Presented by Mark Gallagher

General market news
• Treasuries sold off last week. The 10-year yield moved from 2.22 percent at the start of the week to 2.33 percent by Tuesday afternoon. It moved lower later in the week and opened this Monday at 2.27 percent. The 30-year yield was as low as 2.79 percent last Monday before jumping to 2.94 percent midweek; it opened this Monday at 2.87 percent.
• The U.S. equity markets were mixed last week. The S&P 500 Index was flat, the Nasdaq Composite Index ticked down 0.19 percent, and the Dow Jones Industrial Average gained 1.17 percent. The Dow benefited from a nearly 10-percent gain in Boeing following its second-quarter earnings call, during which the company announced that it beat expectations and was raising its forecast due to increased demand for aircraft in India. With about half of S&P 500 companies reporting earnings at this point, the estimated earnings growth rate has increased to 10.7 percent for the second quarter. This week, earnings announcements from Apple (AAPL), Tesla (TSLA), and Pfizer (PFE) have the potential to move markets.
• Outside of company earnings, other major news last week included the Federal Open Market Committee (FOMC) announcement that it would begin trimming the balance sheet “relatively soon” and the first estimate of second-quarter gross domestic product (GDP), which came in at 2.6 percent. Both of these announcements were largely expected, which may explain why the markets didn’t react significantly.
• A number of other important economic indicators were released last week. On Monday, we learned that existing home sales decreased by 1.8 percent. Although this was below expectations, much of the slowdown can be attributed to lack of supply, not demand, as home prices continued to increase. New home sales, released on Wednesday, increased 0.8 percent, which was in line with expectations. On Thursday, durable goods orders, a sign of business demand, came in much better than expected, growing 6.5 percent—against expectations for 3.9-percent growth. Much of this strength was due to increases in non-military airline sales. After a slight decline in May, this return to growth is encouraging.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
We will see a wide range of economic news this week, including consumer income and spending; the state of business confidence in both the manufacturing and service sectors; the international trade report; and, most important, the July jobs report.

Personal income, released on Tuesday, is expected to show strong growth of 0.4 percent in June, the same as in May. Continued job and wage growth have been pushing incomes up. Personal spending, on the other hand, is expected to show growth of just 0.1 percent in June, the same as in May. Despite positive income growth, ongoing weakness in spending growth suggests that the economy may remain steady in the second half of the year, rather than accelerate.

Also on Tuesday, the Institute of Supply Management (ISM) will release its manufacturing survey, which is expected to drop from 57.8 in June to 56.2 in July. This is a diffusion survey, where values over 50 indicate expansion. June’s figure was the highest in nearly three years, so even with a decline, manufacturing will remain at a healthy level. Faster global growth and a weaker dollar have supported U.S. manufacturing, so there may be some upside here.

On Thursday, the ISM will release the nonmanufacturing, or service sector, survey. This survey is also expected to show a small decline—from 57.4 to 56.8—although this too would still be a healthy level. Although we have seen weakness in retail sales, and some surveys have pulled back a bit, activity picked up in the second quarter overall, and the expected result would be positive for the economy.

On Friday, the International Trade report is expected to show a small narrowing of the trade deficit, from $46.5 billion to $45.5 billion. Strengthening exports have benefited the goods trade deficit, while the service trade balance has remained roughly constant. A lower deficit is better for U.S. economic growth, so any improvement would be constructive.

