1) February 2016 EXECUTIVE SUMMARY • A spike in volatility resulted in declines for equities across the board. In the U.S., large caps bore less of the brunt, while small caps were hit hardest. • Overseas, stocks also lost ground in January, both in developed and emerging markets. • In fixed income, bond indices were largely up for the month as yields fell, the Barclays Aggregate and U.S. TIPS were both up about 1.5%, and tax-free municipals continued to perform well. • The initial estimate for fourth quarter GDP growth came in at 0.7%, held back by a decline in business investment (primarily in the energy sector), weak export demand, and slower than expected consumer spending growth. • The overall outlook for the U.S. economy remains positive; outside of manufacturing, there is growth in many sectors, a stable job market, and consumer confidence remains strong. JIM BAIRD CPA, CFP®, CIMA® Partner, Chief Investment Officer MONTHLY INSIGHTS 100.0% 90.0% 35 80.0% 30 70.0% 60.0% 20 50.0% 15 Days 25 40.0% Frequency 40 EQUITY VOLATILITY HAS SURGED IN RECENT QUARTERS, PEAKING IN JANUARY 30.0% 10 20.0% 5 10.0% 0 0.0% July 2012 - June 2015 July 2015 - December 2015 January 2016 Days VIX Index above 20 Frequency *Frequency is calculated as the # of days the VIX is above 20 divided by the total # of trading days in the periods on the horizontal axis. Source: PMFA, Federal Reserve Economic Data This month we take a closer look at the extent to which volatility in the markets has recently spiked. Volatility is commonly measured by the VIX index, with higher values corresponding to more volatility and lower values to less. Values above 20 are indicative of “high” volatility. Looking back several years we see that the VIX remained below 20 more than 90% of the time for the three years between July 2012 and June 2015. In the second half of last year, volatility increased, and last month it has surged to the point where the VIX was above 20 more than 90% of the time. While the three years prior to July 2015 were unusally calm, the current spike in volatility is also unusual, and eventually the pattern should return to long-term norms. 

2) 2 Despite a stumble out of the gate, finish the course The new year got off to a challenging start for stock investors as heightened volatility pushed equity indices into correction territory by mid-January. While the waters calmed somewhat by the end of the month, it was not enough to regain the ground lost early on. On the flipside, bonds held steady as the yield curve flattened. Many factors contributed to the increased volatility in the equity markets, including fears regarding Performance Overview - As of 01/31/2016 MTD Fixed Income Barclays 1-3 Yr Govt 0.6% Barclays 3 Yr Muni 0.6% Barclays Aggregate 1.4% Barclays 1-10 Yr Muni Blend 1.1% Barclays US TIPS 1.5% Barclays High Yield -1.6% Barclays Global Credit -0.1% -5.0% 0.0% Equity 5.0% MTD S&P 500 -5.0% Russell 3000 -5.6% Russell MidCap Russell 2000 -6.6% -8.8% MSCI EAFE -7.2% MSCI EM Alternatives -6.5% -10.0% -5.0% 0.0% MTD Alternatives HFRX Global Hedge Fund -2.8% Bloomberg Commodity -1.7% -5.0% 0.0% Source: PMFA the state of the Chinese economy, the continued slump in oil prices, uncertainty over the Fed’s rate hike plans, and events on the global security stage. Some of these are one-time events, and others are long-term issues that will continue to be a factor in the months ahead. Concerns over China have nagged investors since last year, and this dynamic continued to play out in January on two fronts. First, China’s capital markets have contracted over two quarters (following steep gains in previous years) raising fears about spillover into other markets. However, it is important to keep in mind that global exposure to the Chinese stock market is very small–China accounts for just 3% of the global equity market–so any tangible impact from this decline will be low. In addition, over the past year we have witnessed a slowing of Chinese GDP growth, raising concerns that this may contribute to slower economic growth globally. Putting things into perspective, the current “reduced” rate of Chinese GDP expansion, nearly 7%, signals the economy there is growing faster than most other parts of the world, and is far from recession. China is under transition, moving from an infrastructure-fueled economy to a consumer-driven one, and the natural result of this will be slower growth over time, but if this transition is successful, the resulting economic foundation may provide a boost to growth and greater opportunities for businesses in the U.S. The slump in oil continued into January, also contributing to market volatility as lower prices created a persistent headwind for the energy sector. The slower pace of growth in China may be contributing to the pressure on oil prices, but this is 

