September 2020 Shape Your ConvictionTM Global Macro Outlook: Navigating A Post- Pandemic World Peter Berezin Chief Global Strategist Director of Research MAR APR MAY JUN JUL AUG SEP 0 0 MAR APR MAY JUN JUL AUG SEP 10 0 0 10 20 10 Shape Your ConvictionTM 10 20 Number Of New Cases Now Trending Lower In The US, 30 And Higher In Europe 20 20 30 Th Th Th60 Th60 40 US 30 EUROPEAN UNION NEW CASES NEWTOTALCASES (7-DAY MOVING AVERAGE) 80 80 GERMANY NORTHEAST RESTGERMANY OF EU FRANCE 30 SOUTHEAST ITALYFRANCE 40 50 SPAIN 50 MIDWEST 50 SPAINSPAIN ITALY SOUTHWEST 40 FRANCEITALY WEST RESTGERMANYREST OF OF EU EU TOTAL (7-DAY MOVING AVERAGE) CASES TOTAL (7-DAY MOVING AVERAGE) NEWTOTALTOTAL (7-DAY (7-DAY MOVING MOVING AVERAGE) AVERAGE) GERMANY EUROPEAN UNION 60 60 40 FRANCE 40 40 60 50 SPAIN 50 ITALY REST OF EU NEW CASES 30 EUROPEAN UNION 30 60 40 40 50 20 20 20 20 10 10 0 0 0 0 MAR APR MAY JUN JUL AUG SEP MAR APR MAY JUNJUN JUL AUG SEP 2020 2020 SOURCE: THE CENTER FOR SYSTEMS SCIENCE AND ENGINEERING (CSSE) AT JOHN HOPKINS UNIVERSITY. 1 Shape Your ConvictionTM Not So Fast US STATES: REOPENING STATUS WASH. ME. MONT. N.D. ORE. MINN. VT. N.H. WIS. IDAHO S.D. N.Y. MASS. WYO. MICH. CONN. R.I. PA. NEB. IOWA N.J. NEV. OHIO MD. UTAH ILL. IND. DEL. W. VA. COLO. KAN. VA. KY. CALIF. MO. N.C. TENN. ARIZ. N.M. OKLA. ARK. S.C. ALA. GA. MISS. REOPENED TEXAS REOPENING LA. PAUSING FLA. REVERSING ALASKA HAWAII JASMINE C. LEE, SARAH MERVOSH, YURIRIA AVILA, BARBARA HARVEY, AND ALEX LEEDS MATTHEWS, “SEE HOW ALL 50 STATES ARE REOPENING (AND CLOSING AGAIN,” THE NEW YORK TIMES, UPDATED SEPTEMBER 10, 2020. 2 Shape Your ConvictionTM More Than Half Of The US Population Lives In States That Are Suspending Or Reversing Reopening Plans 70% %70 SHARE OF POPULATION-WEIGHTED STATES WITH THEIR REOPENING ON HOLD OR REVERSING, TIGHTENING RESTRICTIONS, OR ON LOCKDOWN 60 60 50 50 40 40 30 30 20 20 10 10 2020 0 0 MAYMAY JUNEJUN JULYJUL AUGUSTAUG SEPTEMBERSEP 20202020 BASED ON JASMINE C. LEE, SARAH MERVOSH, YURIRIA AVILA, BARBARA HARVEY, AND ALEX LEEDS MATTHEWS, “SEE HOW ALL 50 STATES ARE REOPENING (AND CLOSING AGAIN,” THE NEW YORK TIMES, UPDATED SEPTEMBER 9, 2020. 3 Shape Your ConvictionTM High Odds Of A Vaccine Within 6-12 Months 100 100 % % "WHEN WILL ENOUGH DOSES OF FDA-APPROVED COVID-19 VACCINE(S) TO INOCULATE 25 MILLION PEOPLE BE DISTRIBUTED IN THE UNITED STATES?" BETWEEN 1 OCTOBER 2020 AND 31 MARCH 2021 80 BETWEEN 1 APRIL 2021 AND 30 SEPTEMBER 2021 80 NOT BEFORE 1 APRIL 2022 60 60 40 40 20 20 0 2020 0 MAY JUN JUL AUG SEP 2020 SOURCE: GOOD JUDGMENT INC. FORECASTS FROM GOOD JUDGMENT’S PROFESSIONAL SUPERFORECASTERS. DATA ACCESSED SEPT. 14, 2020. 4 Shape Your ConvictionTM Fiscal Policy Has Been Eased % Of16 % Of GDP GDP FISCAL STIMULUS SIZE AS A % OF GDP* 2008-2010 2020 12 12 8 8 4 4 RUSSIA US SPAIN CHINA ITALY GERMANY JAPAN CANADA FRANCE UK 0 NOTE:NOTE: LOAN LOAN GUARANTEES GUARANTEES AREARE EXCLUDED EXCLUDED IF THERE IF THERE IS A SPECIFIC IS A SPECIFIC AMOUNT AMOUNT IN THE NEWS. IN THE NEWS. * *SOURCE:SOURCE: VARIOUS VARIOUS NEWS NEWS AND ANDGOVERNMENTGOVERNMENT AGENCIES, AGENCIES, BROOKINGS, BROOKINGS, THE IMF, ANDTHE BCA IMF, CALCULATIONS. AND BCA CALCULATIONS. 