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Please find attached your Talbot Financial third quarter 2020 portfolio review to supplement your monthly account statements available from Schwab. The report provides a performance summary of your investment portfolio compared to the S&P 500 Total Return Index (“Index”), Talbot Financial’s benchmark, and lists your investment portfolio holdings by industry sector.

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The financial markets posted a striking start to the year with the S&P 500 Total Return Index (“Index”) rising 13.6% during the first quarter of 2019. The primary driver of the first quarter rally was the recognition that central banks are more likely to hold interest rates low for an extended period. Perhaps the biggest shift occurred in the U.S., where the Federal Reserve (“Fed”) modified its stance to rate neutrality.

The first quarter Index return of 13.6% marked the strongest quarterly return since the third quarter of 2009. All 11 S&P industry sectors had positive returns for the quarter. The largest gains were in the Technology, Industrials and Consumer Discretionary sectors at 19.9%, 17.2% and 14.7%, respectively. The lowest sector returns during the quarter were in Healthcare and Financials at 6.7% and 8.6%, respectively.

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The financial news headlines in the third quarter featured macro-level themes such as trade wars, inflation and central bank interest rate decisions. Meanwhile, the continued strength of the U.S. economy and corporate earnings were the key relevant factors driving favorable investment returns during the third quarter.

Fortunately, for us as investors it is the fundamentals of the companies we own and the underlying condition of the economy that matter the most over the long-term, not the media rhetoric. As evidence, for the third quarter Talbot Financial’s benchmark index, the S&P Total Return Index (“Index”), increased 7.7%. Year-to-date, the Index was up 10.6% through Sept. 30, 2018.

Investment returns during the third quarter were led by Health Care, Industrials, Communication Services and Technology, all of which posted returns of greater than 8%. Materials, Energy, and Real Estate were the underperforming industry sectors.

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Trade wars, the threat of higher inflation, and interest rate decisions by central banks dominated the financial media headlines in the second quarter. However, it was the continued strength of the U.S. economy and corporate earnings that were the most relevant factors to investors. Talbot Financial’s benchmark index, the S&P 500 Total Return Index (“Index”), increased 3.4% for the second quarter. The Index was down 0.8% for the first quarter of the year; and therefore, through the first half of the year the Index increased 2.6%.

Second quarter Index returns were led by a rebound in the Energy sector, which followed several years of relative underperformance. Technology was another sector leader for the quarter, an industry we have long over-weighted driven by our conviction of the sustainable positive impact of technology advancements driven by cloud computing. The Financial sector was the notable laggard during the quarter over concerns banks will have trouble expanding margins with a flattening yield curve.

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2020 has been filled with uncertainty and anxiety, largely driven by the pandemic. As we navigate this territory, our first concern remains with you, your families, and the communities in which you live. Covid-19 and the recent issues around social injustice have created new challenges in our neighborhoods and nation. As your financial team, we want to reassure you that we are monitoring and managing your investment portfolio with these challenges in mind.

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