Quarterly Update:Secular Potential, Cyclical Risks

THE ADVISORS OF BROWN WEALTH MANAGEMENT ARE LPL REGISTERED REPRESENTATIVES WITH AND SECURITIES OFFERED THROUGH LPL FINANCIAL, MEMBER FINRA/SIPC. INVESTMENT ADVICE OFFERED THROUGH STRATOS WEALTH PARTNERS, LTD., A REGISTERED INVESTMENT

ADVISOR. BROWN WEALTH MANAGEMENT AND STRATOS WEALTH PARTNERS ARE SEPARATE ENTITIES FROM LPL FINANCIAL.

THE ECONOMIC FORECASTS SET FORTH IN THE PRESENTATION MAY NOT DEVELOP AS PREDICTED AND THERE CAN BE NO GUARANTEE THAT STRATEGIES PROMOTED WILL BE SUCCESSFUL. ALL PERFORMANCE REFERENCED IS HISTORICAL AND IS NO GUARANTEE OF FUTURE

RESULTS. ALL INDICES ARE UNMANAGED AND MAY NOT BE INVESTED INTO DIRECTLY.

UNMANAGED INDEX RETURNS DO NOT REFLECT FEES, EXPENSES, OR SALES CHARGES. INDEX PERFORMANCE IS NOT INDICATIVE OF THE PERFORMANCE OF ANY INVESTMENT. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html.

For vendor disclaimers refer to www.ndr.com/vendorinfo/

Great Start to 2019

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Secular bull has now had three cyclical bears

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Bear watch indicating current cyclical bear may

not be done

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

No retest? Different this

time?

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Most markets still in

downtrend

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Sentiment Elevated

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Globe now in OECD defined

slowdown…not improving

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Trade: The likely culprit

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

US economy will likely determine if the bottom is

in place

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

US leading indicators

deteriorating

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

US S&P 500 earnings

expectations still falling

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at

www.ndr.com/copyright.html. For vendor disclaimers refer to www.ndr.com/vendorinfo/

Yet markets and

momentum have

rallied…why?

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

The Fed.

Market expecting rate cut(s) ahead

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

BWM TacticalPositioning

No strategy assures success or protects against loss.

OVERWEIGHT MARKETWEIGHT UNDERWEIGHT

Stocks

Bonds

Cash

U.S.

Large Cap

Mid/Small Cap

International

Credit

Duration

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Bottom Line

• Currently Underweight equites • Market advance likely due to Fed pivot…but why is the Fed changing tact?• Watching for reversal in global and US economic data, earnings and sentiment.• Waiting on trade deal. Sell the news?• Successful retest, improvement in fundamentals, and/or a surprise “big” trade

deal might warrant more aggressive positioning.

Questions?Please follow Brown Wealth Management on LinkedIn and Facebook for real-time updates on future

events, in-house written content, and other shares!

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Executive Summary

• Slide 4: This chart compares the price action of the Dow Jones Industrial Average (DJIA) from its February 2009 bottom to its price action during the entire 1921-1929 secular bull market and the first halves of the 1942-1966 and 1982-2000 secular bull markets. Since its bottom in 2009, the DJIA has followed a price pattern consistent with the first few years of the three prior secular bulls - extended periods of strong positive performance (cyclical bulls) interlaced with relatively shallow periods of negative performance (cyclical bears).

• Slide 5: This chart is the NDR bear market watch indicator. The chart is no longer in “healthy” territory, as it has deteriorated as of late. The top clip plots the global stock price index, which is a blend of the MSCI World Index price returns prior to 1988 and the MSCI ACWI price returns thereafter. The bottom clip plots the percentage of Bear Watch indicators that have reached key bearish levels historically. As shown in the table at the bottom of the chart, there have been eight cases since October of 1985 where the percentage of indicators have risen above 40% for the first time in at least six consecutive months. The median drawdown over the next 12 months for all cases has been very high.

• Slide 6: This chart compares the price action of the S&P 500 at the end of 2018 to three different time periods 1962, 2002, 2015. In each of the cases of 1962, 2002, and 2015, the market made a lower low and had double-digit gains one year later. The price action the S&P 500 saw at the end of 2018 was very similar to price action that could be seen in the 1962, 2002, and 2015 cases. This chart tries to compare each case so it can be used as a potential indicator of what to expect from the S&P 500 over the next 24 months.

