1. Welcome to LCM Capital Advisors annual State of the Markets presentation.
A presentation by: Jon Lee and Joseph Romano of LCM Capital Advisors

2. Securities and advisory services offered through Aegis Capital Corp
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I’d like to draw your attention to these disclosures so I can keep the regulators.

3. Agenda What happened in 2016? What factors affected the markets?
What’s on the horizon?
What do financial experts forecast for 2017?
The financial world is incredibly complex — and these days, we’re all bombarded with dramatic headlines and contrasting opinions. So, our goal today is to educate you about some of the factors we, and expert financial analysts, are watching.
Of course, it would be impossible for us to cover everything, but we will try to touch on the most relevant factors.
And while past performance provides no guarantee of future results, we will focus on trends that may help guide the decision-making process when investing. Here’s what we’re going to talk about today.
[READ SLIDE]
Let’s start off by talking about how to put last year’s stock performance into perspective.

4. What Happened in 2016?
At the beginning of 2016, we were coming off a year when all of the major domestic indexes lost a small amount of ground.
In January, fears about China’s economy were so strong that the Shanghai index dropped 6.9% on the year’s first trading day — and the U.S. markets experienced their worst ever start to a year.
By February, markets hit their bottom for the year before rebounding in response to GDP revisions and consumer spending improvements.
Growth continued at a relatively solid — but certainly not blistering — pace before 2016’s first major political surprise rocked them on June 23: Brexit. Few people expected the “Leave” group to prevail and the UK to vote in support of exiting the European Union.
For four days, the global markets reacted strongly to this shock before stabilizing once again.
But, 2016 still had some curveballs in store for us. After one of the most divisive, hotly contested presidential elections in memory, the U.S. experienced two big surprises:
Donald Trump won the election
Markets responded with near glee — launching a rally that would carry us through most of the year’s end
Ultimately, the year ended with all major domestic indexes posting sizable gains — far from the doom and gloom that greeted us in January 2016.
Source:
Source:

5. Equities Beat Expectations
Predictions
STRATEGIST/FIRM
2016 S&P 500 TARGET
David Kostin, Goldman Sachs
2,100
Brian Belski, BMO Capital
Andrew Garthwaite, Credit Suisse
2,150
Adam Parker, Morgan Stanley
2,175
Savita Subramanian, B of A/Merrill
2,200
Dubravko Lakos-Bujas, J. P. Morgan
Jonathan Glionna, Barclays
David Bianco, Deutsche Bank
2,250
Sam Stovall, S&P Capital IQ
John Stoltzfus, Oppenheimer
2,300
GROUP AVERAGE
2193 (7.27% growth)
Despite experiencing a tough start to 2016 — many of Wall Street’s top analysts were still predicting a positive year for returns. While an average growth of 7.27% for the S&P 500 might have seemed hard to imagine when we shared these predictions with you last year, the S&P actually beat these expectations.
In fact, we ended 2016 up 9.5% for the year. And the S&P 500 wasn’t the only domestic index that performed well. The NASDAQ gained 7.5% and the Dow Jones Industrial Average added 13.4%.
Sources:
S&P 500 Actual Results
• close
• 9.5% growth
Sources:

6. Industry Performance Shifted
Now let’s take a moment to look at individual sectors within the S&P 500. The first chart shows sector performance for the first half of And the second chart shows sector performance for the second half of 2016.
Do you notice any interesting patterns?
For instance, let’s look at Financials, which was at the bottom for performance during the first half of the year, losing 3.05% in six months. Fast forward to the second half of 2016, and Financials became the best-performing sector in the S&P 500 with 26.65% growth.
Information technology was the second-worst performer at the beginning of the year and the second-best by year’s end.
Utilities, on the other hand, had the exact opposite experience. It went from being the second-best performer through June and the second-worst performer from July to December.
What do these dramatic reversals tell us?
Diversification is key — and knee-jerk reactions could cost you dearly — when sectors swing this widely.
Investing involves risk and loss, including possible loss of principal. No investment strategy can guarantee positive results.
Source:
Charts from First Trust with data from Bloomberg   

7. WHAT OTHER FACTORS AFFECTED THE MARKETS IN 2016?
The Labor Market
Manufacturing
Oil and Natural Gas Production
Business Investing
Global Growth
Inflation
Interest Rate Increases
So, we’ve seen that 2016 was quite an eventful year in the world and in the markets. But let’s dig deeper into some of the factors that contributed to the market and economic performance last year.

