AUGUST 15, 2011

WeeklyMarket e Updat
G e neral M arket News
The Federal Reserve stated last week that it plans to maintain an accommodative rate environment through at least mid-2013. This is a change from the extended period of time language the Fed has used during the last few years. The 2-year Treasury reached a new historical low of 0.168 percent during intraday trading last week, after the Feds announcement. The 10-year Treasury ended strong after a brief selloff on Thursday. The yield stood at approximately 2.29 percent on Friday, after being as low as 2.09 percent earlier in the week. S&P downgraded 11,500 bonds tied to federal support last week after Treasuries were downgraded. The municipal bonds affected were those that were prerefunded by U.S. Treasuries or tied to retirement home, school, or other federally funded projects. Greeces economy continued to shrink during the second quarter, as its gross domestic product (GDP) fell 6.90 percent for the same time frame year-over-year. It is the worlds most expensive country to insure. Equity markets were extremely volatile, although they managed to close the week with relatively minor losses, as the S&P fell 1.64 percent. Despite experiencing more modest declines, equity markets saw significant volatility; four of the five trading days brought moves of 4 percent or more in the S&P 500. Earnings reports continued to come in strong, and three of four companies reporting beat expectations. The magnitude of some of the earnings surprises indicates to us that there are still some robust pockets of strength in the economy. From what weve seen in recent equity market performance, it appears that we are experiencing a period of irrationalitya trend that could continue as headlines receive more attention than fundamentals.

M a rket Index Per formance Data

EQUITIES
Index Week-to-Date % Month-to-Date % Year-to-Date % 12-Month %

S&P 500 Index Nasdaq Composite Dow Jones Industrial Average MSCI EAFE MSCI Emerging Markets Russell 2000

1.64% 0.95% 1.37% 3.01% 4.73% 2.35%

8.67% 8.95% 7.02% 12.52% 12.76% 12.43%

5.14% 4.94% 1.11% 9.29% 12.38% 10.36%

10.96% 15.71% 12.09% 4.51% 3.98% 14.42%

page 1 of 2

Week ly Market Update

AUGUST 15, 2011

M a rke t I n d ex Pe r fo rm a n ce Dat a (continued)

FIXED INCOME
Index Month-to-Date (MTD) % Year-to-Date (YTD) % 12-Month %

U.S. Aggregate U.S. Treasury U.S. Mortgage-Backed Securities Municipal Bond U.S. Treasury: U.S. TIPS

1.62% 2.43% 1.76% 1.63% 2.37%

6.04% 6.61% 5.65% 7.21% 12.56%

5.70% 5.15% 5.84% 4.06% 13.65%

What to Lo ok For ward to

This week should give us insight into three important themes: manufacturing, housing, and price levels. Economists are somewhat optimistic on manufacturing. They called for no change in Empire Manufacturing levels in August; instead, the survey fell to 7.7, its third consecutive negative reading. Well learn later this week whether Capacity Utilization will rise to an anticipated 76.9 percent of total capacity (up from 76.7 percent) and whether the Philadelphia Fed index will rise slightly to 4. We believe such improvements wouldnt be particularly bullish for the manufacturing outlook, but they would be moderately encouraging. On the housing front, expectations are more muted. Housing Starts are expected to have fallen 4.60 percent in July, while Building Permit Applications may have fallen 1.90 percent. The bright spot could come from Existing Home Sales, which analysts think may have risen 2.70 percent. With oil prices falling on decreased global confidence, there has been little traction recently for price increases. Producer Prices and Consumer Prices may have risen 0.10 percent and 0.20 percent, respectively, if economists polled by Bloomberg are correct. But, so far, inflation worries have proven overblown.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasurys daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS. Rev. 8/11. Authored by the Investment Research team at Commonwealth Financial Network. Commonwealth Financial Network

page 2 of 2