a necessary emotion. It helps us stay alert and seek security — whether that means locking our doors at night or increasing a life insurance policy after starting a family. However, in investing, emotion is often counterproductive to what it takes to be successful.

In an average lifetime, say about 80 years, we will experience roughly 9,000 down market days. We will experience about 13 recessions, approximately 20 bear markets, and too many pullbacks and corrections to even count. That is a lot of market declines. And every one of them will be marked with fear, worry, and the instinctive urge to seek safety. But history has shown that investing with fear as the catalyst is not a successful strategy. After all, very few of those 9,000 down market days in our life are actually a “Lehman Brothers” moment. Furthermore, fear causes us to sell at or near market bottoms and, more often than not, miss opportunities rather than add value with downside protection.

We are currently going through one of these periods of fear. This is best evidenced by examining investor surveys, such as the American Association of Individual Investors (AAII), which this week reported that bulls came in at only 18%, the lowest reading in nearly 11 years. Think about that last statement. The percentage of bullish/optimistic investors is at the lowest level in over a decade. That means that there are fewer bullish investors right now than at any time during the Great Recession. Meanwhile, the percentage of bears spiked up to 45%, the highest level in nearly three years. This degree of pessimism and the increased level of market volatility suggest to us that most of the potential stock market decline may be behind us.

Lately, China and oil are the most often cited catalysts for the fear. The oil market remains oversupplied, and we would not expect a major rally in oil until supply comes off the market. However, we do not think that low oil prices, in and of themselves, will cause a recession in the U.S. or lead to systemic contagion, such as what occurred during the financial crisis. Looking to China, the world’s second-largest economy is rebalancing to be more consumption based and less reliant on construction and infrastructure. This transition has been painful. However, China also has vast resources to ease this transition. Should China acknowledge its shortcomings and take concrete steps to fix its economy, this should boost, not further hinder, the global economy.

The challenges and consequences of declining oil prices and a slowing China are not new. Rather, the market has violently shifted from broadly accepting these risks to a virtual abhorrence of them. This is a common market paradigm, where market negatives can be accepted, even embraced, for long periods of time before suddenly becoming major concerns, sparking a sell-off. In a sense, a lack of confidence is driving a full repricing of risk, and that is being reflected in lower values for stocks. Although this is a scary experience, these are the periods where short-term panic can potentially lead patient investors to long-term profit.

With U.S. stocks firmly in correction camp and many segments already in a bear market (Japan, Europe, small cap stocks, etc.), we believe that selling pressure on stocks is moving to extreme levels. At these extremes, the market tends to ignore all positive news and focus (and reprice) purely based on the worst case scenario. However, we do not forecast that a worst case scenario is currently the highest probability event. In fact, we see the likelihood of a recession in the U.S. at roughly 20%, higher than a few months ago but still relatively remote. Supporting our view is the fact that corporate America, outside of the challenged energy sector, remains in very good shape and, we believe, is in a good position to grow profits in 2016 — despite the drags from the energy sector, a strong U.S. dollar, and slower growth in China.

While we do not know for certain what lies ahead for this market, we believe the best course of action is to face it with a steadfast commitment to your investment plan; and instead of reacting to the urges of fear, maintain a patient, long-term orientation to the future.

As always, if you have any questions, I encourage you to contact your financial advisor.

Sincerely,
Burt White
Chief Investment Officer
Managing Director, LPL Research
LPL Financial


 

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

Economic forecasts set forth may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.

Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure against market risk.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measure, and their value may be affected by the performance of the overall commodities baskets, as well as weather, geopolitical events, and regulatory developments.

Member FINRA/SIPC          RES 5352 0116
Tracking #1-459467 (Exp. 01/17)

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

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LPL Client Letter – January 7, 2016

asset-allocation-pie-chart

Dear Valued Investor:
While a new year means new beginnings — changing to a new calendar, signing up for a new gym
membership, and struggling to remember to write 2016 on our checks — markets are starting 2016 off with the same growth concerns and heightened volatility that made the second half of last year a challenging one for investors. In fact, the calendar year 2015 was highlighted by essentially flat returns across stocks (S&P 500 advanced 1.4%), bonds (Barclays Aggregate Bond Index advanced 0.6%), and cash (which returned 0.2%). Notably, this was the first time in over 60 years that all three major investment categories were simultaneously unchanged — plus or minus 2% — over a full calendar year.

