MONTHLY MARKET UPDATE: RELATIVELY STRONG Q2 EARNINGS, DESPITE GEOPOLITICAL TENSION AUGUST, 2014 Pran Tiku, President; Kerry Luria, Vice President; Neel Tiku, Portfolio Manager; James Sichenzia, Assistant Portfolio Manager; M-14 J-14 M-14 N-13 J-13 S-13 M-13 J-13 M-13 N-12 J-12 S-12 M-12 J-12 M-12 N-11 J-11 S-11 M-11 M-11 Minutes of the Federal Open Market Committee’s Fed Asset Purchases in Millions June meeting released in early July disclosed the $5,000,000 FOMC will curtail its bond purchase program in October. The US Central Bank has reduced month$4,000,000 ly purchases of U.S. Treasuries and Mortgagebacked securities in $10 billion increments this year, to $35 billion per month from a peak level of $3,000,000 $85 billion per month. The FOMC’s minutes projected: “If the domestic economy progresses about $2,000,000 as the Federal Reserve members expect, warranting reductions in the pace of bond purchases at $1,000,000 each forthcoming meeting, the final reduction would occur following the October meeting.” Still $0 unclear to markets are the timing between the last bond purchase in October, and the first initial rate hike. In prior tightening cycles 0.25% increments were used. The Fed chairwoman has signaled that rates will remain low for “some time”, suggesting to markets that this time around, consecutive rate hikes may not be the Federal Reserve’s intentions. A gradual pace to normalizing the Fed Funds rate may be met with some challenges as inflationary pressures begin to pick up, it’s not clear how tolerant the fed will be should there be uneven price gains in only certain segments of the economy. Rather, there could be a scenario where certain segments of the economy are not simultaneously showing strength. In such a case, the Fed may have a conundrum where they will have to choose for how long they keep rates at, or, near zero without the potential that excesses have been induced as a result of their policies. Second Quarter 2014 S&P 500 Earnings Q2 2014 S&P 500 Earnings Growth Technology Financials Utilities Telecommunications Consumer Services Health Care Consumer Goods Industrials Basic Materials Oil & Gas All Securities 12.4% 6.5% 6.1% 21.4% 12.4% 15.7% 4.1% 8.6% 14.9% 9.9% 9.9% 0% 5% 10% 15% 20% 25% Of the 423 companies having reported earnings thus far, 74% have reported earnings above the mean estimate and 65% have reported sales above the mean estimate. Also surprising many has been the blended growth rate for the second quarter running about 9.9%. The Telecom Services sector is reporting the highest earnings growth for the quarter, while Consumer Staples so far is reporting the lowest rate of earnings growth for the quarter. As of June 30th, the estimated earnings growth rate for Q2 2014 was 4.9%. Eight of the ten sectors have higher growth rates today (compared to June 30) due to positive earnings surprises, led primarily by the Health Care sec- tor. Your feedback is important! We want to address the issues most relevant to you. If you have any comments, questions, or concerns, please Peak Financial Management, Inc. ∞ 281 Winter Street, Suite 160, Waltham, MA 02451 ∞ 781-487-9500 ∞ www.peak-financial.com J-14 Recent Commentary regarding the end of Quantitative Easing MONTHLY MARKET UPDATE: RELATIVELY STRONG Q2 EARNINGS, DESPITE GEOPOLITICAL TENSION AUGUST, 2014 Pran Tiku, President; Kerry Luria, Vice President; Neel Tiku, Portfolio Manager; James Sichenzia, Assistant Portfolio Manager; The Obama administration has increased the sanctions against Russia over its alleged interference in Ukraine, imposing restrictions on the Russian state-controlled oil giant OAO Rosneft as well as several other major companies. While the U.S. believes the Ukraine separatists are receiving significant military support from Russia, this accusation has been denied by Moscow. For the Russian firms targeted for sanctions, the U.S. Department of the Treasury is now limiting their access to equity financing, as well as medium-term and long-term debt financing accessed from individuals or banks with financial ties to the U.S. Rosneft, Russia’s largest oil producer, OAO Novatek, the second biggest natural gas company, OAO Gazprombank, the bank connected with the country’s gas export monopoly and Vnesheconombank, or VEB, a state-owned development lender , were all placed on the U.S. Treasury’s ‘sectoral sanctions’ list. The relationship Russia has with Europe is a bilateral one, while some are suggesting that it unevenly harms Europe. A long-term study by the Petersen Institute finds that economic sanctions are partially successful about one-third of the time. Of the 174 cases that they examined dating from World War One, the most successful cases were when the goal was modest, such as the release of a political prisoner, where there was 50% success. When the target was looking to reverse a major policy however, the success rate dropped to about 30%. For example, in the 1960’s the US sanctions imposed on Cuba were largely judged a failure, as the trade embargos that were set in place decreased living standards of the Cuban people with really no discernible effect on Fidel Castro’s regime, as such economic sanctions are still in place. However, more recent sanctions like those imposed against Iran in 2012, which included the blockades of oil, and overseas bank accounts helped push the Iranian government to discuss its violations about inspections of their nuclear program. The Iranian economy initially had suffered from the sanctions that were imposed. GDP fell by nearly 6% in 2013, and inflation hit double digits, averaging about 39% for the year. Your feedback is important! We want to address the issues most relevant to you. If you have any comments, questions, or concerns, please contact Neel Tiku, Portfolio Manager, at (781) 487-9500 or [email protected] Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. 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