• Slide 7: This chart is designed to show the importance of remaining in harmony with long-term trends. The top clip plots the MSCI All Country World Index (priced in local currency) as a proxy for global equities. The middle clip plots the percentage of ACWI markets above their 200-day moving averages. The bottom clip illustrates the trends in the moving averages themselves. Plotted is the percentage of ACWI markets with rising 200-day moving averages. When the percentage of markets with rising moving averages has been above the upper parameter, the MSCI ACWI has tended to outperform and when the percentage has been below the lower parameter, the index has tended to underperform.

• Slide 8: Optimism has continued to rise and recently reach what Ned Davis defines as extreme levels. High levels of extreme optimism has typically been bad for equities.

• Slide 9: This chart shows Ned Davis’ Global Recession Probability Model. The model is based on the Amplitude-Adjusted Composite Leading Indicators (CLIs) created by OECD for 35 countries. Each “CLI” contains a wide range of economic indicators such as money supply, yield curve, building permits, consumer and business sentiment, share prices, and manufacturing production. There are usually five to ten indicators, which vary by type and weight, depending on the country, and are selected based on economic significance, cyclical behavior, and quality. The NDRG Global Recession Probability Model uses a logistic regression method incorporating both the CLI level and trend data of all 35 countries to predict the likelihood of a global recession. A score above 70 indicates high recession risks while a score below 30 means low risks.

• Slide 10: This chart shows NDR’s “Global Trade Monitor”. This tool is made up of a number of indicators that ty to gauge the health of the trade environment. This tool can be used to identify an unhealthy trade environment before companies report poor earnings due to trade restrictions.

• Slide 11: This chart shows that during global slowdowns, equity markets have tended to underperform. On average, the MSCI ACWI has been down 2.03% per annum when we’ve been in a global slowdown vs. a 13.38% per annum gain when we haven’t. It is also important to make the distinction between global slowdowns that include the U.S. and global slowdowns that do not. Both are often associated with bear markets, but drawdowns have been far more severe when the U.S. has been in recession in tandem with the global economy. The typical drawdown around global recession with the U.S. has been 45%. This includes the bear markets from 2001-2002 and 2008-2009. Conversely, when the global economy has been in recession, but without the U.S., the average drawdown around the recession has been 19%.

• Slide 12: This chart compares the Coincident Economic Index to the rate of change of the Leading Economic Index. Both indexes are composite averages of individual economic indicators designed to capture turning points in aggregate economic activity better than any individual component.

Please see important disclosures, chart explanations, summary and commentary at the end of this report.

Executive Summary

• Slide 13: This chart shows analysts’ consensus projections for S&P 500 earnings per share for calendar years 2012 through 2019. The average equity analyst tends to start each year with excessively rosy expectations for corporate earnings which are progressively tempered over time. These downward revisions can clearly be seen in the chart. The anomaly in the upper right corner of the chart is the 2018 projections. Rather than adjusting earnings estimates downward, the analysts have revised their projections upward for 2018. Earnings growth is positive for equities, but as can be seen, the earning expectations for 2019 are falling.

• Slide 14: The chart in this slide analyzes how healthy the market is, known as “Market Breadth”, from a technical perspective. The model, plotted in the lower clip of the chart on the right, aggregates the signals of over 100 component indicators and generates a reading between 0% and 100%, reflecting the percentage of the component indicators which are currently giving bullish signals for the S&P 500 Index. The indicator still remains in the “bullish” zone.

• Slide 15: This chart uses overnight interest rates swaps to help gauge policy rate expectations of the Federal Reserve. The top clip plots the 1 month OIS with the 1, 2, and 3 year forward swap rates. The bottom clip compares the 1-year forward swap rates with the 1-month OIS, the 2-year forward swap with the 1-year forward swap, and so on. As can be seen, the market has priced in a rate cut this year and next year after the Fed had a reversal in policy.

• Slide 16- We are at underweight the benchmark weightings for stocks and cash, and overweight bonds. Within sticks, we have an emphasis in owning US equities and we are underweight international equities Within fixed income, we are marketweight credit and have a focus on owning bonds with shorter duration.