Global Market Snapshot

Transcription

1 December 2018 Global Market Sapshot INVESTMENT STRATEGY Key Market/Ecoomic Observatios Uited States Earigs Growth ad Iterest Rates Reach New Highs; Markets Tur Focus to Future Growth ad Federal Reserve (Fed) Rate Path Large-cap equities remaied below their 200 day movig average for the secod cosecutive moth as ivestors reacted to a cofluece of headlie risks ad lower earigs revisios for the fourth quarter. Iterest rates moved higher early i November, with the 10-year Treasury reachig its highest yield sice 2011, oly to declie early 25 basis poits over the last three weeks of the moth. While the yield curve cotiues to flatte, ucertaity over the path of moetary policy remais a poit of cotetio betwee Fed policy makers ad ivestors. Despite third-quarter earigs growth of early 26%, the highest level sice 2010, dollar stregth, risig iput costs, ad missed sales estimates from some mega cap mometum stocks overshadowed strog bottom lie results. The much-aticipated G-20 meetig took place the last weeked of November. Markets reacted favorably after it was aouced Presidet Doald Trump ad Chiese Presidet Xi Jipig made positive progress o trade egotiatios. I mid-november, the S&P 500 fell ito correctio territory (defied as beig dow 10% or more from a prior peak) for the secod time this year. Not havig experieced a correctio sice 2015, the market appears to be movig out of its multiyear volatility lull. With more tha half of the S&P 500 costituets tradig below their respective 200 day movig averages, the damage doe durig this correctio has bee far greater tha what was experieced earlier i the year. Durig the Jauary/ February correctio, approximately two thirds of the S&P 500 stocks remaied above their 200-day movig averages, givig the market far more support i its recovery. Although we do believe the market is likely to rally ito year ed, it may take some time for equity prices to retur to the record high levels see i September. Third-quarter earigs seaso is early complete. The S&P 500 saw a growth rate of early 26%. This marks the fourth cosecutive quarter of acceleratig earigs growth, ad every sector geerated positive results. Uder the ew Global Idustry Classificatio Stadard format, the Commuicatio Services sector was a sigificat cotributor to both earigs ad reveue growth; however, reveue upside surprise was amog the lowest of ay sector. Highlightig the recet challeges i iteret-based stock prices, third-quarter earigs marked the first time Alphabet Ic. (GOOG), Amazo.com, Ic. (AMZN), ad Facebook, Ic. (FB) all missed sales estimates i the same quarter sice Facebook wet public i Although we believe the curret ecoomic expasio is likely to cotiue through 2019, housig data cotiue to show sigs of sluggish growth. The Natioal Associatio of Home Builders (NAHB) Housig Market Idex, the mothly homebuilder survey, missed expectatios ad fell to its lowest level i over two years, its sharpest mothly drop sice The statemet accompayig the report from the NAHB suggested that risig mortgage rates, coupled with icreasig housig prices, have egatively affected demad this year. Give its importace to ecoomic growth, we believe ogoig challeges i the housig market are a sigificat iput i the Fed s aalysis regardig the health of the overall ecoomy ad the ability to withstad future rate hikes. Fed Chair Jerome Powell gave a speech o November 28 sayig iterest rates are just below the eutral rate level. We believe market participats iterpreted the speech to suggest the Fed may softe its moetary policy tighteig. The Dow Joes Idustrial Average rallied more tha 600 poits the day of the speech, its secod largest oe-day move of the year. The speech stads i