3) 3 Looking ahead, any further decreases in the price of oil are likely to have less impact on markets, because a move from $30 per barrel to $20 is simply less significant than the drop we’ve seen from $100 to $30. In addition, global demand is expected to push upwards; the U.S. Energy Information Administration projects demand will rise by 1.4 million barrels per day this year. Finally, in the U.S., an upside to lower oil prices is that it is putting more money in the hands of consumers. Uncertainty over future monetary policy decisions by the Federal Reserve also contributed to volatility throughout the month, as the market became more skeptical about the FOMC’s projected pace of interest rate increases this year. While expectations regarding the pace and scope of future increases are diverging, it is interesting to note that market reaction to recent Fed actions - the October announcement that the Fed intended to raise rates by the end of the year, and the actual rate hike announcement in December - were strongly positive. This lends support to the notion that an environment of gradually increasing interest rates can be positive for equities. The Fed will closely watch key economic indicators as it weighs its options over the course of the year. At the highest level - the overall output of the U.S. economy - the news at the end of January appears to confirm that the pace of growth slowed down in the last three months of 2015. The initial estimate for fourth quarter GDP growth is 0.7%, held back by a decline in business investment (primarily in the 40 DOUBLE DIGIT PULLDOWNS ARE "NORMAL" IN A GIVEN CALENDAR YEAR 30 20 Percent (%) ultimately a larger supply and demand story. Global production has outstripped demand causing inventories to rise, and the effect on prices has been magnified by a surging U.S. dollar (oil is priced in dollars). 10 0 -10 -20 -30 -40 -50 -60 S&P Calendar Year Returns Intra-year Decline Source: PMFA, Standard and Poor’s energy sector), weak export demand, and slower than expected consumer spending growth. Digging deeper, we see that the manufacturing sector continues to experience pressure, but other areas are holding up. The service sector is doing well, the construction outlook is healthy, and consumer spending growth was still 2.2% last quarter, with consumers snapping up big ticket items. News regarding the jobs market was also largely upbeat. As such, the overall economic picture remains positive, and while the lower GDP estimate will be used as ammunition by those who believe the Fed should slow its plans for gradual rate hikes this year, only time will tell if the Fed will stick to its previously indicated course or if it will opt for a slower path. Looking at market performance results, the spike in volatility we noted in the monthly insights section contributed to declines across the board. In the U.S., large caps bore less of the brunt, with the S&P 500 losing 5.0%, while mid caps slipped 6.6% and small caps had the hardest time out of the gate this year, declining 8.8% for the month. Following declines from the most recent market highs in 2015, domestic equities were in correction territory by mid-January, though they made up some ground by the end of the month. While this volatility can be disconcerting to investors, corrections are a normal part of the regular stock market cycle. The chart on page 3 provides a look back over 45 years of history, recording the S&P 500’s total returns (green bar) for each calendar year, along with the steepest declines recorded in each of those years (orange dots). As is clear from the number of dots sitting below - and in some cases far below - the -10% line, corrections are common occurrences in any given year. Volatility is also a two-way street some of the largest single-day gains have occurred during periods of high volatility. Overseas equities were also negative in January, as the MSCI EAFE, tracking stocks in developed markets, slid 7.2%, while the MSCI emerging markets index gave up 6.5%. Although equities stumbled out of the blocks in 2016, the environment for stocks remains positive. Volatility may be more prevalent this year than in the recent past, but the outlook for the U.S. economy, earnings expectations, and reasonable relative valuations all suggest that opportunities still exist over the long term. 

4) 4 For patient investors, the case for overseas equities remains strong. While returns for U.S. investors have faced headwinds recently from a rising dollar, overseas stocks particularly those in developed markets - offer attractive valuations, supported by an encouraging economic backdrop, and the ongoing and aggressive monetary stimulus efforts from many central banks. Turning to fixed income, bond indices were largely up for the month as yields fell; the yield on the ten-year Treasury dipped below 2% by month’s end, a drop of more than 0.25%. The Barclays Aggregate gained 1.4%, the Barclays U.S. TIPS was up 1.5%, and tax-free municipals continued to perform BLOG For other up-to-date economic briefs, visit PMFA’s Market Perspectives Blog at market-perspectivesblog.pmfa.com. PODCAST “Perspectives,” our monthly podcast, offers an abridged version of our monthly Market Perspectives. To listen, please visit iTunes or wealth.plantemoran.com. well, adding 1.1%. Exceptions to the positive trend were high-yield bonds, down 1.6%, and Barclays Global Credit, which lost 0.1%. In months like January, the value of bonds as part of a diversified portfolio are apparent, even in the current low-yield environment, as they act as a counterweight to volatility in equities and other risk assets. Municipal bonds, in particular, continue to look attractive for many investors as their taxeffective return compares favorably to other assets in this category. In alternatives, commodities continued to slide as the Bloomberg Commodities index lost 1.7%. The HFRX Global Hedge Fund was also down 2.8% to start off the year. The major takeaway for investors as we continue into this new year is to stay focused on long-term goals, and not to get caught up in making investment decisions based on emotions or short-term volatility. Establishing and adhering to a broadly diversified strategic asset allocation framework that appropriately reflects one’s desired return, risk tolerance, and investment time horizon is the best way to position yourself to navigate periods of volatility and take advantage of future opportunities. GRATUITOUSLY UNNECESSARY FACT OF THE MONTH Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain. These bonds are guaranteed to ripen Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree. Breaking the mold of small companies relying on bank lending for financing, an Italian dairy cooperative has sold bonds backed by its greatest maturing asset: cheese. Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation. Cheese-maker 4 Madonne Caseificio dell'Emilia has raised $6.55 million in mini-bonds guaranteed by wheels of Parmesan. 4 Madonne's chairman said the company would use the money raised to improve its facilities and promote the thick-rinded cheese it makes in Italy's northern gastronomic heartland, Emilia Romagna. The Parmesan bonds will pay a fixed yield of 5% a year until they mature in January 2022. Source: Reuters