Stock market indexes finished the year with their own display of fireworks. Depending on the stock market index, it was likely that a big chunk of its total price gains was made in the last two months of 2016. Conversely, nominal bonds began a cyclical bear market, that sent the benchmark treasury yield above 2%; a psychological ceiling that seemed so impenetrable during the first three quarters of 2016.

This new year offers a renewed sense of optimism for the American economy. US financial markets and central planners are ready to celebrate. For many, a stronger US economy would come as a sigh of relief in comparison to the lackluster experiences of the past decade. The last quarter of 2016 was full of positive news. Third quarter revisions to GDP showed that the US economy grew at a 3.5% annualized rate, its biggest increase in two years. US productivity also made impressive gains, and consumer sentiment and home valuations are now above prerecession highs.

The Federal Reserve Bank took notice of the strong data, and used it as an opportunity to raise short-term banking rates a quarter of a percentage point. Policy makers cited a strong labor market with unemployment at 4.6% of the total labor force, and general prices near their 2% target. A rate increase feels like a step in the right direction given that the American monetary system can now begin to separate itself from the rest of world’s monetary debacle.

Financial market perceptions are changing rapidly. Investors turned to riskier assets and inflation protected securities on bets that the US economy will improve. Yield spreads on US corporate debt narrowed considerably on expectations for fewer downgrades and defaults. Earning yields have compressed on strong demand for US stocks. Stock earnings perform well in a modest inflation and pro-growth environment, which makes certain valuations appear more lucrative. It will be interesting to monitor how much further valuations can go especially when the benchmark treasury yield is near 2.5%, and could move higher.

Another shift in sentiment has been seen in hard asset markets. Speculative demand sent productive metal prices

higher. The price of copper made huge gains late last year, whereas; precious metals lost luster. The price of gold collapsed in the final months of 2016, but finished the year with gains. Both copper and gold are priced in dollars on the world market. The recent appreciation of the dollar makes it questionable that the divergences in these metal prices can continue for much longer.

Attitudes for risk taking and inflation hedging gained momentum late last year. Most of it on the prospects of a strengthening US economy. Although, it seems like there is plenty to celebrate, investors should take caution to some of the systemic risks that are staring down financial markets.

First, pro-growth policies that are expected to unleash the US economy are only speculative right now, and; should they materialize, they will take time to implement. Also, middle class homebuyers are at risk of being priced out of the housing market. Economists say, income growth has not kept pace with the recent appreciation of housing. Lastly, the European banking system continues to show weak spots. The latest threat is an old Italian bank that is in serious need of a bailout. Another European bank crisis could jeopardize European credit expansion and growth, and; if bailed out with public money, European sentiment could sour further, thereby, endangering the fate of the entire Union.

The new year will bring excitement as well as uncertainty. Republicans will gain control of the government, and try to raise economic growth. Budget deficits and public debt will probably rise, which will defer the prospects of higher taxes off into future years. The dollar could strengthen more, and weaken emerging markets (especially if Americans become protectionist). Surely, there will be change, but we remain optimistic and will continue our diligent search for investment opportunities.

Market Review JANUARY 2017

C L O S I N G 2 0 1 6 W I T H A B A N G ?

“The new year will bring excitement as well as uncertainty. “

“The new year will bring excitement as well as uncertainty. “

Clear Creek Advisors2000 S. Colorado Blvd., Tower 1, Suite 3700 Denver, Colorado 80222 P: 720.642.8348 www.ccaretirement.com

FOREIGN BONDS etched out gains to end the month. Emerging Market Debt both in the Treasuries (PCY) and High Yield (HYEM) markets turned out impressive total returns in 2016 of 9.00% and 15.12%, respectively. Our strategy of focusing on total yield rather than risk management in the Foreign Bond space proved to be extremely valuable for our investors.

HARD ASSETS recovered during the month on rising oil prices and strong performance from the Real Estate (RWO) and Master Limited Partnerships (AMJ). Select Hard Asset sectors, such as Precious Metals (GLTR) posted high year-to-date returns. However, looking ahead, we anticipate that rising interest rates will have an adverse impact on Hard Assets, specifically commodities.

HYBRIDS finished off the year with modest gains. Preferred Stocks (PFF) and Convertible Debt (CWB) experienced a large divergence in returns. Preferred Stock ended the year with a nominal gain. While the total return on Convertible Debt was over 10%, near that of large cap stocks. Its relative strong performance was undoubtedly linked to the strong performance of equity markets making the conversion option on the security more valuable.

Market Movers

US equity markets posted a second straight month of gains, resulting in the highest returns year-to-date relative to the other asset categories. Optimism of future growth and inflation data was recognized as a healthy signal for economic progress, increased the attractiveness of earning valuations, and drove US equity prices higher. Our diversified, Core Allocation strategies, ended the year with strong gains. Although US equities were top performers, our selection of assets across other financial markets added value to our investors. Relative to Morningstar’s World Allocation and Tactical Allocation categories, our Core Allocation strategies outperformed by an attractive margin. As we enter 2017, the Investment Team will be implementing a variety of allocation changes based on the evolving market, economic, and political environments.

US STOCKS earned a second straight monthly gain. Small Caps (VB) kept up the strong performance, but Mid Caps (VO) and Large Caps (IVV) showed some signs of life and finished the year with returns near 12%. Our healthy allocation to Small Caps (VB) was beneficial as they finished off the year with a total return of over 18%.

FOREIGN STOCKS reversed some of last month’s losses by posting modest gains in December. Markets with developed stock exposure lifted the international sector altogether while Emerging Market Stocks (VWO) posted a slight loss. Although, their recent performance has been rather dull; Emerging Market Stocks made impressive gains in 2016 earning investors a total return of nearly 12%.

US BONDS were little changed on the month. High Yield Bonds (SJNK) and Bank Loans (BKLN) earned the best year-to-date returns of roughly 14% and 9%, respectively. Our significant allocation to these sectors drove our year-to-date US Bond returns much higher than the returns of traditional bond allocations. Treasury Inflation Protected Securities (TIP) earned a respectable year-to-date total return of over 4% on the inflation hedge trade that became increasingly popular near year-end.

12 .06%

Asset Categories Dec 2016 YTD

US STOCKS 1.50% 13.81%

FOREIGN STOCKS 1.24% 6.21%

US BONDS 0.51% 5.40%

FOREIGN BONDS 1.30%

HARD ASSETS 1.79% 10.83%

HYBRIDS 0.89% 5.88%

*DATA USED IS SOURCED FROM MORNINGSTAR®

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ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, VANGUARD MID CAP ETF, VANGUARD SMALL CAP ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, VANGUARD EMERGING MARKET ETF, VANGUARD FTSE ALL WORLD

EX-US SMALL CAP ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, SPDR BARCLAYS SHORT TERM HI YLD BD ETF, POWER-

SHARES SENIOR LOAN ETF), FOREIGN BONDS (POWERSHARES EMERGING MARKETS SOV DBT ETF, MARKET VECTORS EM HIGH YIELD BD ETF), HARD ASSETS (ETFS PRECIOUS METALS BASKET ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE

ETF), HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF). © 2016 MORNINGSTAR. ALL RIGHTS RESERVED. THE INFORMATION CONTAINED HEREIN: (1) IS PROPRIETARY TO MORNINGSTAR AND/OR ITS CONTENT

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OF THIS INFORMATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.