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Market Perspective for 3/31/14

Market Leadership Rotation Last week saw one of the biggest asset allocation reversals I have ever seen. Going into last week, the quarter had been led by gold and health care (especially biotechnology). Small company stock had performed better than larger companies, growth stocks had outperformed value stocks, and domestic stocks handily out-paced foreign stocks. Emerging markets were the worst of all. Until last week. The last five trading days saw biotechnology give up more than half of it's year-to-date gain, slipping from roughly 11% to 4% up. Gold has gone from a mid-20% quarterly advance to 16%. Growth stock funds across the board have all but surrendered what once were 2-5% gains, especially those that focus on momentum-oriented high flyers like Facebook and Tesla. On the other hand, the last are trying hard to be first. Emerging market stocks had been down 6.5% a few days ago; now they are down less than 2% (thanks India and Brazil!). International developed markets were down 3% and now they are close to break even. U.S. value stocks managed to lose very little last week and with a gain of just under 1% are now ahead of growth stocks. It would be hard to imagine a better lesson on the importance of diversification and the virtue of patience. It appears that investors are coming back to income oriented securities too. As you recall, income was a big casualty in the wake of last May's Federal Reserve tapering fiasco, with REITs, utilities, and pipeline stocks all losing more than 10% between the end of May and July. Bonds had a tough time of it as well. This quarter each of those areas has done well on a relative basis. REITs are up 8%, utilities close to 6%, and infrastructure and pipelines around five percent. Bonds are up 2%, which is surprisingly good given that everyone was sure interest rates could only go up in 2014. Generally, when the leading industries in a rally falter, you have a period on instability and higher volatility as the market seeks new leadership. So far we have been very lucky, because money has largely rotated on a sector, size, and geographic basis, instead of coming out of the market altogether. On the whole, the sectors being rotated out of are more aggressive (more tied to economic growth) than the ones where money is flowing in. This is not a healthy sign. That said, the money flow on an international basis is not nearly as much risky-to-safe as it is here, so perhaps the foreign stock rally will have legs. Past performance is no assurance of future results. Trademark Financial Management, LLC (“Trademark”) is a registered investment adviser with its principal place of business in the State of Minnesota. Trademark and its representatives are in compliance with registration requirements imposed upon investment advisers by those states in which Trademark operates. Trademark may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration. This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by Trademark with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Trademark please contact Trademark at (952) 358-3395 or refer to the Investment Adviser Public Disclosure web site ( For additional information about Trademark, including fees and services, send for our disclosure statement as set forth on Form ADV from us using the contact information herein or by calling 952-358-3395. Please read the disclosure statement carefully before you invest or send money.

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