The highlight of the week will be Friday’s employment report. It is expected to show job growth of 183,000 in July, down from 222,000 in June. There is upside risk here, as jobless claims remain quite low, and temporary help growth has been strong. The unemployment rate is expected to drop from 4.4 percent to 4.3 percent. Meanwhile, wage growth may pick up from 0.2 percent to 0.3 percent while the average workweek remains constant. This will be a strong report, and very positive for the economy, if it comes in as expected.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2017 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury continued to move lower last week and opened Monday morning at 2.24 percent. The 30-year yield also moved lower, ending last week at 2.81 percent and opening on Monday at 2.83 percent.
• Both the Nasdaq Composite and S&P 500 reached new all-time highs last week after posting gains of 1.20 percent and 0.56 percent, respectively. The Dow Jones Industrial Average lagged, losing 0.22 percent as a 12-percent drop in revenue from GE weighed on the stock and index. GE’s revenue woes were the result of weakness in the company’s energy connections business and have pushed the stock to its lowest level in 19 months. The MSCI World Index also posted a record high last week after European Central Bank President Mario Draghi said the bank had not discussed tapering asset purchases.
• In earnings news, roughly 20 percent of S&P 500 companies have reported earnings so far. On average, among companies reporting, earnings have increased 8.6 percent and revenue has increased 5.4 percent. This week, we will see results from technology companies such as Alphabet (GOOG/GOOGL), Facebook (FB), and Amazon (AMZN), as well as energy firms Exxon Mobil (XOM) and Chevron (CVX).
• The calendar was light on economic news last week, with most data related to the housing market. On Tuesday, the National Association of Home Builders Housing Market Index came in at 64 for July. This was below the consensus range of 65–69, as well as the prior reading of 67. Increasing lumber costs were cited in the report. The West region was the strongest, while the rest of the country lagged far behind. On Wednesday, we saw housing starts and building permits data. Both came in above expectations and beat numbers from the prior month. Starts jumped 8.3 percent in June to 1.215 million (annualized), and permits were up 7.4 percent to 1.254 million (annualized). Despite June’s gains, the second quarter showed a decline from the first quarter. Nevertheless, these reports are positive overall for the housing market.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week, we get a look at the housing market, with reports on sales of existing and new homes. Plus, we’ll learn about consumer confidence, industry and business confidence, and the growth of the economy as a whole.

Sales of existing homes for June will be reported on Monday. They are expected to remain steady at 5.62 million, after an upside surprise in May. Given the lack of available inventory, though, there is some downside risk, with a drop in pending sales in May also supporting that possibility. Although demand remains strong, there simply may not be enough houses available to keep sales rising.

New home sales, released on Wednesday, are expected to do better, with a small uptick from 610,000 to 615,000. Here, strong demand, combined with a better available level of inventory, suggests there may be some upside. Strong sales of new homes would be a positive signal for the economy.

The Conference Board survey of consumer confidence, released on Tuesday, is expected to drop somewhat, from a very high level of 119.9 down to 116.0, which is still healthy. This pullback would mirror declines in other surveys. Interestingly, while current confidence remains quite high, future expectations have declined, pulling down the index. The change in trend is worth watching.

The durable goods orders report, released on Thursday, is expected to be quite strong. The headline number, which includes commercial aircraft, is expected to improve from a 0.8-percent decline in May to a 3-percent increase in June on strong aircraft orders from Boeing. The core orders index, which excludes transport, is also expected to improve, moving from a gain of 0.3 percent in May to a gain of 0.5 percent in June. The core number is a better indicator and suggests business confidence and investment continues to improve. This would also be a good sign for the economy.

Finally, the first estimate of economic growth for the second quarter will be released on Friday. Gross domestic product growth is expected to be 2.5 percent, well above the first quarter’s 1.4 percent, with the gain coming from faster growth in consumer spending. Despite some apparent weakness in business investment, there is upside to this estimate as well. If the number comes in as expected, it will demonstrate that the recovery continues and economic conditions remain solid.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2017 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news

• After being as high as 2.39 percent, the yield on the 10-year Treasury moved lower late last week, opening at 2.30 percent on Monday. Some weaker-than-expected economic data, combined with what seemed to be more dovish comments from Federal Reserve (Fed) Chair Janet Yellen, helped push rates lower. The 30-year yield remains below 3 percent at 2.89 percent, and the 2-year is back below 1.4 percent, the lowest it has been since 2009.
• The Nasdaq Composite regained its leadership position last week following a post-July 4 slump. It led the three major U.S. indices with a gain of 2.59 percent. The S&P 500 and Dow Jones Industrial Average gained 1.42 percent and 1.04 percent, respectively. Markets reacted positively to Yellen’s semiannual testimony before Congress and her remarks that lower levels of inflation may lead the Fed to raise rates more slowly in the future.
• The technology and energy sectors performed best on the week. Technology benefited from the Fed’s pro-growth stance, while energy benefited as oil prices recovered to $46.35 per barrel. The worst-performing sectors were telecom and financials. Despite beating earnings estimates, big bank stocks JPMorgan Chase, Wells Fargo, and Citigroup all fell. A lower net interest income forecast from JPMorgan, a revenue miss for Wells Fargo, and lower net income for Citigroup were seen as reasons for the decline. As earnings season shifts into high gear this week, we could see an increase in market volatility.
• In economic news, we saw a number of data points surrounding inflation last week. On Thursday, Producer Price Index data came in slightly weaker than expected. The core figure, which excludes more volatile energy and food prices, increased 0.1 percent against expectations of a 0.3-percent gain. Year-over-year, prices have increased 1.9 percent against expectations for 2.1-percent growth. On Friday, Consumer Price Index data also came in slightly weaker than expected. Core prices grew 0.1 percent month-over-month against expectations for 0.2-percent growth. Year-over-year, this measure remained at 1.7 percent.
• Retail sales data for June also came in worse than expected despite continued high levels of confidence. Both the headline and core figures disappointed, declining slightly against expectations for modest growth. Continued consumer optimism has failed to translate into consistent sales growth, so this measure will bear watching.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a quiet one for economic news, with only housing data on tap.

