WST Economic and Market Overview: Global Growth and Inflation Trends, Lecture notes of Economic Analysis

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Economic and Market Overview

December 2021

Executive Overview Some of the information enclosed may represent opinions of WST which are subject to change from time to time and which do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment strategy. There are no guarantees investment objectives will be met. Worries Mount As Year End Approaches

• Global growth stalls as COVID surges, supply chains snarl, and labor takes a day off
• Inflation remains the key variable – Fed Chair Powell retires the word “transitory”
• Threat of stagflation, not seen since the 70’s, raises concerns Washington Takes The Spotlight
• With Powell’s reappointment Fed policy path in light of higher inflation is central question
• Fiscal policy outlook in turmoil as Congress debates huge tax and spending increases
• Confidence is key to market stability! Equities: Market Stalls In 4Q With Economically Sensitive Sectors Declining
• Market rotates back to U.S. large cap growth; value, small-cap and non-U.S. sink
• Valuations suggest lower returns ahead
• Looking for leadership shift to international, value and small stocks Bonds: Yield Curve Flattens As Fed Sounds More Hawkish and Growth Slows
• Inflation maybe not so transitory
• No compensation for additional duration risk
• Continue to overweight credit exposure

Supply Chain Disruptions and Labor Shortages Continue To Distort Data Source: Glenmeade.

5 Inflation Spikes To Highest Level Since The 1970’s Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. Guide to the Markets – U.S. Data are as of September 30, 2021.

7 S&P 500 – Rally Stalls In September Source: Compustat, FactSet, Federal Reserve, Standard & Poor’s, J.P. Morgan Asset Management. Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by Compustat. Forward price-to-earnings ratio is a bottom-up calculation based on J.P. Morgan Asset Management estimates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of September 30, 2021.

U.S. Equity Valuations and Subsequent Returns Source: Robert Shiller, Bloomberg and Goldman Sachs Asset Management.

10 Size: Disparity Between Mega-Cap and All Others Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each month. The weight of each of these companies is revised monthly. As of 9/30/21, the top 10 companies in the index were AAPL (6.1%), MSFT (5.8%), AMZN (3.9%), FB (2.2%), GOOGL (2.2%), GOOG (2.1%), TSLA (1.7%), BRK.B (1.4%), NVDA (1.4%), JPM (1.3%), and JNJ (1.2%). The remaining stocks represent the rest of the 494 companies in the S&P 500. Guide to the Markets – U.S. Data are as of September 30, 2021.

U.S. Stocks Have Enjoyed Long Run Of Leadership Source:. Goldman Sachs, Factset.

Performance Cycles by Geography Source: FactSet, MSCI, J.P. Morgan Asset Management. *Cycles of outperformance include a qualitative component to determine turning points in leadership. Guide to the Markets – U.S. Data are as of September 30, 2021.

The Case For International Stocks - Valuation Source: FactSet, MSCI, Standard & Poor's, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of September 30, 2021.

10 - Year Asset Class Return Outlook Source: Vanguard Investment Strategy Group.

Summary and Game Plan Some of the information enclosed may represent opinions of WST which are subject to change from time to time and which do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment strategy. There are no guarantees investment objectives will be met. Cautious On Short-Term Outlook

• Slowing growth
• Higher Inflation
• Opaque data
• Fed policy risk
• Fiscal policy risk Equities Remain Asset Of Choice For Long-Term Growth
• Low yields = TINA
• Valuations point to lower returns for U.S. large caps
• International stocks are relatively attractive Bonds Still Play A Role In Portfolios, But Structure Matters
• Keeping maturities short - no compensation for additional duration risk
• Continue to overweight credit exposure if economy is healthy