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FINANCIAL MARKETS REVIEW AND OUTLOOK May 2018 Selected Index Total Returns

S&P 500 TR USD

1 MO

3 MO


1 YR

3 YR

5 YR













S&P SmallCap 600 TR USD




















Bloomberg Commodity TR USD







BBgBarc US Agg Bond TR USD













S&P MidCap 400 TR


Domestic Index (60% S&P 500/40% BBgBarc US Agg Bond) Source: Morningstar, Inc. as of 4/30/2018

April Financial Markets Review Summary — Market volatility carried over from the first quarter into April as investors appeared to waver on whether dueling trade tariffs proposed by the United States and China would be headed off through negotiation. Earnings season for stocks is well underway, and corporate earnings have been the strongest in years. The cut in corporate tax rates was a key contributor to earnings growth, but it appears investors have looked past it as they weigh other market concerns. Core inflation readings have ticked slightly above the Federal Reserve’s 2% target with the latest Core CPI reading coming in at 2.1%. This overshoot was anticipated by economists and is unlikely to change the pace of the Fed’s interest rate increases. Yields on the U.S. 10-Year Treasury moved higher in April, briefly crossing above the 3% threshold late in the month. Hiring came in below consensus, but markets speculated that weather contributed to the previous month’s outsized gains at the expense of April data. Meanwhile, the U.S. Economy grew at 2.3% during the first quarter. While anemic, it was the best first quarter reading since 2010 in what has historically been a seasonally weak quarter. Domestic Equities — Large cap equities outperformed their mid cap counterparts but lagged small cap stocks during April. Small cap stocks have been buoyed by the uncertainty surrounding trade as their more localized footprint tends to insulate them from trade wars relative to large cap multinational companies. With strong earnings driven in large part by lower corporate tax rates, look for stock buybacks, dividends and capital expenditures to pick up. Foreign Equities — Developed market stocks were one of the better performing asset classes in April, returning 2.28%. Growth in the Eurozone appears to have eased somewhat, but remains on solid footing. Emerging market stocks declined slightly in April, but continue to hold on to positive gains in 2018, up 0.97% year-to-date. There has been a notable divergence in emerging markets’ regional performance, and trade disputes have played a role. Bonds — Investment-grade fixed income lost ground in April with a 0.74% loss as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The yield on the 10-year U.S. Treasury rose in April, briefly crossing above the 3% level before ending the month up 21 bps at 2.95%. High yield debt outperformed investment-grade, gaining 0.65% as measured by the Bloomberg Barclays U.S. Corporate High Yield Index. Commodities — Commodity prices gained 2.58% in April, led by strong gains in the energy space. Industrial metal prices were also higher, while precious metals were the only major commodity subsector in the red.

Not a Deposit | Not Insured by any Government Agency | Not FDIC Insured | No Bank Guarantee | May Lose Value

Investment Outlook Equities Domestic Large Cap

Large companies with sustainable competitive advantages and excellent balance sheets tend to outperform during market corrections yet largely keep pace in rising markets. Global growth and strong earnings are supporting stock prices, but stretched valuations may limit gains over the intermediate term (7-10 years).


Mid-Cap stocks continued to underperform Large Caps in 2018, but Small Cap returns have moved ahead of Large Caps. Near-term concerns about global trade wars have led to the recent outperformance. Small cap valuations remain high, which means upside is likely to be limited until earnings catch up to valuations.

Foreign Developed Markets

Developed markets remain attractive relative to their domestic counterparts due to valuations and a falling U.S. dollar. Growth in Japan has improved and should begin to show up in the form of higher stock prices, but returns in European stocks over the next year will be impacted by how smoothly officials handle Great Britain’s “divorce” from the EU and the deftness shown by the European Central Bank as it begins to tighten monetary policy.

Emerging Markets

Despite fears over potential trade wars, emerging markets continue to be supported by a weaker U.S. Dollar, improving fundamentals, and reasonable valuations. Rising commodity prices should also help boost economic growth in most emerging markets countries.

Fixed Income Stable Value/Investment Grade Stable Value

UTC’s Stable Value Fund continues to invest in an intermediate term duration portfolio wrapped by an insurance provider that allows for a payout at book value. This offers a stable, consistent return, and reduces exposure to interest rate shocks.

Investment Grade

Markets expect the Federal Reserve to raise short-term rates by a quarter point at least two more times before year-end with at least a few more in 2019. Higher short rates should eventually lead to higher long rates, which will dampen fixed income returns. Flat to low single-digit returns should be expected while rates are rising.

Alternatives Alternative Investments Risk Managed

Volatility management and capital protection are recommended for those risk averse participants close to retirement who do not want to be entirely exposed to a large downdraft in the equity markets.


REITs have lagged other categories due to rising interest rates, but we continue to view REITs as a good source of income. Exposure to certain segments negatively impacted by rising interest rates, such as mortgage REITs, should be limited.