8. The Labor Market Jobs: Ended year with 75th straight month of growth
In many ways, 2016 was a good year for American workers. We experienced our 75th straight month of job growth. Unemployment dropped to 4.7% — less than half of its peak during the Great Recession.
We are finally seeing the labor market tighten and more people return to work and earn more money. While higher wages can affect corporate profits, they also drive consumer spending — which accounts for more than two-thirds of our GDP.
Source:
Jobs: Ended year with 75th straight month of growth
Unemployment: Dropped from 5% to 4.7%
Wages: Increased 2.9%

9. Manufacturing
We hear a lot of bad press about U.S. manufacturing. But, the reality is different when you look more closely at the data. As you can see from the first chart, manufacturing output is going up.   
Source: U.S. Manufacturing chart from First Trust with United Nations data from 1970 – 2014 

10. Manufacturing
Another way to think about manufacturing — as well as oil and gas production — is to consider the economic value they create as compared to global GDPs.
If you look at the value of U.S. Manufacturing production, it would represent the 10th largest GDP in the world — bigger than India, Canada, and Australia. And U.S. Oil and Gas would be the 17th largest economy!
Source: U.S. Oil and Gas & Manufacturing vs. Country GDP chart from First Trust with data from
PricewaterhouseCoopers, BEA, IMF, Bloomberg, FT Advisors – GDP and Manufacturing Data as of 2013, Oil and Gas as of 2011 

11. Oil and Natural Gas Production
In some ways, 2016 was a tough year for oil. In February, crude oil bottomed out at $26 a gallon — a fraction of its peak at over $147 a gallon in July At its most basic, there was simply too much oil on the market, driving prices down.
By year’s end, however, oil completed its biggest annual gain since 2009, thanks in large part to OPEC pledging to cut production in 2017.
At the same time, U.S. oil production is improving — while the cost of producing oil drops. And it appears that energy companies are ready to expand what we are producing domestically.
In 2016, oil mergers and acquisitions activity more than doubled over We’re still not back up to 2014 levels. But we take this as a good sign that the oil and natural gas industries are primed to grow once again.
Source:
Bakken, Eagle Ford and Permian Production chart from First Trust with data from U.S. Energy Information Administration 

12. Oil and Natural Gas Production
For years, as U.S. oil and natural gas production has increased, we have been closing the gap between U.S. oil exports and imports. And although the gap may have widened momentarily while oil prices dropped in 2016, we are moving closer to oil independence.
In fact, on December 31, 2015, the Theo T Tanker left Texas loaded with what may be the first U.S. crude oil export in more than 40 years. Then, in February, the Asia Vision Tanker departed with the first cargo of U.S. liquefied natural gas.
Source: Tanker photos from First Trust from bluerivert.com 

13. Global Growth
As we discussed earlier in the presentation, fears about China’s economy were largely responsible for the market volatility early in Add concerns about Brexit, further disruption in the Eurozone, and beyond — and you may start to wonder what's really happening with the global economy.
Of course, global growth still has a number of headwinds, and you really must evaluate markets on a case-by-case basis. But I think this chart does a good job of showing that global growth is picking up.
This Purchasing Manager’s Index is a heatmap that measures growth and contraction in manufacturing. Red indicates contraction while green indicates growth. If you can scan quickly, you will see that the January 2015 column has more orange and red than the December 2016 column. Look deeper, and you’ll see positive progress for the U.S., U.K., Russia, Taiwan — and even China.
In other words, this data shows us that global growth is picking up — rather than threatening to decline.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

