Internal Investment Note Discusses Market Pullback and Geopolitical Risks

Investment Management Division Investment Strategy Group Sunday Night Insight October 14, 2018 The Unsteady Undertow Commands the Seas (Temporarily) ~F oread--~ - = - ba ~~ = = ! ." Sharmin Mossavar-Rahmani Chief Investment Officer Brett Nelson Head of Tactical Asset Allocation Maziar Minovi Managing Director Andrew Dubinsky Vice President Michael Murdoch Vice President Mary Rich Vice President The 7.8% intraday peak-to-trough decline in US equities between September 21st and October 11th has rattled investor confidence. Numerous headlines of stock market “carnage” have further eroded their confidence. As a result, some of our clients have asked whether this drop signifies the beginning of the end of a nearly 10-year bull market. We do not think so. So far, this pullback is actually smaller than the two prior downdrafts we experienced in late January and in mid-March, neither of which derailed the US economy nor the bull market. The steady factors we highlighted in our annual Outlook—such as economic growth, benign inflation, robust earnings, and low probability of recession—have not dissipated. Furthermore, while the investor focus has shifted to the risks around the unsteady undertow, most of these factors are, on balance, less concerning today than they were at the beginning of 2018. Of course, that is not the case across all geopolitical concerns. While trade tensions with Mexico and 1 HOUSE_OVERSIGHT_026909