5 Shape Your ConvictionTM Drastic Drop In Weekly Unemployment Insurance Payments Mn US$ US Bn CONTINUING UNEMPLOYMENT INSURANCE CLAIMS (ALL PROGRAMS)* (LS) WEEKLY UNEMPLOYMENT INSURANCE BENEFIT PAYMENTS** (RS) 30 30 25 25 20 20 15 15 10 10 5 5 JAN FEB MAR APR MAY JUN JUL AUG SEP 2020 * SOURCE: US DEPARMENT OF LABOR. ** SOURCE: US TREASURY; SHOWN SMOOTHED. 6 Shape Your ConvictionTM Personal Income Has Actually Accelerated This Year US US US$ US$ Tn Tn Tn Tn US +11% US REAL PERSONAL INCOME REAL PERSONAL INCOME LESS TRANSFER PAYMENTS -9% 14 14 18 18 13 13 16 16 12 12 14 -4% 14 -8% 11 11 12 12 2006 2008 2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020 NOTE: SHOWN ANNUALIZED AND IN 2012 US DOLLARS. NOTE: SHOWN ANNUALIZED AND IN 2012 US DOLLARS. SHADING DENOTES NBER-DESIGNATED RECESSIONS. SHADING DENOTES NBER-DESIGNATED RECESSIONS. 7 Shape Your ConvictionTM There Is Much Public Support For Fiscal Stimulus Question: As you may know, earlier this year Congress passed an expansion of federal unemployment compensation providing as much as $600 a week in additional relief due to the coronavirus pandemic. This expansion expired in July. Do you support or oppose continuing this expanded unemployment compensation until at least January 2021? JULY 13 JUNE 30 SUPPORT NOT SURE OPPOSE Overall 65 41% strongly support 8 27 67 24 67 26 Democrats 78 58% strongly support 7 15 81 14 82 13 Independents 63 33% strongly support 8 29 71 20 54 29 Republicans 50 24% strongly support 8 42 50 37 53 41 NATIONWIDE SURVEY OF REGISTERED VOTERS; EACH WAVE REPRESENTS APPROXIMATELY 1,000 INTERVIEWS TAKEN OVER THE PRIOR THREE-FIVE DAYS. LATEST WAVE CONDUCTED AUGUST 6-10, 2020. SOURCE: NAVIGATOR.COM. 8 Shape Your ConvictionTM Nasdaq Volatility Declined Even As Share Prices Tumbled 12250 50 % NASDAQ COMPOSITE 12000 STOCK PRICE (LS) 45 VOLATILITY INDEX (RS) 11750 40 11500 11250 35 11000 30 10750 10500 25 11 12 13 14 17 18 19 20 21 24 25 26 27 28 31 1 2 3 4 8 9 10 11 AUG 2020 SEP 9 Shape Your ConvictionTM The Pros Missed The Rally % % US AAII INVESTOR SENTIMENT* BEARISH BULLISH 50 50 40 40 30 30 20 20 % % NET: BULLS MINUS BEARS 30 30 20 20 10 10 0 0 -10 -10 -20 -20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 * SHOWN SMOOTHED EXCEPT FOR LATEST DATAPOINT. SOURCE: AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS. 10 Shape Your ConvictionTM Real Rates Have Collapsed % % US 3.0 10-YEAR TREASURY YIELD 3.0 10-YEAR TIPS BREAKEVEN INFLATION 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 .5 .5 % % 10-YEAR TIPS YIELD 1.5 1.5 1.0 1.0 .5 .5 0 0 -.5 -.5 -1.0 -1.