By: Matt Sapir Ristuccia Chief Investment Officer

1. Market View By: Matt Sapir Ristuccia Chief Investment Officer September 2019

2. Overview • The market is trying to price the future outcome of two competing forces. • Force 1: Negative trends in economic data globally. • Force 2: Accommodative central banks that keep interest rates low, support the economy, and keep relative equity valuations attractive. • High geopolitical uncertainty means negative economic trends are likely to continue. • Conclusion: Near-term remain cautious. Use volatility to your advantage. • Before adding risk, look for more pessimistic sentiment (fear), stabilization and steepening of the yield curve, more signs economic data is stabilizing, and positive technical/trend signals from a higher percentage of stocks in the market.

3. Economic Trends: LEI • LEIs (Leading Economic Indicators) trends remain negative. Source: FactSet

4. Economic Trends: Global PMIs • PMI trends remain negative but are showing some signs of bottoming. PMI below 50 indicates economic contraction. The PMI, or purchasing managers index, is a leading indicator based on a survey of managers in various industries about their purchase plans. This is a highly respected economic indicator due to its historical accuracy in predicting the direction of the economy.

5. Economic Trends: Payrolls Payrolls report is more of a lagging than leading indicator. Trends generally remain strong, but there are clear signs of a late cycle job market forming. • Trends remain strong, but how much better can it get?

6. Policy Uncertainty: Remains High • CEOs hold back Capex when high. Consumers become more cautious when high. Therefore, it is hard to see a quick change in negatively trending economic data when this is high.

7. Inflation • Inflation remains low despite low unemployment. Source: FactSet

8. Global Central Banks • Low inflation and negative economic trends has increased the propensity for central banks around the world to be accommodative to increase inflation (prevent deflation) and reverse negative economic trends. This has historically been a positive for the market.

9. U.S. Federal Reserve • Equities tend to do well after “The Fed” starts cutting rates.

10. Yield Curve • A global composite of government yield curves shows it is inverted. This signals that the bond market is expecting a continuation of negative economic data, and a continuation of accommodative central banks. Source: FactSet

11. Global Slowdown Already • Globally we have been in a slowdown since January 2018, and the market has reacted accordingly (see next slide). • Shaded areas represent OECD-Defined Global slowdown periods. Y axis is percentage chance world is in slowdown according to Ned Davis Research’s model.

12. Global Stock Market • The All Cap World Market Index (ACWI) peaked in January of 2018. The negative trend since then reflects the economic slowdown we have been in. I would expect this to continue with more volatility before the next sustainable market advance. Use that volatility to reposition your portfolio smartly. Source: Yahoo Finance

13. U.S. Stock Market • The U.S. Total Stock Market (ITOT/Blue) is slightly positive since January 2018 (last peak). This has mostly been driven by a small group of large technology stocks (FTEC, Green). Most U.S. stocks are negative, as can be seen in the returns of the S&P 600 Small Cap Index (IJR, Orange). Source: Yahoo Finance

14. Relative Valuations • Low interest rates keeping relative valuations attractive.

15. Stock Market Sentiment • Sentiment remains neutral despite recent volatility, indicating we may need more fear to get a true buying opportunity (“buy when others are fearful, sell when others are greedy”).

16. Fixed Income • Short-term investment grade corporate bonds remain attractive. Investors can buy these with a higher yield than 10-year Treasury bonds. Sources: As of 9/12/2019. Approximate yield for investment grade corporate bonds is the current yield of Blackrock’s iShares ETFs with corresponding maturities. Other sources used are FactSet and Morningstar.

17. Long-Term Bull: 1 • Despite near-term risks, we remain in a long-term bull market. They tend to last 20 years.

18. Long-Term Bull: 2 • Historically, we don’t see corrections over 20% without some combination of an aggressive Fed, Excess Valuations/Financial Bubbles, or a Commodity/supply side cost shock. All are unlikely at this time. Source: JP Morgan

19. Long-Term Bull: 3 • Close to longest, but slowest, expansion in history. The long and slow expansion helps explain why after 10 years we are NOT seeing excess valuations/bubbles, or an aggressive Fed. The fear of 2008 remains a “wall of worry” for many investors, supporting the secular bull market. Healthy fear keeps bubbles from forming.

