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Executive SummaryAugust 2014

Recent economic data releases suggest that the global economy remains on a path of slow growth. In the U.S., the labor market continues to show signs of gradual improvement, manufacturing activity remains healthy, and according to recent GDP data from the Bureau of Economic Analysis, the domestic economy sharply rebounded in the second quarter. In Europe, headwinds to a step-up in growth remain, and marked by uneven progress across the region, the European Union is having difficulty reaching escape velocity. In China, real GDP growth slightly accelerated on a year-over-year basis during the second quarter and the official manufacturing PMI continues to reach new highs for 2014, an indication that growth is stabilizing. Elsewhere, escalating geopolitical tensions in the Middle East have led to recent volatility in crude oil prices. With these developments in view, our indicators remain in support of a neutral to slightly overweight allocation to equities.U.S. Economic Overview >>, Global Economic Overview >>, Top-Down Asset Allocations >>

In this issue’s Feature Article, we provide an update on the U.S. housing market. First-time home buyers are facing economic headwinds such as high unemployment and rising student loan balances, leading some to delay household formation. A significant number of individuals who currently own a home also face challenges, such as a decline in home prices during the housing bust that, still today, has left many in a negative equity position. We outline how these factors, along with new versus existing home market dynamics, have contributed to the lackluster housing market recovery. We discuss our outlook for housing moving forward, including what we are monitoring in the sector, and determine whether or not we expect a meaningful recovery to take place. Feature Article, U.S. Housing Market Update >>

For this issue’s Country in Focus article, rather than highlight an individual country, we provide a detailed analysis of Europe amid recent developments in the region. While some of the improvements seen in European financial markets and economic indicators can be ascribed to European Central Bank (ECB) actions subsequent to Mario Draghi’s 2012 pledge that the ECB would do “whatever it takes” to save the euro, a variety of reform measures that have been implemented by individual member states have promoted progress in the region as well. While there have certainly been notable achievements in Europe, room for improvement remains in areas including regulation and the overall competitive landscape. In terms of our outlook for the Eurozone, we believe the recovery will endure, albeit in an erratic fashion as headwinds such as deflationary pressures and capital constraints persist. With that being said, we view the European economy as one in which competitive, innovative businesses can be found, and believe the region offers a significant number of attractive investment opportunities. Country in Focus: Europe >>