LEAVELL Monthly Market Summary July 2016...LEAVELL Monthly Market Summary July 2016 The information...

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Monthly Talking PointsRecent Economic DataPopular Equity Indexes - Returns and Valuation US Equity Markets - Style and Sector International Equity MarketsDomestic Fixed IncomeMiscellaneous Fixed IncomeCommodities

LEAVELLMonthly Market Summary

July 2016

The information provided herein should not be construed as a recommendation to purchase or sell any particular security or an assurance that any particular security held in a portfolio will remain in the portfolio or that a previously held security will not be repurchased. Securities discussed herein do not represent a portfolio's entire holdings. It should not be assumed that any of the security transactions or holdings discussed herein have been or will prove to be profitable or that future investment decisions will be profitable or will equal or exceed the investment performance of the securities discussed. Past performance is no guarantee of future results. All recommendations/holdings within the preceding 12 months or applicable period are available upon request. S&P 500 is a market capitalization-weighted, total return index of widely held common stocks. Indices are unmanaged and cannot accommodate direct investments. This information is intended solely to report on investment strategies as reported by Leavell Investment Management, Inc., the Investment Manager. 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. 7/16

1 Most risk assets generated solid returns in the month of July. US small cap stocks, emerging market stocks and international developed market stocks, which rebounded following the surprise BREXIT decison in June, provided the best returns for the month while REITs, US stocks and high yield bonds also added to their year to date gains. Although these assets, which are traditionally more volatile, performed well, some traditional "safe harbor" assets such as long US Treasuries and gold also generated competitive returns. Commodities were the weakest sector, as a -14% drop in oil prices offset continued gains in precious metals.

2 With a total return of 3.7% in July, the S&P 500 pushed through to new all time highs for the first time in 14 months. The S&P 500 ended the month at 2173 which is 2% above the previous high of 2131 set on May 21st 2015. (See Chart 2.) However, despite a year to date return of 8%, the Russell 2000 small cap index still trades about 6% below its all time high set over a year ago in late June 2015.

3 One catalyst for S&P 500 gains during July may have been corporate earnings. FactSet estimates that with 63% of the companies having reported second quarter earnings, approximately 71% have posted earnings above mean estimates and 57% have posted sales above mean estimates. In aggregate, companies reported earnings are 4.4% higher than expectations while revenues are 1.2% above expectations. Despite, these positive surprises, S&P 500 second quarter earnings are on track (blending actual reported with estimates for those companies that have not reported) to decline -3.8% versus the same quarter a year ago. According to FactSet, this would be the fifth consecutive quarter of year-over-year declines.

4 US Treasury yields continued to decline in July, and during the course of the month, the 10 year US Treasury fell through 1.40% for the first time on record. These lower yields on traditional fixed income securities have also been a catalyst for US stocks, as income-starved investors are drawn by the higher dividends of US equities. As highlighted in Chart 3, the S&P 500 dividend yield has been relatively stable (blue line) while the yield on the 10 year US Treasury (red line) continues to fall. As plotted in the lower half of Chart 3, the yield advantage provided by US stocks (black line) is well above average.

JULY 2016 TALKING POINTS

Chart 2: The S&P 500 Hits New Highs

Chart 3:S&P 500 Dividend Yield - Blue10 Yr US Treasury Yield - Red

Spread Between S&P 500 Div and 10 Yr US Treasury Yield - Black

Source of Charts/Graphs: Bloomberg

5 The run up in the S&P 500 appears to have caught some by surprise. Chart 4 plots the actual level of the S&P 500 (red line) versus year end 2016 forecast (blue line). The average year-end forecast for the S&P 500 is compiled by Bloomberg from a survey of Wall Street strategists.

6 As we have noted for several months, the US housing market rebound remains ontrack. As highlighted in Chart 5, both new home sales (blue line) and existing homesales (red line) hit post recession highs in June.

7 Although, recent US economic data has generally exceeded expectations, secondquarter GDP growth was a significant disappointment. After sluggish first quartergrowth of 0.8%, consensus estimates called for second quarter GDP growth of 2.5%.However, the actual initial estimate of GDP growth for the quarter was 1.2%. Strengthin consumer spending was offset by weakness in corporate investment and reductionsin inventories. As highlighted in Chart 6 below, GDP growth has not exceeded 2% inover a year and has only exceeded 2% once in the last six quarters.

