Second Quarter Comments Checking returns for most US equity indexes for the first quarter of 2015 was like watching a duck swimming on a pond – very little visible change, but a lot of action under the surface. For the first quarter, the S&P 500 turned in a 1.0% total return. Below the relatively benign move in the S & P 500, sector and style returns were more defined. On the positive side, Healthcare was up a solid 6.5%, followed by Consumer Discretionary turning in a respectable plus 4.8%. On the other end of the spectrum, Utilities were down (-5.2%) over concern with the Federal Reserve ending Quantitative Easing (QE) and beginning to raise interest rates sometime in 2015. With the Fed Funds rate currently at, or near, zero for the past six years, interest rate concerns have weighed on those sectors with slower growth profiles. Consumer Staples and Materials matched the market returns at 1%. Dominating the headlines for more than a quarter has been oil price declines, and that has spilled over into the Energy sector, driving it down by (-2.9%). It was a quarter that saw disparate performance by style, size and location. S&P Growth was up 2.5%, with Value down (-0.7%). The S&P 600 small cap was up 4.0%, and the Mega cap 100 was a negative (-0.1%). It paid to have funds allocated overseas, for a change. Germany, France, China “A” shares markets and Japan were up 22.0, 17.8, 15.9 and 10.1 percent, respectively. While the US monetary authorities are trying to unwind an easy money policy, the European Central Bank (ECB) and the Bank of Japan are ramping up their QE programs. The ECB began to purchase bonds at the rate of $65 billion per month until the middle of next year, and if they don’t think they have done enough, they will continue at whatever pace they think necessary. When deciding on a topic to review in the Q1 market comment, we discussed the inclusion of the usual top issues of the day, the huge move in energy prices, the outlook for interest rates, speculation on when the Fed will begin “lift off,” and dollar strength and concomitant weakness in the Euro and Yen. Although they are all important, “top-of-mind” topics, we feel there has been, 2605 Nicholson Road, Building 2, Suite 103, Sewickley, PA 15143 724-934-8600 April 2015 and continues to be more than enough written and said about these significant issues. To be honest, our ability to add great insight to these issues and touch on nuance not available elsewhere is unlikely. Consequently, we have chosen a road less traveled. The typical pattern for analysts and companies to issue earnings estimates involves a sort of “Kabuki dance,” where estimates are released several quarters in advance of when they are to actually be reported. The dance begins as we approach reporting date. Usually, the company begins by trying to lower expectations by guiding analysts to lower their estimates. As time passes, the established trend continues with lowered guidance leading to lowered estimates, so when earnings are actually reported – Surprise! -- actual earnings are better than the most recently revised estimates, and – Low and Behold! -- the company beats the estimates. This year, however, estimates have been reduced at an accelerated rate. Please see the following chart (Chart A). According to Zack’s, at the end of 2014, Q1 earnings growth was expected to be 4.3%. As we enter reporting season, that projection has fallen to (-4.6%). And worse, Q2 expectations have declined from an earnings increase of 5.3% for the S&P 500 to a now negative (-1.9%). As seen in the past, there is still plenty of time for further downward revisions to second quarter estimates. There is little doubt that the topics of the day, as mentioned above, have had a significant impact on these earnings expectations. Also to be considered, we believe the long cold winter experienced by the entire Eastern United States, and the extended slow down at West Coast ports created a potent witch’s brew and put corporate earnings growth into “Sleeping Beauty” stasis. We believe that several of these issues are temporary, like the port strike and the weather. The negative impact from the others is a result of the rate of change, not the change itself. In other words, it can be argued that lower energy costs and a stronger dollar are positive events; it’s the trauma of getting there that is the negative. PAGE 1 Second Quarter Comments April 2015 CHART A Chart courtesy of Strategas Research Partners LLC That leaves us with the Fed and the concern over the impact of a “lift off” in interest rates, sometime in 2015. We would suggest that before they commit to increasing rates, the economy will need to be on a sound footing. That being the case, we don’t believe slightly higher interest rates will ultimately be a major negative. So where does that leave us? If the decline in earnings estimates has gone too far, then perhaps the first quarter pause in the major stock indexes will be the pause that refreshes. This will be true especially if Q2 earnings estimate revisions are overdone and this year turns out to be one of the exceptions as we approach Q2 reporting. Should estimate revisions stop going down and reverse into July, perhaps the market may surprise us as 2015 progresses. Securities offered through Cambridge Investment Research, Inc., a brokerdealer, member FINRA/SIPC. Advisor services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Medallion Wealth Management, Inc., are not affiliated. Asset allocation and diversification strategies cannot assure profit or protect against loss in a generally declining market, and past performance does not guarantee future results. Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly. Material discussed herewith is meant for general illustration and/or informational purposes only. Please note that individual situations can vary; therefore, the information should be relied upon when coordinated with individual professional advice. PAGE 2