14. Inflation
Let’s talk about inflationary trends for a moment. Inflation is a general rise in the prices of goods and services, and it is one of the key indicators of economic well being.
Though the relationship between inflation and the stock market is complex, generally speaking, stable, modest inflation is better for equities than high or volatile inflation.
If you take a look at the box in the middle of the chart, you’ll see several acronyms. CPI stands for consumer price index and the headline CPI is the most popular measure of inflation.
The federal government puts out this data and tracks price trends in a large number of goods bought and sold in the United States.
The core CPI below it strips out volatile food and fuel prices to focus on long-term inflation trends. You can see that the light blue CPI line jumps around much more than the darker grey core CPI line. That’s because food and energy prices tend to be very volatile in the short run.
Though the past doesn’t always reflect the future, historically, a sudden run up in prices has often presaged or accompanied a recession. Note the huge inflationary spikes during the 1970s oil crisis and the 1980s recession.
As of November 2016, the headline CPI of 1.7% was well below the 50-year average — and very close to the Federal Reserve’s 2% benchmark. The Fed has a mandate to “foster maximum employment and price stability,” and they believe a 2% rate can help support accurate financial forecasting and decisions while preventing harmful deflation.
Sources:
JP Morgan Guide to the Markets® U.S. Q1 2017

15. Consumer Sentiment
Though we’re confident that the U.S. economy is on the right track, we know that the stock market doesn’t always follow the economy.
One major indicator that we like to look at to gauge the economy’s health is consumer sentiment, which is essentially a survey that asks regular Americans how they feel about the economy and their financial prospects.
It’s an important indicator because sentiment has a strong relationship with consumer spending, which drives two-thirds of economic growth.
Sentiment can also tie to market performance — but in more complicated ways than you may expect. While consumer sentiment can be a rational reaction to a strong economy, a high level can also be a sign of irrational investor exuberance when increase to unsustainable levels.
Historically, recessions sometimes follow periods of high consumer sentiment. We see those recessionary periods on this chart as vertical shaded areas. Is that always the case? No, we can see that it wasn’t the case in 1984 or But it did happen in in 2000 and 2007.
For 2016, we ended with December’s reading reaching a 12-year high. Later in the presentation, we’ll show you reasons why consumer sentiment and the markets look fair.
But, we will still keep an eye on consumer sentiment because it can indicate that the market could trend downward. I like how Warren Buffett phrases it: “Be fearful when others are greedy and greedy when others are fearful.”
What does that mean for us? Don’t get too caught up in what others are thinking of doing. Be cautious, watchful, and prudent about managing risk, even when the crowd is going the other way.
Source:

16. WHAT IS ON THE HORIZON?
Okay, we’ve looked at some of the factors affecting market performance in 2017.
Now, let’s examine what headwinds and tailwinds could affect the speed and trajectory of economic growth in the near future.

17. Imagining the Future: A Positive View
The next year — and our new presidential administration — bring many questions about what the future may hold. We could find faster growth, better jobs, increased oil production, and more, if three factors happen: 1) the stock market performs well, 2) businesses continue to invest in the U.S., and 3) President Trump policies accelerate the economy.
In this case, we imagine future headlines touting major accomplishments a few years from now.

18. Imagining the Future: A Negative View
On the other hand, if some of the potential risks and headwinds we find catch hold of our economy, we may find a very different view five years from now.
Ultimately, no one can predict the future — and 2017 brings a noteworthy amount of political uncertainty. We believe that to avoid emotional reactions during times like these, we must focus on the fundamentals, look at what’s really happening in the economy, and analyze what the data is showing us. Whether real or imagined, headlines are only helpful if we take the time to think critically and look for truth amid the hype.