On Tuesday, the National Association of Home Builders industry confidence survey will be released. It’s expected to increase from 67 to 68. This is a very high level of confidence, not far off the 12-year high of 71 set in March of this year. If it comes in as expected, the result would suggest that industry confidence continues to be supported by low levels of available inventory and high demand.

Housing starts, released on Wednesday, are expected to ratify that confidence, rising from 1.092 million in May to 1.18 million in June. This would represent only a partial rebound from the drop in May, but there is some downside risk, as building permit issuance has declined recently. Housing starts are actually down on a year-to-year basis, so a significant bounce back would be a positive indicator for the economy as a whole.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2017 Commonwealth Financial Network®

Presented by Mark Gallagher

Mixed returns in June cap strong second quarter
U.S. markets led the way in June. Large-cap equities did well even as technology stocks ran into turbulence. The Dow Jones Industrial Average and S&P 500 Index posted solid gains of 1.74 percent and 0.62 percent, respectively. But the Nasdaq suffered from weakness in technology and finished the month down 0.87 percent.

Quarterly results were better. The S&P 500 was up 3.09 percent, and the Dow gained 3.95 percent. Despite its slight pullback in June, the Nasdaq did best, climbing 4.16 percent. Year-to-date, the Dow and S&P 500 have risen a strong 9.34 percent and 9.35 percent, and the Nasdaq has gained an impressive 14.71 percent. The three indices remain strong on a technical basis as well. All remained above their 200-day moving averages for the quarter, ending the first half of 2017 near all-time highs.

Earnings growth continues to support the stock market. After strong earnings growth in the first quarter, the second quarter looks good, too. According to FactSet, as of June 30, the S&P 500’s estimated earnings growth rate for the second quarter is 6.6 percent. This figure is slightly lower than the number anticipated at the end of the first quarter but may be good enough to drive stocks higher. Analysts expect nine sectors to show earnings growth.

International equity markets experienced a similar month and quarter. The MSCI EAFE Index, which represents the stocks of developed markets, declined 0.18 percent in June. But it managed a total return of 6.12 percent for the quarter. The MSCI Emerging Markets Index fared better, posting a 1.07-percent return for the month and a 6.38-percent gain for the quarter. Year-to-date, the EAFE is up 13.81 percent, and emerging markets have soared 18.60 percent. Technicals have been healthy for the two major international indices as well. Both remained above their trend lines for the month and quarter.

The renewed earnings growth and a supportive economic environment have driven the strong market performance year-to-date. The current synchronized global economic expansion is the first since the financial crisis, and it should continue to support faster growth.

Results for fixed income markets were mixed. The Federal Reserve (Fed) interest rate increase—though expected—forced market adjustments. The Bloomberg Barclays Aggregate Bond Index declined 0.10 percent in June, as the rate on the 10-year Treasury rose from 2.21 percent at the beginning of June to 2.31 percent by month-end. Longer-term results were better. The index returned 1.45 percent for the second quarter and is up 2.27 percent year-to-date.

The Bloomberg Barclays U.S. Corporate High Yield Index performed better for the month, gaining 0.14 percent in June and 2.17 percent for the quarter. The high-yield market remains popular; spreads are near post-recession lows, supporting returns. Default rates are still below historical average levels.

Economic data supports growth
First-quarter gross domestic product growth (GDP) was stronger than the initial estimate. The figure was revised upward, to 1.4 percent, which is double the original 0.7-percent estimated rate.