JULY 2016 TALKING POINTS (CONTINUED)

Chart 4: S&P 500 vs Strategists' Forecasts

Chart 5Blue - US New Home SalesRed - US Existing Home Sales


Current Previous Change Current Previous ChangeReal GDP QoQ 1.2% 0.8% Higher Change in Nonfarm Payrolls 255K 292K Lower

CPI YoY 1.0% 1.0% Flat Unemployment Rate 4.9% 4.9% Flat

CPI ex Food and Energy YoY 2.3% 2.2% Higher Initial Jobless Claims (4 Wk Avg) 263K 265K Lower

Housing Starts 1189K 1128K Higher University of Michigan Sentiment 90.0 93.5 Lower

Building Permits 1153K 1136K Higher Consumer Confidence 97.3 97.4 Lower

Existing Home Sales 5.57M 5.51M Higher ISM Manufacturing Composite 52.6 53.2 Lower

New Home Sales 592K 572K Higher ISM Non-Manufacturing Composite 55.5 56.5 Lower

S&P/CoreLogic CS Composite 20 YoY 5.2% 5.4% Lower Wards Total Vehicle Sales 17.8 16.6 Higher

Personal Income 0.2% 0.2% Flat Retail Sales MoM 0.6% 0.2% Higher

Personal Spending 0.4% 0.4% Flat Leading Index 0.3% -0.2% Higher

RECENT US ECONOMIC DATA

Second quarter GDP growth was first reported to be 1.2% This was a significant disappointment relative to expectations of 2.5%. Although it is above first quarter growth of 0.8%, it is well below second quarter GDP growth of 2.6% last year.

July payroll growth of 255K exceeded expectations for the second consecutive month following May's unexpected plunge to 11K, which was the smallest monthly gain since 9/2010. June's increase was revised upward to 292K which is the largest monthly gain since 10/2015. The July unemployment rate was unchanged at 4.9%, slightly above May's post-recession low of 4.7%.

Housing data remains in an uptrend. June existing home sales of 5.57 million (annualized) and new home sales of 592 thousand (annualized) were both at the highest levels since the financial crisis.

The year over year core inflation rate of 2.3% is near the highest level in several years. The last reading of more than 2.3% was in September of 2008, nearly eight years ago.


Returns for the Japanese Nikkei, German DAX, French CAC, and MSCI China indexes are in local currency. All others are in US dollars.Page 4

CURRENT PRICING - 8/26/2016 CURRENT VALUATION METRICS - 8/26/2016ACTUAL EST YEAR TO

LEVEL HIGH LOW PE RATIO PE RATIO PB RATIO DIV YIELD INDEX 1 MONTH 3 MONTHS DATE 1 YEAR 3 YEARS 5 YEARS 10 YEARS2169 -1.1% 19.8% 20.3 18.5 2.9 2.13% S&P 500 INDEX 3.69% 5.82% 7.66% 5.60% 11.15% 13.37% 7.75%

18395 -1.5% 19.1% 17.7 17.4 3.2 2.61% DOW JONES INDUS. AVG 2.94% 4.42% 7.38% 7.01% 8.57% 11.52% 7.92%5219 -1.1% 24.0% 39.2 22.5 3.6 1.20% NASDAQ COMPOSITE INDEX 6.65% 8.47% 3.87% 2.02% 13.97% 14.91% 10.70%

1202 -1.1% 20.7% 21.0 19.0 2.8 2.06% RUSSELL 1000 INDEX 3.81% 5.87% 7.69% 4.83% 10.93% 13.22% 7.88%1047 -1.4% 19.4% 23.4 20.3 5.7 1.52% RUSSELL 1000 GROWTH INDX 4.72% 6.33% 6.14% 4.34% 12.86% 13.61% 9.50%1039 -1.0% 22.5% 19.1 17.7 1.9 2.61% RUSSELL 1000 VALUE INDEX 2.90% 5.41% 9.38% 5.37% 8.99% 12.75% 6.16%

1734 -1.3% 25.7% 23.5 21.1 2.6 1.77% RUSSELL MIDCAP INDEX 4.57% 6.76% 10.30% 4.36% 10.36% 12.73% 8.76%784 -1.3% 24.6% 27.2 22.7 5.5 1.11% RUSSELL MIDCAP GROWTH IX 4.95% 6.66% 7.18% 1.04% 10.07% 11.90% 9.01%