20. Long-Term Bull: 4 • Demographic trends support the long-term bull market thesis. Demographic trends are only starting to turn bullish for the economy. • Notice favorable and unfavorable demographics was coincident with last long-term bull (1980-2000) and bear (2000-2009). • See blog on these trends. www.argentwm.com/blog-2 • Bull Markets = Bear Markets = Source: Ned Davis Research, FactSet

21. Long-Term Bull 5: U.S. Consumer Consumption is about 70% of U.S. GDP. Consumer strength limits the potential downside of GDP in the U.S. and aligns with data showing market corrections tend to be limited in long-term bull markets.

22. Appendix • GDP • Trade War • Valuations • Debt Update

23. U.S. GDP • Real GDP (Nominal GDP minus Inflation) remains positive and on long-term trend, but has come down recently.

24. Trade Disputes • Read Blog for long-term assessment. • Bottom line: Risks and uncertainty likely to linger into 2020. • An uncontrolled trade war remains unlikely. • Near-term assessment of trade dispute: • Trump wants to balance a message that plays to his base supporters while maintaining a strong economy and market. That balance is difficult to achieve, especially if he wants to deal with the complex issue of intellectual property transfers. • Both leaders want to remain strong and authoritative, so giving into threats is difficult. • China knows Trump is up for re-election. They could hurt his chance of getting re-elected by escalating the trade war. The problem is this would hurt their own economy, so this is unlikely.

25. Global Valuations Source: JP Morgan

26. S&P 500 Valuation Source: JP Morgan

27. Debt Update 1 Despite high debt/GDP in the U.S., debt service remains below average due to low interest rates. If interest rates rise it is likely due to a strong economy, which increases tax receipts and inflation; this helps offset the debt burden just as low interest rates are helping with debt service costs.

28. Debt Update 2 Many have raised anecdotal concerns about corporate leverage. However, corporate leverage remains quite reasonable.

29. BIOGRAPHY Matt Sapir Ristuccia, MBA, CFAChief Investment Officer Matt is Argent’s Chief Investment Officer (CIO).  Matt joined Argent in 2011 as an Analyst.  In 2013 Matt was named Director of Investment Research, and in 2017 Matt was named Co-CIO before being named CIO in 2019. As the CIO, Matt leads all aspects of Argent’s investment programs and processes.  This includes setting the direction and oversight of internal and external asset allocation strategies, equity strategies, fixed income strategies, and private equity and private real estate investments.  Matt is also the Portfolio Manager of Argent’s Global Value Stock Strategy and Hedge Fund Strategy. Matt joined Argent in 2011 after graduating summa cum laude (top 5% of class) from Olin Graduate School of Business at Babson College where he also received The Student Leadership Award.  Matt completed all three levels of the CFA program in 2011 as well.  The CFA Designation is globally recognized as the highest set of credentials in the investment management industry.  In 2017 Matt completed the Investment Management Workshop at Harvard Business School (HBS).  Started in 1968, this selective executive education program brings together leading HBS faculty with leading investment executives from around the world and focuses on investment and business strategy.  At Babson Matt was selected to help manage Babson’s Endowment specializing in healthcare stocks.  During this time Matt worked closely with the head of this program who was the former Head of U.S. Equity Research at Fidelity.  Matt received his B.A. from Wheaton College where he was a First Team All-New England soccer player and helped lead the team to a final four appearance in 2003.  Before attending Olin and after graduating in 2005, Matt worked with his Grandfather, Louis Sapir, an esteemed discipline of Benjamin Graham, “the father of value investing.” Email: mristuccia@argentwm.com

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