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2027 Fourth Street, Suite 203 Berkeley, CA 94710

www.ElmwoodWealth.com

Elmwood Wealth Management

What is behind the stock market’s recent poor performance?

We would like to take a minute and address the recent volatility in the stock market. As seen in the chart below, U.S.

stocks are down 2.94% since September 5th, but that is actually a good number relative to all the other categories. Essentially the more risky the asset, the worse it has done with Emerging Market stocks falling the most.

Here is what may be bothering the market: First, recent economic data out of Europe and China has been weak.

Nothing drastic, but nevertheless enough to raise the question if these areas are falling into recession. It’s too early to

tell, but we are keeping a close eye on these two large and impactful economies. Next, we suspect that there is some

underlying anxiety about our own Federal Reserve on the cusp of raising interest rates. The Fed’s actions have been

extremely helpful over the past few years, and since the make-up of the participants is wholly the same, we do not

anticipate any meaningful change in their desire to assist and support our economy (and stock market) as much as

possible. Last, the U.S. Dollar has appreciated significantly in the past few weeks versus other currencies. This has exacerbated the outflow of money from both Emerging Markets and commodities, further weakening their returns.

What does all this mean? A downdraft in the market like this typically happens a couple of times each year. Each time

the reason can be different, so what we always ask ourselves is, “How would this make us adjust our strategy”? We

have held steadfast over the past 18 months in our strategic exit from Emerging Market stocks, and at the same time

lowering our holdings in foreign stocks as well. The positive backdrop for the U.S. stocks has not changed. We have low inflation, low interest rates, and steady job growth. Until that changes, we will maintain our current strategy.

Bulletin: October 1, 2014