1758 -1.4% 27.9% 21.0 19.9 1.8 2.34% RUSSELL MIDCAP VALUE IX 4.24% 6.91% 13.49% 7.77% 10.60% 13.46% 8.28%

1238 -1.1% 31.3% 42.9 27.5 2.1 1.36% RUSSELL 2000 INDEX 5.97% 8.29% 8.31% -0.01% 6.74% 10.43% 7.15%746 -1.2% 31.8% 91.7 37.1 4.1 0.74% RUSSELL 2000 GROWTH IDX 6.54% 8.91% 4.83% -5.31% 7.39% 10.79% 8.38%

1555 -1.1% 32.0% 27.9 21.8 1.4 1.99% RUSSELL 2000 VALUE IDX 5.40% 7.65% 11.80% 5.58% 6.01% 10.03% 5.84%

418 -1.0% 19.1% 21.5 17.0 2.1 2.59% MSCI ACWI 4.34% 3.98% 5.98% 0.16% 6.48% 7.24% 5.24%251 -2.4% 19.1% 22.1 15.3 1.6 3.15% MSCI ACWI xUSA 4.96% 1.77% 4.25% -5.02% 1.89% 1.89% 2.80%

1702 -4.9% 15.7% 25.0 15.6 1.6 3.38% MSCI EAFE 5.07% 0.78% 0.83% -6.98% 2.58% 3.60% 2.56%901 -2.0% 31.3% 16.2 13.6 1.6 2.53% MSCI EM 5.09% 5.33% 11.95% -0.39% 0.05% -2.42% 4.24%

16361 -18.2% 10.1% 20.3 16.4 1.6 2.02% NIKKEI 225 6.39% -0.43% -12.07% -17.98% 8.48% 13.09% 2.47%10588 -7.4% 21.7% 24.1 13.8 1.7 3.11% DAX INDEX 6.79% 2.97% -3.77% -8.59% 7.70% 7.63% 6.17%4442 -11.4% 14.1% 23.0 14.7 1.4 3.78% CAC 40 INDEX 4.85% 2.70% -1.17% -9.35% 7.10% 7.74% 2.50%

62 -4.8% 28.5% 12.9 12.9 1.5 2.23% MSCI CHINA 3.52% 4.03% -1.06% -10.85% 3.45% 0.53% 7.55%

311 -14.6% 56.2% 28.0 24.0 1.8 7.33% ALERIAN MLP INDEX 0.56% 8.39% 15.35% -9.69% -5.05% 3.75% 8.97%690 -5.1% 25.2% 43.7 34.0 2.8 4.02% FTSE NAREIT All Eq REITS 3.89% 13.65% 18.28% 22.51% 14.51% 13.20% 7.54%

% CHG FROM 52 WEEKTOTAL RETURNS - MONTH END

POPULAR EQUITY INDEXES

S&P 500 - ESTIMATED PE RATIO (LAST 10 YEARS) S&P 500 - PRICE/BOOK RATIO (LAST 10 YEARS)

10 YEAR AVERAGE

10 YEAR AVERAGE

As a result of the recent rally, the S&P 500 is trading at multiples to earnings and book value that are roughly 20% above 10 year averages.


Large Cap (S&P 500)/Small Cap (Russell 2000) - One Year Growth Stocks (R3000 G)/Value Stocks (R3000 V) - One Year

S&P 500 Sector Returns - One Month S&P 500 Sector Returns - Year To Date

US Equity Markets

Line Slopes Up -Large Cap OutperformingLine Slopes Down -Small Cap Outperforming

Small cap stocks lagged large cap stocks in 2015 and early 2016. However, in the sharp rebound since February market lows, small cap stocks have outperformed large cap stocks. In July, the Russell 2000 small cap index outperformed the S&P 500 by over 2%. Year to date, small cap stock have returned 8.3% versus 7.7% for the S&P 500.

Line Slopes Up -Growth OutperformingLine Slopes Down -Value Outperforming

After outperforming in 2015, growth stocks have generally lagged value stocks in 2016. However, growth stocks outperformed in July on strength in the technology sector. The S&P 500 Technology index jumped nearly 8% for the month.


All international returns are in US dollars. Page 6

International Equity Markets

US Equities (S&P 500)/International Equities (MSCI ACWI ex US) - One Year Intl Developed Markets (MSCI EAFE)/Emerging Markets (MSCI EM) - One Year

Miscellaneous International Equity Country Returns - One Month Miscellaneous International Equity Country Returns - Year To Date

Line Slopes Up -US Stocks OutperformingLine Slopes Down -International Stocks Outperforming

International stocks modestly outperformed US stocks in the month of July. However, the performance gap remains significant. Over the last five years ending 7/31/16, the S&P 500 has returned 87% versus a gain of less than 10% for the MSCI ACWI ex US index. On an annualized rate, this equates to 13.3% for the S&P 500 versus 1.9% for the MSCI ACWI ex US index.

