Bruce Bittles

Chief Investment Strategist

bbittles@rwbaird.com

941-906-2830

William Delwiche, CMT, CFA

Investment Strategist

wdelwiche@rwbaird.com

414-298-7802

Please refer to Appendix Important Disclosures

Catalyst for Next Leg Higher Could be a Rate Increase

The S&P 500 Index remains in a tight trading range, one of the longest in stock market history. The S&P 500 has been trapped in a 7% range, from top to bottom for nine months. According to Ned Davis Research, historically stocks are often not vulnerable to a significant decline when following previous periods of stable prices and tight trading ranges as seen in the current stock market. In a few examples the stock market continued to grind higher. The greatest concern is the mounting number of divergences including the fact that while the S&P 500 is up 2.19% this year, 20% of the stocks within the S&P 500 are down 20% or more. In addition, despite the close proximity to new highs only 30% of NYSE stocks are trading above their 10-week moving average. The good news is that the S&P 500 Index remains solidly above long-term support, which we believe to be 2000 to 2040. Investors should concentrate new purchases in the strongest areas which we identify as consumer discretionary, consumer staples, health care and the financial sector.

The next regularly scheduled meeting of the Federal Reserve is September 16. The July meeting produced little new information if and when the Fed will initiate the first increase in interest rates in nine years. Janet Yellen appeared to be leaning toward September to push the fed funds level 25 basis points higher but that was before the Employment Cost Index (ECI) Report late last week showed the smallest increase in wages and salaries in history. Virtually all of the gain came from the government sector. The private sector was unchanged for the first time ever. The data does not fit with the gains in employment the past 18 months. The fact that wages are not growing could delay a move by the Fed. Considering the markets have been primed for a Fed sponsored rate hike, we continue to believe that once the Fed does lift rates stocks will rally into year end.

The technical indicators continue to flash a yellow light. Investors are chasing fewer issues in an attempt to capture income and sales growth. This has led to a breakdown in stock market breadth. This is important because the broad market often leads the popular averages. Investor sentiment indicators are mixed with the short-term data showing skepticism but long-term the numbers indicate a healthy amount of optimism. The latest data from the American Association of Individual Investors (AAII) shows 40% bears, the most in several years. Longer-term sentiment data, however, shows individual investors nearly fully invested as they were near the top in 2007. Cash in money market funds is lower than 2007 and mutual fund managers have the lowest cash reserves in history. The bottom line is that there is sufficient short-term skepticism to produce further gains. Before we can anticipate a sustained advance there should also be significant improvement in the performance of the broad market.

.

** ranking = strongest sector 10=ranking weakest sector Source: Ned Davis Reserach

Weekly Market Notes

August 3, 2015 Dow Industrials 17689 S&P 500 2103

Baird Market and Investment Strategy --For Internal Use Only--

Summary

Economy: Second quarter GDP Disappoints; first quarter upgraded to 0.6% from -0.2%; Capex spending continues weak; inflation pressures uptick

Fed Policy: Yellen continues to signal the Fed intends to initiate first step in normalizing rates

Sentiment: Mixed readings; low VIX indicates complacency the flip side is the AAII survey shows big increase in the bearish camp Strongest sectors: Consumer, Health Care and Financial stocks strongest areas of the market

Sentiment

Current Previous Indication

CBOE 10-Day Put/Call Ratio Below 80% is bearish; Above 95% is bullish

99% 94% Bullish

CBOE 3-Day Equity Put/Call Ratio Below 60% is bearish; Above 69% is bullish

61% 75% Neutral

VIX Volatility Index Below 13 is bearish; Above 18 is bullish

13.7 11.9 Neutral

American Association of Individual Investors 2.5X as many bulls as bears is bearish; 2x more bears than bulls is bullish

Bulls: Bears:

21.1% 40.7%

Bulls: Bears:

32.5% 23.2%

Neutral

Investors Intelligence (Advisory Services) 55% bulls and/or less than 16% bears is considered bearish

Bulls: Bears:

43.3% 17.5%

Bulls: Bears:

49.0% 15.6 %

Neutral

National Assoc. of Active Investment Mgrs. (NAAIM) Below 30% is bullish; Above 80% is bearish

51.0% 53.0% Neutral

Ned Davis Research Crowd Sentiment Poll Optimism Fading Excessive Optimism Neutral

Ned Davis Research Daily Trading Sentiment Composite Excessive Pessimism Neutral Zone Bullish

Weekly Market Notes --For Internal Use Only--

Robert W. Baird & Co. Page 2 of 3

1 = Strongest Sector - 10 = Weakest Sector

Source = Ned Davis Research

RS Ranking RS

Current Previous TrendLeaders: Home Furnishings; Homebuilding; Housewares & Specialties;

Footwear; Restaurants; Cable & Satellite; Internet Retail

Laggards: Consumer Electronics; Casinos & Gaming; Broadcasting

Leaders: Drug Retail; Distil lers & Vintners; Packaged Foods & Meats

Laggards:

Leaders: Health Care Facilities

Laggards:

Leaders: Thrifts & Mortgage Finance; Multi-l ine Insurance

Laggards:

Leaders: Internet Software & Services; Data Processing & Outsourced

Services; Home Entertainment Software

Laggards: Semiconductor Equipment

Leaders:

Laggards: Independent Power Producers

Leaders: Building Products

Laggards: Electrical Components & Equipment; Construction Machinery &

Heavy Trucks; Trading Companies & Distributors; Office Services

& Supplies; Security & Alarm Services; Railroads

Leaders:

Laggards:

Leaders: Construction Materials; Paper Packaging

Laggards: Diversified Chemicals; Aluminum; Diversified Metals & Mining;

Gold; Paper Products

Leaders: Oil & Gas Refining & Marketing

Laggards: Oil & Gas Dril l ing; Oil & Gas Equipment & Services; Oil & Gas

Exploration & Production; Coal & Consumable Fuels

** Denotes Current Relative Strength-Based Overweight Sectors

Energy 10 9

Industrials 7 6

Utilities 6 7 +

Telecom Services 8 8

Materials 9 10 -

Financials 4 ** 3

Information

Technology5 ** 5

Consumer Staples 2 ** 4

Health Care 3 ** 2

Consumer

Discretionary1 ** 1

Sub-Industry Detail

S01666

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

S&P 500 Cycle Composite for 2015 Daily Data 2014-12-31 to 2015-12-31

S01666

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

S&P 500 Cycle Composite for 2015 Daily Data 2014-12-31 to 2015-12-31

2015Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2016Jan

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

Source: S&P Dow Jones Indices2015 Cycle Composite

Places Equal Weight On:

One-Year Seasonal Cycle

Four-Year Presidential Cycle

10-Year Decennial Cycle

Trend Is More Important Than Level

Based on Daily Data 1/3/1928 - 12/31/2014 Lines represent cumulative year-to-date percent gains

S&P 500 Cycle Composite for 2015

Actual S&P 500 Composite Through 2015-07-31

Weekly Market Notes --For Internal Use Only--

Robert W. Baird & Co. Page 3 of 3

Appendix Important Disclosures and Analyst Certification This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST The indices used in this report to measure and report performance of various sectors of the market are unmanaged and direct investment in indices is not available. Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws. Copyright 2015 Robert W. Baird & Co. Incorporated Other Disclosures UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W Baird Limited holds an ISD passport. This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the Financial Conduct Authority requirements, this investment research report is classified as objective. Robert W Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws.

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