With the Federal Reserve (Fed) raising rates for the first time in nine years, the arrival of the presidential
election campaign season, and moving another year closer to the end of the current economic expansion,
we expected more volatility in 2016, but we didn’t expect it so soon in the year. Normally, the first few
trading days of the year are buoyant as investors look optimistically ahead. Instead, 2016 has started off on a sour note, as a rise in geopolitical tensions stemming from North Korea’s possible nuclear test, discord between two of the most powerful Middle Eastern countries, and the ongoing fear of terror attacks at home and abroad have all weighed on investor sentiment. Continued concerns arising from the slowdown of the Chinese economy have brought about volatile movements in global currencies and have driven down the price of oil to levels even lower than in the depths of the Great Recession.

While some investor confidence has been rattled by the recent volatility, overall consumer and corporate
optimism remain constructive. To date, there are only limited signs that the market’s global growth
concerns have begun to negatively affect U.S. economic activity. The labor market continues to showcase
strength, with an average of 212,000 jobs created per month over the last six months. In addition, layoff
announcements remain near all-time lows and new claims for unemployment insurance continue to hover near the lowest level in 42 years. Importantly, the Institute for Supply Management (ISM) services reading for December 2015 came in near all-time highs and indicates that the services sector, which represents over 80% of the U.S. economy, remains strong and has not been hindered by the global weakness in energy prices or manufacturing.

Risks remain, however, as continued declines in energy prices have delayed vital capital investment by
a major segment of the U.S. economy, corporate earnings remain muted, and manufacturing remains
weighed down by tepid global demand and a stronger dollar. Although the turmoil in the oil markets
remains a top concern, the lower prices should help speed up the painful supply adjustment process and
may bring about greater stability as the year unfolds. Should the supply-demand imbalance in energy
stabilize as we expect, this could be a potential catalyst for additional capital spending and accelerated
profit growth as 2016 progresses.

Overseas, the Chinese economy continues to struggle as it embarks on what will be a lengthy transition
from a manufacturing-based, export-led economy to a more consumer-led, domestic economy. Perhaps
more importantly, the market seems to be losing confidence in the Chinese government’s ability to
manage this transition as well as it managed its economy over the past 15 years. However, other emerging markets are still adding to global growth, and central bank actions in the Eurozone and Japan should help to boost growth in those countries. In addition, we continue to expect China’s growth to stabilize, as it has the resources to do more to stimulate its economy.

It is important to remember that investing is a marathon, not a sprint. It is about endurance. Volatility has always been a part of investing and always will be. In fact, over the last 15 years, every calendar year has at least one pullback of at least 6% and a median correction of 14%. So while volatility is normal
(and even expected), it is always nerve-wracking. These short-term market flare-ups are often quick and
severe, but fueled by feelings of fear and concern over perceived risks that may not be actual threats.

We expect volatility to remain heightened for the remainder of 2016, which is common as the business
cycle ages, and in turn, makes sticking to your long-term investment plans even more important to avoid
locking in losses and missing out on opportunities. This current pullback, which is now approximately
5% year to date and 7% from the November 2015 highs, could continue over the short term as fear and
concern trump much of the good news coming from the U.S. economy. What remains as the key to
weathering these short-term bouts of volatility is a commitment to a well-formulated plan, a long-term
focus, and good headphones to tune out the noise of short-term negativity.

While a new year often brings about new resolutions, it is important to maintain these time-tested
investment habits and a long-term perspective. As always, if you have questions, I encourage you to
contact your financial advisor.

Sincerely,
Burt White
Chief Investment Officer
Managing Director, LPL Research

4707 Executive Drive
San Diego, CA 92121-3091
75 State Street, 24th Floor
Boston, MA 02109-1827

 


 

RES 5336 0116
Tracking #1-454824 (Exp. 01/17)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure against market risk.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.