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP 2019 2020 11 Shape Your ConvictionTM Lower Real Yields Have Lifted Equity And Gold Prices % US$/ % Oz GOLD PRICE (LS) US US 10-YEAR TIPS YIELD S&P 500 FORWARD P/E (LS) 2000 (INVERTED, RS) -.8 10-YEAR TIPS YIELD (INVERTED, RS) -.8 22 -.4 1800 0 -.4 20 1600 .4 1400 0 .8 18 1200 1.2 .4 1.6 16 1000 2.0 .8 800 14 2.4 600 2.8 1.2 2017 2018 2019 2020 2008 2010 2012 2014 2016 2018 2020 12 Shape Your ConvictionTM The Present Value Of Earnings: A Scenario Analysis 160 160 160 160 % CHANGE IN NET PRESENT CHANGE IN NET PRESENT % 24% VALUE OF EARNINGS VALUE OF EARNINGS 24% (ASSUMING NO CHANGE IN (AFTER TAKING INTO ACCOUNT 20 INTEREST RATES) CHANGE IN INTEREST RATES) 20 20% 20% 19.9% 16 16 16% 17.5% 16% 140 140 140 140 12 12 12% 12% 8 SCENARIO 2: 8 8% WORSE- 8% SCE- THAN- 4 NARIO 1: EXPECTED 4 4% LATEST EPS EPS 4% 120 120 GROWTH GROWTH 120 120 0 ESTIMATES** SCENARIO*** 0 0% 0% SCENARIO 1: SCENARIO 2: LATEST EPS WORSE- --44% -2.4% GROWTH THAN- -4-4% ESTIMATES** EXPECTED -4.7% EPS --88% GROWTH -8-8% SCENARIO*** 100 100 100 EARNINGS GROWTH SCENARIOS: 100 EARNINGS GROWTH SCENARIOS: --1212% -12-12% BASELINE: S&P 500 REAL EPS GROWTHBASELINE: ESTIMATE S&P 500 REAL FROM EPS --1616% -16-16% BEGINNINGGROWTH ESTIMATE OF YEAR* FROM BEGINNING OF YEAR* SCENARIO 1: LATEST EPS --2020% -20-20% SCENARIO 1: LATEST EPS 80 GROWTH ESTIMATES** 80 GROWTH ESTIMATES** 80 80 -24% -24% SCENARIO 1: LATEST EPS GROWTH SCENARIO 2: WORSE-THAN-EXPECTED SCENARIO 1: LATEST EPS GROWTH SCENARIO 2: WORSE-THAN-EXPECTED SCENARIO 2: WORSE-THAN- % CHANGEESTIMATES** IN PRESENTEPS GROWTH VALUE SCENARIO*** OF % CHANGEESTIMATES** IN PRESENTEPS GROWTH VALUE SCENARIO*** OF EXPECTEDSCENARIO EPS2: WORSE-THAN- GROWTH EARNINGS RELATIVE TO BASELINE EARNINGS RELATIVE TO BASELINE EXPECTED EPS GROWTH ARISING FROM A LOWER EARNINGS ARISING FROM A LOWER EARNINGS SCENARIO*** PATH AND NO CHANGE IN THE PATH AND A 94 BPS DECLINE IN THE SCENARIO*** RISK-FREE RATE RISK-FREE RATE (COMMENSURATE WITH ACTUAL DECLINE IN THE 60 60 % CHANGE IN PRESENT VALUE30-YEAR OF EARNINGS US TIPS RELATIVEYIELD SINCE TO BASELINE THE ARISING FROM A LOWER EARNINGSSTART PATH AND OF THEA 82 BPSYEAR) DECLINE IN THE 60 201920202021 202220232024202520262027202820292030 60 RISK-FREE RATE (COMMENSURATE WITH ACTUAL DECLINE IN THE 30-YEAR 201920202021 202220232024202520262027202820292030 US TIPS YIELD SINCE THE START OF THE YEAR) NOTE: BOTTOM-UP ESTIMATES FOR S&P 500 FROM REFINITIV/IBES. NOTE: BOTTOM-UP ESTIMATES FOR S&P 500 FROM REFINITIV/IBES. * EPS GROWTH ESTIMATE FROM BEGINNING OF YEAR USED FOR 2020-2022, 3% * EPS GROWTH ESTIMATE FROM BEGINNING OF YEAR USED FOR 2020-2022, 3% EPS GROWTH IN 2023-2025, 2% EPS GROWTH THEREAFTER; % CHANGE IN PRESENT VALUEEPS GROWTH OF EARNINGS IN 2023-2025, RELATIVE 2% EPS TO GROWTH BASELINE THEREAFTER; 2% RISK-FREE RATE AND 5% ERP THROUGHOUT ENTIRE PERIOD. ARISING FROM A LOWER2% EARNINGS RISK-FREE PATH RATE AND AND 5% NO ERP CHANGE THROUGHOUT IN THE ENTIRE PERIOD. ** LATEST EPS GROWTH ESTIMATES USED FOR 2020-2022; ** LATEST EPS GROWTH ESTIMATES USED FOR 2020-2022; EARNINGS ASSUMED TO RETURN TO BASELINE IN 2024.