19. Market Risks: January 2008
So, if we are facing uncertainty along with positive opportunities, do we have to worry about a 2017 recession?
Let’s look at a group of indicators that can help ground our predictions in data. This slide takes us back to early 2008.
Here we see a group of 20 indicators that help forecast what pressures will be acting on the economy and financial markets in the next three to six months after the report. Green is a positive for the economy — we could call that a tailwind pushing economic growth along. Yellow is a caution. Red is a headwind that acts as a brake on economic growth. The dotted lines show where the indicator was in a previous report, while the full line shows the current reading.
Here we are in January 2008, about eight months before Lehman Brothers collapsed in September You can see a fair number of yellow and red indicators — long before the recession actually started. The economic outlook was negative, energy prices were rising, and the housing market was also a red flag.
Source:
City National Rochdale Economic & Financial Indicators History: January 2008-December 2015
Source:
City National Rochdale Economic & Financial Indicators History: January 2008-December 2015

20. Market Risks: December 2008
Fast forward to December 2008, and red emerges on the board. The economy was in serious trouble. The housing market was deep in the red, volatility was high, the global economic outlook was negative, and business spending was dropping.
Source:
City National Rochdale Economic & Financial Indicators History: January 2008-December 2015
Source:
City National Rochdale Economic & Financial Indicators History: January 2008-December 2015

21. Market Risks: December 2016
Now let’s look at where we were in December 2016, the most recent update of these indicators. You see a lot more green on this board.
The U.S. Economic Outlook was strong, consumer confidence was growing, business spending was on the rise — and many more indicators showed positive signs. The only red on the board came from the political environment.
Given the uncertainty about how our new presidential administration will govern and what policies will come to fruition, this concern seems fair — and one for which we will have more answers later this year.
The yellow gauges are areas where analysts have some concerns — and we will continue to watch for developments, especially over the next three to six months. So, we can see that the global economic outlook and geopolitical risk both appear to be improving.
The picture isn’t perfect. But compared to 2008, I think you can see the difference in our economy’s strength and potential.
Now, the past can’t predict the future, and financial markets don’t always act in concert with the economy. However, barring some unexpected economic shocks, we’re pretty confident that we won’t see a recession this year.
Source:
Source:

22. Equity Values
The markets have rallied since the presidential election — reaching one record high after another. But are investors too euphoric? Are equities overvalued?
When we look at this slide’s data, we see that the markets appear to be at a fair value.
There’s a lot going on in this chart, but let’s dissect what it’s telling us.
First of all, P/E ratio means the difference between a company’s price-per-share or “P” and its earnings per share or “E.” The higher the P/E ratio, the greater the difference between what investors pay for a stock and what the company actually earns.
So, a high P/E ratio means stocks are relatively expensive compared to what they are earning per share.
If you look at the middle dotted line on this chart, you’ll see that the average P/E ratio is 15.9x. In other words, over the past 25 years, stocks have averaged a per-price-share of 15.9 times their earnings per share.
In the Great Recession, the P/E ratio was far below the average line — whereas it was high above the average during the dot-com boom.
For 2016, we ended at 16.9x, nominally above the 25-year average but still well within one standard deviation above average.
This data tells us that we do not appear to be in a bubble, and instead, stocks are currently at fair prices for their earnings.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

23. Personal Finances
Perhaps one reason for consumers’ rising confidence is that their personal finances are improving. The percentage of debt payments people make compared to their disposable personal income has dropped. And the average household net worth has risen.
We have seen a rise in serious delinquencies on auto loans and student loans, but total serious delinquencies have dropped significantly in the past several years.
Overall, with rising wages, lowering unemployment, and increasing net worth, outcomes are looking up for the average consumer.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017
First Trust

24. WHAT DO FINANCIAL EXPERTS PREDICT FOR 2017?
After 2016’s numerous surprises — and ultimate solid performance across domestic indexes — we look forward to seeing what lies ahead in As we have discussed, we see many positive signs, mixed with some uncertainty and headwinds to pay attention to. Let’s look further at what we may experience this year.