INDEX DESCRIPTIONS
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency).
The Institute for Supply Management (ISM) Index is based on surveys of more than 300 manufacturing firms by the Institute for Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Member FINRA/SIPC
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

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6 Ways to Fund a Working Mom’s Retirement

SingleMom

“Americans—women especially—aren’t getting the message that they need to start saving for retirement with their very first job,”
says personal finance columnist Liz Weston, author of Deal With Your Debt.

As a working mom, whole weeks may go by without the chance to sit down or even think. You’re managing a career, making decisions for your family, and caring for kids and often parents, too.

It’s not easy, then, to hear about one more job that needs your immediate attention: retirement planning. But let’s just be blunt, women are twice as likely as men to wind up poor when they’re old.

Here are six tips to help you prepare for retirement:

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LPL Client Letter – December 16, 2015

Rate Rise

Dear Valued Investor:
The events of today bring one word to mind: finally. Earlier today, the Federal Reserve (Fed) finally raised the target for the federal funds rate by 0.25%. By raising this key overnight borrowing rate, the Fed raised interest rates for the first time in nine years — an event that has been receiving a great deal of attention recently. Surrounding the past several Fed meetings, there has been much talk of “will they” or “won’t they.” Leading up to this meeting, the Fed implied it would raise rates, and the market was expecting it. However, until the announcement was made today, a degree of uncertainty remained.

So, what does this really mean? It means the potential for key rates to tick up, such as mortgage or credit card rates. Most bonds have “priced in the hike,” but some could still feel a slight negative impact. However, overall, we should take this as a positive sign. We have not experienced a rate hike in nine years, and, perhaps more importantly, we have not had rates above the 0 – 25 basis point range (0 – 0.25%) since late 2008. The Fed said it would only raise rates if the economic data signaled a healthy economy. We have seen strong numbers posted over the past few months, and the Fed affirmed today it believes this trend should continue. To sum up, the Fed has raised rates because it believes the economy is strong and likely to continue to grow without the added support of near zero interest rates.

For the market, this is potentially a positive event. Yet, rate hikes also reaffirm that we are in the mid-to-late stage of the economic cycle. In this part of the cycle, we can expect additional market volatility. We especially anticipate it in the coming weeks and months, as investors become comfortable with the “new routine” for U.S. monetary policy.

Although we have just experienced the first raise, many will immediately start thinking about what’s next. The debate will continue regarding how fast the Fed will raise rates, how far it will raise them, and when it will stop. Today, the Fed’s own projections put the fed funds rate at 140 basis points (1.4%) a year from now, while the fed funds futures market puts the fed funds rate at just 80 basis points (0.80%) by year-end 2016. This difference implies a gap between what the Fed says it will do and what the market thinks the Fed will do. How this gap is resolved will play a key role in the future direction of financial markets, particularly fixed income markets.

Luckily, Fed Chair Janet Yellen is aware that markets will continue to debate what may lie ahead. Her comments during the post-meeting press conference suggest the Fed will continue to proceed cautiously, taking into consideration the impact of rising rates on consumer spending, the housing market, business capital spending, the value of the dollar, and overseas economies and financial markets. A slow path for further increases will give the economy and markets time to adjust to the changes.

It has been a long time since we last saw the Fed hike rates. It does feel unusual, but also positive, and hopefully this change is well worth the wait. It means that we are returning to a more typical economic environment, which is a welcome change from the atypical environment we have lived in since the Great Recession. And even though this is a big change in Fed policy, what shouldn’t change is our commitment to the long-term investment plan that is ultimately our blueprint for success.

As always, if you have any questions, we encourage you to contact your financial advisor.
Sincerely,
Burt White
Chief Investment Officer
Managing Director, LPL Research

John Canally, CFA
SVP, Chief Economic Strategist

4707 Executive Drive
San Diego, CA 92121-3091
75 State Street, 24th Floor
Boston, MA 02109-1827


 

RES 5320 1215
Tracking #1-449334 (Exp. 12/16)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Economic forecasts set forth may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price
Member FINRA/SIPC
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC
is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value
Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

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