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Market Perspective for January 15th, 2019

The U.S. stock market has rallied nicely off its Christmas Eve low, but it is running into some resistance at the 2600 mark on the S&P 500.  2600-2700 represents breakeven for a lot of investor who came late to the party, so they may be looking to cash out when their loss is gone.  Also, earnings season begins late this week.  Investors are sure to be hanging on the commentary from CEOs and CFOs as to how demand looks in the first half of the year.  Volatility could return. Emerging markets have done well this year so far, both on the equity (3.7%) and debt (1.4%) sides.<1>  Global investors have largely cheered the pullback in the U.S. dollar, which is being hurt by the government shutdown.  I would not lean into this because the Brexit situation could easily move to the front pages from a currency standpoint, and China continues to report slowing conditions.  Emerging debt may be under-owned right now, and it may have a good year, but expect the path to be very choppy. Energy has been the leading sector year-to-date with an 8.1% gain.<2>  Much of this is a bounce off an absolutely terrible 2H18, which saw oil prices fall from above $75 per barrel to under $50.  The root of the problem in energy, that supply exceeds demand such that if any producer cuts production some other producer increases production to fill that demand, doesn’t appear to have changed.  Almost certainly energy will not end 2019 in last place again, but I can’t see it being a leader either. I believe that the U.S. tech sector is unlikely to lead in 2019.  This sector, unlike most sectors in the U.S., really is exposed to China.  China would very much like not to buy technology from the U.S. where it can get it elsewhere.<3>  I am concerned that semiconductor chip stocks reflect the downturn in prices and demand (many have been halved since September), but the rest of the tech sector not so much. Interest rates have come down quite a bit since September as the global economy has cooled off and the sharp decline in U.S. stocks has investors believing that the Federal Reserve is done raising rates.  Maybe, but that doesn’t mean market rates are going to keep going lower.  Doubleline’s Jeffrey Gundlach pointed out last Tuesday in his annual market webinar that the budget deficit is exploding at the same time as the Fed is selling bonds back to banks.  This means investors are going to have to absorb an increasing supply of debt.  That is not a recipe for lower bond yields (unless we actually do get a recession and money comes out of stocks). Barrons published their annual Roundtable issue this week. If there was one thing the members of the Roundtable agreed upon, it was that the balance sheet of U.S. corporations and the U.S. Government have deteriorated sharply.  Investors are focused on earnings, but the quality of those earnings are suspect due to very dubious accounting rules.<4> Putting my market technician hat on, it would be unusual to see the market try to rally to new highs without first retesting the December 24th lows.  Not impossible but unusual.  Just keep that in mind if we do get through the 2700 level on the S&P 500 in the next two weeks or so. -Mark A. Carlton, CFA Disclosure 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. A complete list of all recommendations will be provided if requested for the preceding period of not less than one year.   It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.  Opinions expressed are those of Trademark Financial Management and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security. 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 (www.adviserinfo.sec.gov). 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. Any reference to a chart, graph, formula, or software as a source of analysis used by Trademark Financial Management staff is one of many factors used to make investment decisions for your portfolio.  No one graph, chart, formula, or software can in and of itself be used to determine which securities to buy or sell, when to buy or sell them, or assist any person in making decisions as to which securities to buy or sell or when to buy or sell them.  Any chart, graph, formula, or software used is limited by the data entered and the created parameters. The data was obtained from third parties deemed by the adviser to be reliable. Nonetheless, the adviser has not verified the results and cannot be assured of their accuracy <1> Source: MSCI Emerging Market Index, Amundi Pioneer Market Monitor 1/11/19 <2> Source: S&P Energy Index, Amundi Pioneer Market Monitor 1/11/19 <3> Source: Henry Ellenbogen, Barrons 1/14/19 p.25 <4> Source: Rupal Bhansali, Barrons 1/14/19 p.24

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