25. 2017 Forecast: Inflation
As we discussed earlier, inflation is currently at 2.1%. But what will happen in 2017?
If you look at the chart, you can see that expectations for inflation jumped immediately following the presidential election. If President Trump is able to lower corporate taxes, increase infrastructure spending, and loosen regulations — or even just one or two of these goals — there is a good chance that the economy will speed up and inflation will rise.
But, even if inflation does rise in 2017, we don’t expect it to reach uncomfortable levels — and the Federal Reserve still has a lot of room to adjust interest rates to help control inflation.
Source:  
Original Link:

26. 2017 Forecast: Interest Rates
The Federal Reserve seems to share our view that the economy and inflation may both grow in 2017.
After raising interest rates in December 2016 — only the second increase in 10 years — Fed Chairwoman Janet Yellen said, “My colleagues and I are recognizing the considerable progress the economy has made. We expect the economy will continue to perform well.”
The Fed also said they may introduce three additional interest-rate increases in 2017, up from their previous prediction of two raises.
Ultimately, rising interest rates are a sign that the economy is doing well.
But what happens when interest rates rise? Let’s talk a look at the chart.
The green dotted line represents 5% yield on a 10-year Treasury note. If you at the placement of the tan diamonds, you’ll see that they’re most clustered in the upper left and lower right quadrants. What this arrangement is showing us is that when rates are below 5%, equities tend to grow with rate increases. But when rates are above 5%, equities tend to decrease in response to rate increases.
In other words, considering where we are with rates right now, history shows us that we may be able to expect the markets to rise as rates increase — as long as they stay below 5%.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

27. 2017 Forecast: Fixed Income
One area of the market that may stumble when inflation and interest rates rise is fixed income. On the last slide, where we saw the correlation between rising interest rates and a rising stock market — the data also shows that this scenario can cause bond yields to rise, too.
While on first glance, increasing yields might seem like a positive scenario, yields and price have an inverse relationship. So, generally, the more yield a bond provides, the less it is worth.
After experiencing years of low interest rates, many investors may be surprised to see that their bonds can lose money. But, a changing tide in the economy doesn’t mean you have to abandon fixed income — because it is often an important part of well-balanced, diversified portfolios that provide the income investors need.
Instead, you should pay closer attention to what bond risks and opportunities exist — and closely watch inflation and interest rates in We will also continue to monitor the geopolitical uncertainty that can significantly affect fixed-income yields.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

28. 2017 Forecast: GDP and Unemployment
After the December 2016 meeting, the Fed released its predictions for GDP and Unemployment in 2017 and As you can see, they predict that GDP will continue its steady, moderate growth. And unemployment will drop even further to 4.5%.
Data from the Wall Street Journal’s survey of economists echoes these predictions.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

29. 2017 Forecast: Wages and Unemployment
The good news for workers is that if unemployment continues to fall in 2017, then wages should rise in response. As you can see on this chart, where the grey line is unemployment and the blue line is wage growth, the two measures usually inversely relate. So, when unemployment goes down, people can expect to earn more for their work.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

