Following an impressive bounce back from February lows, the durability of the current bull market remains suspect. The benefits of the recent rally appear limited to the large cap, defensive sectors of the market. In prior market cycles, this has portended that the latter stages of a bull market are fast approaching and as such, caution is warranted.

1. Market Perspective – May 2016
Experience Insight Impact
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Overview: For the second time in the past year, domestic equity markets staged a dramatic rally
following a double digit decline. While on the surface the world looks much rosier than it did just
a few months back, we believe there are signs of caution. This month we dive into some of these
issues to identify the health of the equity markets.

2. Range Bound Market
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Experience Insight Impact
The S&P 500 has largely recovered YTD, but it has been range-bound for almost 20 months. For the
market to see substantial gains from here, earnings growth or multiple expansion must occur.
S&P 500 Over 10 Yrs

3. Weak Market Leadership
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Experience Insight Impact
• The adjacent chart illustrates the total
return by sector which clearly shows
marked defensiveness, despite the
stock market approaching the high end
of the recent range.
• Companies in defensive sectors, such
as Utilities, Staples, and Telecom,
typically enjoy more stable demand.
• It appears the current market
performance is based less on
fundamentals and more on investors
seeking a place to hide.
S&P 500 Sector Tot Ret 1Y
S&P 500 UTILITIES INDEX +14.1%
S&P 500 CONS STAPLES IDX +11.0%
S&P 500 TELECOM SERV IDX +10.7%
S&P 500 CONS DISCRET IDX +6.8%
S&P 500 INDUSTRIALS IDX +3.3%
S&P 500 INFO TECH INDEX -1.0%
S&P 500 FINANCIALS INDEX -1.3%
S&P 500 HEALTH CARE IDX -2.2%
S&P 500 MATERIALS INDEX -5.9%
S&P 500 ENERGY INDEX -14.3%

4. Small And Mid-Cap Indices Not Doing As Well As Mega-Caps
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Experience Insight Impact
• Better S&P 500 performance over
the last 12 months is also due to
investors crowding into larger, and
theoretically safer, equities.
• This graph tracks the performance
of the S&P 500 (black line), the
S&P 500 Equal Weighted Index
(green) which eliminates the
outsized effect of mega-caps, and
the small-cap Russell 2000 Index
(pink).
• The performance of the S&P 500
which is market-cap weighted, is
more influenced by the largest
companies within its index (i.e.
Amazon, Facebook, Johnson and
Johnson, etc).
• Accordingly, the underlying health
of the markets beyond the mega-
caps is less positive than the
headline number may suggest.

5. Domestic Valuations Are Currently High
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Experience Insight Impact
• Tepid GDP and corporate
earnings growth do not
support today’s valuations.
• With the S&P 500 trading at
19x trailing earnings (17.50x
forward P/E), the domestic
equity markets are valued
near the high end of the
historical range.
• Although low interest rates
can help justify higher
multiples, it may not be
prudent for investors to
count on multiple expansion
for future market
performance.

6. Economic Data Update – GDP Growth Slowing
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Experience Insight Impact
• With Q1 economic growth barely positive at just 0.5% YoY, initial Q2 tracking looks tepid and could be well below
consensus. Atlanta Fed data indicates Q2 GDP growth is trending at +1.7%, well below the consensus midpoint. In
previous years, real GDP recovered strongly in Q2.

7. Conclusion: Although markets have managed to stage an impressive comeback from the
February doldrums, the durability of this rally remains a concern. With growth stalled, valuations
continue to appear extended. Market participants remain focused on safety in the form of large-
cap stocks and defensive sectors. In prior cycles, this has tended to indicate that the latter stages
of the bull market are upon us, and accordingly, caution is warranted.
Experience Insight Impact
Market Perspective – May 2016
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8. Experience Insight Impact
Disclaimer
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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.