Market volatility has picked up recently. As long-term investors, here are the five key factors we are keeping a close eye on as we navigate through increased turbulence:

1. Inflation – Economic growth rates across the globe have been better than expected at a time when central bank policy has remained accommodative. Moreover, we now have additional fiscal stimulus
in the US via tax reform. All of this has been reflected in buoyant markets for risky assets. An increasing rate of inflation is a concern because this could drive central banks to tighten monetary policy more aggressively than currently anticipated.

2. Geopolitical Disruption – We’ve had a decade of a relatively benign geopolitical environment. Driven by
an electorate that seems to prefer an inward focus, leaders have done just that. Some say this is rightfully
so, considering the historical role the US has played in maintaining world order. Regardless of one’s view
on what the role of the US should be, one must acknowledge that the geopolitical environment feels less
stable, increasing the probability of some disruption (including trade wars), which would be detrimental to
the global economy and financial markets.

3. Corporate Earnings – Earning are always a focus given the importance to valuations. We’ve already
begun to see the benefits of the recent US tax overhaul, as companies are increasing their forward-looking
earnings estimates. What remains a question: will this lead to valuations expanding and higher stock
prices? Or will earnings catch up to stock prices that already fully reflect the higher estimates?

4. Shift in Monetary Policy – As economic data turns more positive, there is a risk that central banks
will become too aggressive in their efforts to tighten monetary policy. We believe markets have become
accustomed to easy money, thereby becoming more sensitive to any changes. With that said, we believe
some pull back on monetary stimulus is necessary and expect three additional interest rate hikes in the
US in 2018, along with Federal Reserve continuing to sell (or not replace) the fixed-income assets on its
balance sheet.

5. Longer-term Benefits and Costs of Tax Policy Changes – One could argue that the US economy
did not need an additional “shot in the arm” (lower taxes) as we are at, or close to, full employment and
GDP growth has improved. We agree with tax policy that increases US competitiveness and productivity,
although we are also hopeful that this will not be a lost opportunity to reduce the national debt.