Quarterly Update

Wrapping up a year full of economic and geopolitical drama, U.S. equity markets ended 2015 about where they started. The widely watched Dow Jones Industrial Average Index and the S&P 500 Index returned 0.2% and 1.4% respectively, while the NASDAQ finished with a 7% gain. Large-cap growth equities beat out all other styles, with a 5.5% return for the year. The so-called FANG stocks (Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL)) dominated results for large-growth stocks. On the other end of the spectrum, small-cap value was the worst-performing category, falling 6.7%.

After starting the second half of the year with the worst quarter in four years, U.S. stocks recovered during the final three months of 2015. Healthcare, technology, and consumer discretionary sectors were top performers, with annual returns ranging from 5.9% to 10.1%, while energy was the worst, falling 21.1%. The continuing strength of the U.S. dollar in 2015 negatively impacted companies with significant overseas revenues.

Following a brief rally earlier in the year, oil prices resumed their downward spiral, finishing 2015 around $37 a barrel (down 30.6%). OPEC’s unwillingness to cut production, a rising supply of oil in the U.S., and weak Asian demand were the catalysts for the dramatic drop in the price of energy stocks. The metals and mining industry, directly impacted by falling commodity prices, also fell sharply. The spread between the best- and worst-performing sectors was extremely wide in 2015, indicating a bifurcated market. Manufacturing and commodity sectors were struggling, and consumer-oriented industries thrived.

Foreign markets fared even worse than the U.S. in 2015, with emerging markets suffering the most (down 14.9%). Latin America, an area that City National Rochdale has deliberately avoided, was particularly hard hit, with the MSCI EM Latin America Index down 31% for the year. Despite widespread optimism about the outlook for European equities (optimism not shared by City National Rochdale), the Euro Stoxx 600 fell 1% in dollar terms.

At the meeting of the Federal Open Market Committee on December 16, 2015, Fed policymakers, citing a solid economy growing at a moderate pace, unanimously agreed to raise interest rates by 25 bps, or one-fourth of 1%. This widely anticipated move, which had been delayed by several months due to mixed economic data and turbulence in global markets, was the first in nearly a decade. The modest size of the increase, coupled with the announcement of “gradual” rate hikes through 2016, initially propelled a sharp rally in stocks. However, this rally was reversed in the next few trading sessions.

While domestic equities were climbing during the fourth quarter, bonds were moving in the opposite direction. Most categories in the fixed income market were down for the quarter but finished the year with modest gains. Investment grade bonds outperformed lower-quality issues, which were dragged down by a surge in defaults among energy borrowers. According to the Barclays U.S. Corporate High Yield Index, high yield bonds were down 2.1% in the final quarter and 4.5% for the year.

2015 was a year marked by a record volume of merger and acquisition (M&A) deals. There were more mega-mergers than ever before, the largest announced deal being Pfizer’s $184 billion acquisition of Allergan. Equity offerings also broke a record at more than $1 trillion.

As we look ahead to 2016, we believe there is reason for optimism. Wages are finally starting to increase after years of stagnation, thanks to a tightening labor market. The housing market recovery continues. Gradual increases in interest rates, expected to take place in the coming year, are indicative of a strengthening economy and have historically been positive for stock prices. Presidential election years have also historically had a positive influence on the stock market.

I want to take this time to wish you and your families a happy, healthy, and prosperous New Year.

All returns cited are in USD and include the reinvestment of dividends.


Investment and Insurance Products: 
• Are Not insured by the FDIC or any other federal government agency 
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• May Lose Value


Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT) and taxable gains are also possible. Investments in below-investment-grade debt securities and unrated securities of similar credit quality, commonly known as “junk bonds” or “high-yield securities,” may be subject to increased interest, credit, and liquidity risks.

Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

Investments in Master Limited Partnerships (MLP) are susceptible to concentration risk, illiquidity, exposure to potential volatility, tax reporting complexity, fiscal policy and market risk. Investors of MLPs are subject to increased tax reporting requirements. MLP investors typically receive a complicated Schedule K-1 form rather than Form 1099. MLPs may not be appropriate investments for tax-advantaged accounts because of potential negative tax consequences (Unrelated Business Tax Income).

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.

Returns include the reinvestment of interest and dividends.

Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

Past performance is no guarantee of future performance.

Index Definitions

The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The Dow Jones Industrial Average Index is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

The MSCI Emerging Markets (EM) Latin America Index captures large and mid-cap representation across five Emerging Markets (EM) countries* in Latin America. With 119 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

*EM Latin America countries include: Brazil, Chile, Colombia, Mexico, and Peru.

The Barclays U.S. Corporate High Yield Bond Index is a market value-weighted index which covers the U.S. non-investment grade fixed-rate debt market. The index is composed of U.S. dollar-denominated corporate debt in Industrial, Utility, and Finance sectors with a minimum $150 million par amount outstanding and a maturity greater than one year. The index includes reinvestment of income.

The NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. NASDAQ was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy, and transparent system. The term “NASDAQ” is also used to refer to the NASDAQ Composite, an index of more than 3,000 stocks listed on the NASDAQ exchange that includes the world’s foremost technology and biotech companies.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

The Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th business day based on the roll schedule.

Indices are unmanaged, and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.