The rise in commodity prices over the past several months has been driven by coordinated global economic growth that has boosted demand more than producers expected. As commodity producers increase supply to match demand, further price gains may be tempered. A continued decline in the U.S. Dollar would be additive to returns.

Not a Deposit | Not Insured by any Government Agency | Not FDIC Insured | No Bank Guarantee | May Lose Value

UTC Stable Value Fund Update Unified Trust’s Stable Value Fund’s crediting rate for the second quarter of 2018 remained the same at 2.40% annualized. The Fund produced a consistent return, while fixed income produced negative results as interest rates moved higher. This resulted in good returns relative to both the Stable Value Composite and the Bloomberg Barclays US Aggregate Bond Index. The underlying holdings in the Fund create an intermediate term bond portfolio that is managed by three different sub-advisors. Long-term results are also favorable with outperformance over longer 3 and 5 year time horizons versus both the benchmarks listed above. The current market to book is 97.70% as of May 7, 2018. The fund remains benefit responsive, even with the market to book below 100, and offers a safe haven from interest rate risk. Stable Value Returns as of 4/30/2018

1 MO

3 MO


1 YR

3 YR

5 YR

UTC Stable Value







Stable Value Benchmark







Barclays US Agg Bond TR







Wealth Preservation Strategy (WPS) Update The WPS Funds slightly underperformed their respective benchmarks during April, and remain behind year-to-date. The low volatility of 2017 was replaced with much higher volatility and market fluctuations which has continued into April. As volatility rose, the Funds have been actively reducing market exposure at various points this year. During April, equity exposure was reduced for both the Moderate and Growth Funds. Some of the performance lag can also be attributed to underperformance of several of the underlying ETFs. The Funds continue to meet expectations, and have produced market capture rates as expected. As markets continue to be volatile, having the ability to preserve principal and capital going forward becomes increasingly important. YTD Return of WPS as of 4/30/2018 Net Equity Exposure Fund


WPS Conservative Class II


WPS Moderate Class II


WPS Growth Class II













*Please note the equity exposure of the WPS is engineered to adjust daily in response to a variety of market factors, including shortterm volatility. The benchmark on the other hand is a static blended allocation which mirrors the long-term target allocation of the WPS funds.

Not a Deposit | Not Insured by any Government Agency | Not FDIC Insured | No Bank Guarantee | May Lose Value

Disclosures The information, products, or services described or referenced herein are intended to be for informational purposes only. This material is not intended to be a recommendation, offer, solicitation or advertisement to buy or sell any securities, securities related product or service, or investment strategy, nor is it intended to be to be relied upon as a forecast, research or investment advice. Past performance does not guarantee, and is not indicative of future results. There is no guarantee that any Fund will achieve its stated objectives. Investment in a Fund involves risk, including the possible loss of principal. Investment in a Fund is not a deposit and neither the FDIC nor any other agency insures any Fund. The Conservative Idx consists of a blend of 8% BofAML US T-Bill 3 Mo, 42% Barclays Capital US Aggregate, 35% S&P 500, 6% S&P MidCap 400, 2% Russell 2000, and 7% FTSE Global All Cap ex US. The Moderate Idx consists of a blend of 8% BofAML US T-Bill 3 Mo,22% Barclays Capital US Aggregate, 48% S&P 500, 9% S&P MidCap 400, 4% Russell 2000, and 9% FTSE Global All Cap ex US. The Growth Index consists of a blend of 8% BofAML US T-Bill 3 Mo,7% Barclays Capital US Aggregate, 56% S&P 500, 11% S&P MidCap 400, 6% Russell 2000, and 12% FTSE Global All Cap ex US. The Index for each Fund was changed to reflect an asset allocation change on 12/17/14, and prior benchmark performance was not restated. The products or services described or referenced herein may not be suitable or appropriate for the recipient. Many of the products and services described or referenced herein involve significant risks, and the recipient should not make any decision or enter into any transaction unless the recipient has fully understood all such risks and has independently determined that such decisions or transactions are appropriate for the recipient. Investment involves risks. Any discussion of risks contained herein with respect to any product or service should not be considered to be a disclosure of all risks or a complete discussion of the risks involved. There are also risks associated with investing in fixed income securities, including interest rate risk, and credit risk. The materials in this document represent the opinion of the authors at the time of authorship; they may change, and are not representative of the views of Milliman FRM or its parents, subsidiaries, or affiliates. Milliman FRM does not certify the information, nor does it guarantee the accuracy and completeness of such information. Use of such information is voluntary and should not be relied upon unless an independent review of its accuracy and completeness has been performed. Materials may not be reproduced without the express consent of Milliman FRM. Milliman Financial Risk Management LLC is an SEC-registered investment advisor and subsidiary of Milliman, Inc.

Not a Deposit | Not Insured by any Government Agency | Not FDIC Insured | No Bank Guarantee | May Lose Value

RPCG Financial Markets Review and Outlook May 2018  
RPCG Financial Markets Review and Outlook May 2018