30. 2017 Forecast: S&P 500 STRATEGIST/FIRM 2017 S&P 500 TARGET
David Kostin, Goldman Sachs
2,300
Brian Belski, BMO Capital
2,350
Andrew Garthwaite, Credit Suisse
Adam Parker, Morgan Stanley
Savita Subramanian, B of A/Merrill
Dubravko Lakos-Bujas, J. P. Morgan
2,200
Jonathan Glionna, Barclays
2,400
David Bianco, Deutsche Bank
Sam Stovall, S&P Capital IQ
2,335
John Stoltzfus, Oppenheimer
2,450
GROUP AVERAGE
2,359 (4% growth)
So, given all of these other predictions, what are the experts forecasting for domestic equities in 2017? Each year, various media outlets compile the S&P 500 price targets of Wall Street’s top analysts. Let’s take a look at what they have to say about the S&P 500 this year.
Now, these targets aren’t ours; they are what the experts are predicting. As you can see, their 2017 estimates cover a 200-point range — from 2300 from several analysts to 2500 at RBC — proof that even experts often have differing opinions.
But while they gave a range of results, one trend is consistent: Each analyst predicted that the S&P 500 will continue to rise in The average — 2,359 — is 4% growth. Decent returns, but less than half of the 9.5% growth the S&P achieved in 2016.
Of course, as we stated earlier in the presentation, we are not trying to foretell the future. No one knows for sure what equities will do in 2017, and predictions at this stage are pretty foggy. However, these 12 analysts’ perspectives show that optimism continues on Wall Street.
Source:
Source:

31. Remember: Keeping Perspective is Key
We’ve gone over a lot today, but if you remember just one detail from our presentation, we hope it is this: Emotions have no place in investing.
Over the past eight years, we have weathered many storms — from the Great Recession to global pandemics to terrorism and beyond. And after all of these tests and all of the volatility, the market continues to grow and create new opportunities for you.
As you can see on this chart of stock performance since 1980, the average year has a 14.2% difference between its peak and low prices. That’s a big spread. One that we understand can feel quite unsettling in the moment. But, even with these intra-year drops, the market has been positive in 28 out of the last 37 years.
Last year started terribly, and imagine what would happen if you’d let fear dictate your response — rather than logic and professional support. You could have missed out on opportunities to grow your wealth and pursue the future you desire.
We expect 2017 to bring an improving economy, but there is also real potential for volatility. So, if you ever feel concerned or want to understand what’s happening, lean on us for support. We are here for you — and we want to help you make the most of your financial life.
Source:
JP Morgan Guide to the Markets® U.S. Q1 2017

32. Your Action Items for 2017
Steps for you to take: 1. Keep us in the loop with important life changes 2. Tell us any concerns you have about your investments 3. Update your important legal and financial documents
What can you do in 2017 to move toward your family’s goals? Here are some action items for you:
If something changes in your life or personal situation, keep us in the loop. We want to hear about important family events, like births and deaths. We also want to know about health issues, employment changes, and any financial developments, such as an inheritance, that may change your situation.
And if you find yourself thinking about new goals or reevaluating your priorities, please share your thoughts with us so we can help you pursue the life you most desire.
On top of specific financial life adjustments, we also want to know if you experience any changes in your feelings about risk or if you have any concerns about the market environment. We’re here to talk through whatever financial questions, worries, or excitement you may have — so we can help you make informed choices and stay on track toward your goals.
Finally, we ask you to go over your estate documents, beneficiary designations, and other paper work to make sure it’s all up to date. A well-organized estate is one of the best gifts you can give your family.

33. Our Action Items for 2017
Steps for us to take: 1. Keep you informed through regular communication 2. Manage your investments according to your personalized strategy 3. Stay on top of changes in the market environment and make prudent adjustments where necessary
[TALKING POINTS]
Throughout 2017, we will focus on delivering the following action steps to you.
[Go through steps and add any specific details about your approach.]

34. LCM Capital Advisors, LLC
UNTIL NEXT TIME!
[Talking Points]
Thanks so much for your time today. As you can tell, I’m passionate about helping you understand the markets and find facts amidst the hype.
For more information and timely updates, please contact us any time.
We hope that you enjoyed the information we shared, and we’ll be around to answer your questions.
Phone:
Toll Free:
Fax:
LCM Capital Advisors, LLC
1924 S. Osprey Avenue – Suite 02
Sarasota, FL 34239
Joseph Romano
Senior Vice President
NFLPA Registered Player Financial Advisor
Jon R. Lee
CEO, Managing Partner/Wealth Management