Positive revisions to consumer consumption numbers were the major drivers of the improved GDP rate. Consumption rose from an initial estimate of 0.3-percent growth to a robust 1.1-percent increase. The revisions, as well as the recent trend of weak first quarters to be followed by stronger subsequent quarters, represent a good start to the year.

Second-quarter data is also looking positive. Consumer income and spending rose 0.4 percent in April, and the figures for March were revised upward. Solid job and wage growth engendered the good results.

Data toward the end of June was less positive. Income growth has been strong, but spending growth has declined to 0.1 percent. This is actually better than it looks. The drop was due to lower gas prices—an overall positive—and moderating auto sales, which is a continued adjustment down from very strong previous sales levels. Combined with the decline in inflation, these factors seem to indicate that the decrease in spending may not be a concern yet.

The May jobs report was also weak, with only 138,000 jobs created. This figure was well below expectations, although the unemployment rate fell to its lowest level in 16 years. The slowing pace of job growth may be due to a lack of qualified job seekers, not a lack of jobs. Indicators point to job growth picking up; so, again, this situation is not yet a concern.

Despite some weak data, the Fed remains positive about the outlook for the economy. It raised the federal funds rate 25 basis points at its June meeting. The increase was anticipated and largely interpreted as a sign of continued confidence.

Housing rebounds following a weak April
Perhaps the most encouraging data for the quarter came from the housing sector. Some results for May were stronger-than-expected and offset a slight slowdown in April. Existing home sales in May were up 1.1 percent, though analysts had forecast a decline. New home sales also increased by more than expected for the month. The upticks were notable given the low level of supply on the market—existing housing stock is at its lowest level since 1982. Supply is expected to remain tight.

Home builder confidence dropped unexpectedly in May, as did housing starts and building permits. These declines were of some concern—especially given the low levels of housing supply. They could indicate that building costs are increasing.

Healthy demand drove the strength in housing. The S&P/Case-Shiller U.S. National Home Price Index showed that home prices had surpassed pre-recession highs (see Figure 1). Sales have continued to increase despite all-time highs in prices. This signals that many consumers are confident enough in the economy to make a long-term investment.

Figure 1. S&P Case-Shiller U.S. National Home Price Index, 2000−2017

Business and consumer sentiment still strong

The largely positive hard data reported in June was bolstered by continued strength in business and consumer sentiment. Business confidence remained high in May. This was reflected in the surprise increase in the ISM Manufacturing Index, which analysts had expected to remain flat.

Core durable goods orders, which are a proxy for business confidence, increased slightly during May. And although the ISM Non-Manufacturing Index was down for the same period, this measure is still in healthy expansionary territory.

Consumer confidence is still high, despite a small pullback in some surveys in June. The Conference Board Consumer Confidence Survey declined slightly, yet its three-month average is at the highest level since 2001. The high levels of confidence are providing a solid tailwind for continued growth.

Political risks remain

As has been the case for much of the year, politics continue to add uncertainty to the markets. The major domestic concern has been the Republican effort to reform heath care. To add to the uncertainty, the fate of wide-ranging tax reform is partially tied to the success of the administration’s health care efforts. Republican lawmakers are looking to use savings from health care reform to offset potential revenue losses from corporate and personal tax cuts. At this point, expectations are low, so the downside risk is probably low as well. There may be some upside potential if Congress is able to move forward.

Internationally, political risks remain. But given the better-than-expected results from recent European elections, these seem less pressing than earlier in the year. Progress has been made in dealing with economic issues. For example, the Italian banking system has started to resolve some of its problems. Market volatility could still arise from upcoming Italian election results and a worsening of the situation with North Korea.

Strong first half is a good sign for the rest of 2017

Risks remain and there have been signs of slowing growth, but the outlook for the U.S. economy is positive. High levels of confidence combined with increasing income and spending bode well for second-half growth. And, as growth speeds up in the rest of the world, the U.S. should benefit.

The positive outlook notwithstanding, we are bound to see volatility in the short and intermediate terms. A well-balanced portfolio designed to match objectives and hedge against the inevitability of less positive conditions in the future remains the best means to achieve financial goals.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

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Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7^th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by Brad McMillan, senior vice president, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network^®.

© 2017 Commonwealth Financial Network^®