Line Slopes Up -International Developed OutperformingLine Slopes Down -Emerging Markets Outperforming

International developed market stocks had outperformed emerging market stocks fairly consistently over the last five years. From 2010 to 2015, international developed market stocks provided a cumulative gain of 23% versus a -21% loss in emerging market stocks. However, year to date, this trend has reversed with emerging market equities gaining 12% and international developed market equities gaining 1%.


CURRENT 1 WEEK AGO 1 MONTH AGO 3 MONTHS AGO 1 YEAR AGO 1 MONTH AGO 1 YEAR AGOUS TREASURY SECURITIES 7/29/2016 7/22/2016 6/30/2016 4/29/2016 7/31/2015 6/30/2016 7/31/20151 MONTH 0.18% 0.27% 0.17% 0.16% 0.03% 0.01% 0.16%3 MONTH 0.26% 0.32% 0.26% 0.21% 0.06% 0.00% 0.19%6 MONTH 0.37% 0.43% 0.35% 0.38% 0.15% 0.02% 0.22%1 YEAR 0.49% 0.53% 0.44% 0.55% 0.31% 0.06% 0.18%2 YEAR 0.66% 0.70% 0.58% 0.78% 0.66% 0.07% -0.01%3 YEAR 0.75% 0.83% 0.69% 0.94% 0.97% 0.06% -0.22%5 YEAR 1.03% 1.12% 1.00% 1.30% 1.53% 0.02% -0.51%7 YEAR 1.29% 1.39% 1.28% 1.62% 1.92% 0.01% -0.63%10 YEAR 1.45% 1.57% 1.47% 1.83% 2.18% -0.02% -0.73%30 YEAR 2.18% 2.28% 2.29% 2.68% 2.91% -0.10% -0.72%

CURRENT 1 WEEK AGO 1 MONTH AGO 3 MONTHS AGO 1 YEAR AGO MODIFIED OPTION ADJFIXED INCOME INDEXES 7/29/2016 7/22/2016 6/30/2016 4/29/2016 7/31/2015 DURATION SPREADBARCLAYS US AGGREGATE 1.86% 1.95% 1.91% 2.15% 2.35% 5.5 0.52%BARLCLAYS US CORPORATE HIGH YIELD 6.71% 6.57% 7.27% 7.37% 6.87% 4.1 5.40%

FIXED INCOME INDEXES 1 MONTH 3 MONTHS YEAR TO DATE 1 YEAR 3 YEARS 5 YEARSBARCLAYS US AGGREGATE 0.63% 2.47% 5.98% 5.94% 4.23% 3.57%BARLCLAYS US CORPORATE HIGH YIELD 2.70% 4.29% 12.01% 4.98% 4.46% 6.16%

10 YEAR US TREASURY YIELD TO MATURITY (3 YEARS) YIELD TO MATURITY: 10 YEAR - 2 YEAR UST (3 YEARS)

YIELD TO MATURITY CHANGE FROM

US FIXED INCOME

YIELD TO WORST CURRENT

TOTAL RETURN

During July, the yield on the 10 year US Treasury fell to below 1.40% for the first time on record. The yield hit a closing low of 1.36% on July 8th before rebounding slightly to end the month at 1.45%.

Line Slopes Up -Yield Curve SteepeningLine Slopes Down -Yield Curve Flattening

The spread between the 10 year US Treasury and the 2 year US Treasury fell to multi-year lows as the yield curve continues to flatten.

During July, the yield on the 10 year US Treasury fell to below 1.40% for the first time on record. The yield hit a closing low of 1.36% on July 8th before rebounding slightly to end the month at 1.45%.

Line Slopes Up -Yield Curve SteepeningLine Slopes Down -Yield Curve Flattening

The spread between the 10 year US Treasury and the 2 year US Treasury fell to multi-year lows as the yield curve continues to flatten.


