303 Broadway Suite 1200 Cincinnati, OH (888) (513) fax (513) FortWashington.com 2014 Midyear Update Nick Sargen Chief Economist

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Investment Results (annual total returns in %) *Includes dividends except for Emerging Markets, which is price change Source: Bloomberg st Half Equities* S&P EAFE ($) EM($) Bonds Treasuries Corporates High Yield EMBI ($) For Internal Use Only 3

What was Priced into Markets? 4 ♦ 2014: A Breakout Year for U.S. ♦ Improved Performances (Diminished Risks) Abroad ♦ Fed ends QE, but refrains from tightening

5 Source: Barron’s

Treasury Yield Curve 6 Source: Bloomberg

Federal Funds Futures Expectations 7 Source: Bloomberg

The Fed’s Twin Objective: Inflation and Unemployment Source: BLS, BEA % 8

Inflation Expectations Source: Bloomberg 9

Two Views of the Economy: Real GDP Growth vs. Nonfarm Payrolls Growth 10 Source: BEA

Read GDP Growth and Fiscal Drag 11 Source: BEA

Business Surveys Have Improved Recently Source: ISM, Bloomberg For Internal Use Only 12

Global Surveys Point to Moderate Economic Growth 13 Source: JP Morgan, Bloomberg %

Tensions in the Euro-zone have Lessened…. 14 Source: Bloomberg % Government Yields

Oil Prices Have Been Steady Despite Increased Tensions Source: Bloomberg For Internal Use Only 15

Has China Mortgaged its Future? 16 ♦ China withstood the Great Recession remarkably well ♦ But it deployed a tidal wave of credit ♦ Economic growth of 7% - 8% is likely to slow over time ♦ China’s leaders are embarking on a new set of policy reforms ♦ But internal political tensions are increasing For Internal Use Only

Where are we in the Economic Cycle? RecessionRecovery Late Cycle (inflation) PBPB PBPB PSPS PSPS 17

Share of Labor Income vs. Corporate Profits 18 Source: Bureau of Economic Analysis

Portfolio Positioning 19 ♦ Maintain a tilt in favor of stocks over bonds ♦ Stocks are no longer cheap; however, the market is not frothy ♦ Stronger growth would bring the Fed into play sooner ♦ Weaker growth would imply earnings disappointment