BARCLAYS S&P DJ USBARCLAYS CORPORATE PREFERRED RUSSELL SELECT MSCI MSCI FTSE ALERIAN

1 MONTH 2 YEAR 5 YEAR 10 YEAR AGGREGATE HIGH YLD STOCK 2000 S&P 500 DIVIDEND EAFE EM NAREIT MLPCurrent

7/29/2016 0.18% 0.66% 1.03% 1.45% 1.86% 6.71% #VALUE! 1.37% 2.13% 3.64% 3.38% 2.61% 3.83% 7.21%

One Month Ago6/30/2016 0.17% 0.58% 1.00% 1.47% 1.91% 7.27% #VALUE! 1.43% 2.20% 3.72% 3.55% 2.69% 4.04% 7.23%

3 Months Ago4/29/2016 0.16% 0.78% 1.30% 1.83% 2.15% 7.37% #VALUE! 1.42% 2.23% 3.84% 3.46% 2.83% 4.39% 7.82%

1 Year Ago7/31/2015 0.03% 0.66% 1.53% 2.18% 2.35% 6.87% #VALUE! 1.31% 2.06% 3.89% 3.08% 2.97% 3.77% 6.83%

MISCELLANEOUS FIXED INCOME

INTEREST RATE RISK: BARCLAYS US AGGREGATE YTW/MOD ADJ DURATION (10 YRS) OPTION ADJUSTED SPREADS: BARCLAYS US CORPORATE HIGH YEILD INDEX (5 YRS)

ACHIEVABLE YIELDS

US TREASURIES

Compensation for interest rate risk remains at historically low levels. Losses associated with a 34 basis point increase in rates would roughly offset a year's worth of interest income in high quality core domestic fixed income portfolios.

The Barclays US Corporate High Yield index returned 2.7% in July as spreads continued to tighten after spiking to the highest level since 2011 in January. This improvement has helped drive a total return of over 12% year to date, which is the best start to a calendar year since 2009.

5 Year Average


YEAR TOYEAR TO COMMODITY CURRENT 1 MONTH 3 MONTHS DATE 1 YEAR 3 YEARS

INDEX 1 MONTH 3 MONTHS DATE 1 YEAR 3 YEARS 5 YEARS 7/29/2016 6/30/2016 4/29/2016 12/31/2015 7/31/2015 7/31/2013BBG Commodity TR -5.11% -1.38% 7.46% -7.98% -12.50% -12.27% Bloomberg West Texas Intermedi 41.60 48.33 45.92 37.04 47.12 105.03

Percent Change Since -13.9% -9.4% 12.3% -11.7% -60.4%BBG Agriculture TR -7.42% -2.53% 5.06% 1.03% -8.40% -8.44%

Daily National Average Gasolin 2.14 2.28 2.21 2.00 2.66 3.63BBG Precious Metals TR 4.29% 7.18% 32.54% 26.98% 0.62% -6.48% Percent Change Since -6.4% -3.2% 7.1% -19.5% -41.1%

BBG Energy TR -10.69% -5.25% -2.52% -31.58% -28.07% -21.55% Generic 1st 'NG' Future 2.88 2.92 2.18 2.34 2.72 3.45Percent Change Since -1.6% 32.0% 23.1% 5.9% -16.5%

BBG Industrial Metals TR 3.17% 2.14% 11.99% -1.47% -7.55% -13.02%GOLD SPOT $/OZ 1351.00 1322.20 1293 1061 1095.82 1325.25

BBG Livestock TR -9.25% -7.73% -9.91% -15.87% -5.78% -5.60% Percent Change Since 2.2% 4.5% 27.3% 23.3% 1.9%

After a strong start to the year, the Bloomberg SILVER SPOT $/OZ 20.34 18.72 17.84 13.86 14.78 19.85Commodity index lost over -5% in July as strength in Percent Change Since 8.7% 14.0% 46.8% 37.6% 2.4%precious metals was more than offset by weakness in energy and agricultural commodities. This was the LME COPPER SPOT ($) 4915 4840.00 5064.00 4705.75 5221.50 6872.50worst month for the commodity index since November Percent Change Since 1.6% -2.9% 4.5% -5.9% -28.5%of last year.

COMMODITIES

BLOOMBERG COMMODITY AND SUBINDEX RETURNS SPOT PRICES

WEST TEXAS INTERMEDIATE SPOT PRICE (3 YEARS) GOLD SPOT PRICE (3 YEARS)

The closing spot price for oil fell to a low of $26.21 on February 11th which was the lowest level since 2003. On June 8th, oil hit a closing high of $51.23 which represented an increase of 95% in less than four months. Prices since then have trended back downwards. At $41.60, oil was down 14% for the month and 19% from its June high.

After surging nearly 9% in June, the price of gold increased over 2% in July. During July, gold hit its highest price since March 2014. At the month end level of $1351 per troy ounce, gold was up over 27% year to date.


LEAVELL Monthly Market Summary July 2016...LEAVELL Monthly Market Summary July 2016 The information...

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