2 stark cotrast to remarks Chair Powell gave i early October idicatig iterest rates were still a log way from the eutral rate level. S&P 500 performace betwee both speeches saw stocks declie over 8%. As midterm electios largely played out as pollig data suggested, the focus i November has bee aticipatio of the G-20 summit i Argetia. Headig ito the meetig, it was ucertai whether Presidet Trump ad Chiese Presidet Xi could reach a deal regardig trade egotiatios. By Saturday ight of the coferece, the leaders from the two largest ecoomies had reached a positive agreemet o trade, ad markets reacted favorably. Amog the details of the summit s outcome, the U.S. will refrai from raisig tariffs from 10% to 25% o Jauary 1, Istead the U.S. will place a 90 day extesio o curret policy as the two coutries ca focus discussios o specific topics such as itellectual property, ad Chia agreed to boost its purchases of agricultural goods from the U.S. Third-quarter earigs seaso highlighted the impact of higher iput costs towards operatig margis, ad we believe the market is uderpricig the probability of ogoig positive progress toward a trade deal. Developed Iteratioal Markets Developed Iteratioal Markets Face Uptick i Volatility ad Festerig Macroecoomic Cocers alog with Moetary Policy Normalizatio Developed iteratioal equity markets cotiue to move i parallel with the recet pickup i dowside volatility across U.S. markets. A host of macroecoomic issues, such as weak third-quarter ecoomic growth, the Italia budget coflict, ad the Uited Kigdom s Brexit struggles, likely cotributed. Though volatile, the MSCI EAFE, Germa DAX, ad Japaese Nikkei 225 idexes were early uchaged across the moth ad remai at two-year lows. Moreover, global equity markets remai hypersesitive to risig bod yields. Essetially, equities ad bod yields have trapped each other. We see chages i rates as the key driver behid iteratioal equity, fixed icome, ad currecy markets. See more o stock/bod correlatios i the Strategy Views sectio o page 4. Double-digit earigs growth i developed iteratioal markets reflects improved ecoomic growth over the last three years. However, as expectatios have icreased, estimates have become more difficult to exceed. Both the Stoxx Europe 600 ad Japa s Nikkei 225 idex reported the lowest level of earigs beats sice 2016, reflectig dimiished ecoomic surprises i 2018 as global growth has become less sychroized. The extet to which both ecoomic ad earigs expectatios are adjusted will be key i determiig whether the historically wide valuatio differetial ca persist i the ear term. Europea markets reacted positively to reports that the Italia govermet may be ope to lowerig the coutry s 2019 deficit target. By more closely aligig this target with Europea Uio regulatios, the Italia govermet could remove a thor i the side of the Eurozoe, which recetly took iitial steps toward fiig Italy for ocompliace. Before the reports, the Italia 10-year yield declied sharply alogside a declie i the premium ivestors demaded to purchase Italia debt (as evideced by the tighter spread betwee the Italia ad Germa 10-year yields). Sice the, Italia assets, particularly bak stocks (which ow approximately oe-fifth of the coutry s debt) have moved meaigfully higher. We cotiue to believe the Europea Cetral Bak (ECB) is ulikely to chage its moetary policy guidace uless the iflatio trajectory alters course. I our view, it will be the markets, rather tha the ECB, that will disciplie Italy s growth outlook. Though Italy s budget coflict may be seeig sigs of relief, the ogoig Brexit dilemma is ot. The Uited Kigdom has struggled to fid cosesus i decidig betwee trade idepedece ad a path of less ecoomic disruptio. The Uited Kigdom ad the Europea Uio have agreed o a draft political declaratio, but the higher hurdle to clear will be gettig approval from the Uited Kigdom s ow govermet. Recet cabiet member resigatios ad calls for a vote of o cofidece idicate that a smooth approval process is ulikely. Furthermore, a sharp drop i the poud may sigal the markets believe the chaces of a o-deal Brexit have icreased. The ucertaity iheret i this coflict has also ecumbered 2

3 busiess ivestmet, as may firms have paused their capital expediture plas util the logerterm ladscape becomes clearer. Ecoomic growth mometum cotiues to slow i developed markets. Germa ad Japaese growth actually fell i the third quarter, but we believe these particularly weak data were primarily due to temporary factors. Germa exports, which comprise 47% of GDP, were dragged dow by a strugglig auto idustry o the implemetatio of ew emissios stadards. Furthermore, Germa Chacellor Agela Merkel, a stalwart of stability i the Europea Uio, decided to retire from politics i 2021, addig additioal political ucertaity withi the Eurozoe. I Japa, earthquakes ad a typhoo weighed o ecoomic growth. We believe fourth-quarter rebouds are likely for Germa ad Japaese GDP data ad that the ECB will keep its key policy settigs o hold. ECB Presidet Mario Draghi oted that he believes the recet weakess i ecoomic data is temporary ad that he cotiues to aticipate a ed of et asset purchases by year ed. Emergig Markets Emergig Markets (EMs) Post Positive Moth; Future Path Depedet o Dollar ad Chiese Growth Despite the volatile moth across developed markets, EM equities posted a much-eeded positive moth i November. Oe moth does ot costitute a tred, however, ad we could to see further volatility withi the asset class. Still, recet performace could sigal the early stages of shiftig ivestor setimet. Additioally, relative valuatios are begiig to look attractive for patiet, log-term ivestors. Curretly, the oe-year forward price to earigs (P/E) ratio of the MSCI EM Idex sits at 11.5 times, or 6% lower tha its 20-year average. But, over the ear term we believe the bear versus bull case for EM equities rests primarily o ivestor expectatios for Chiese ecoomic growth ad the stregth of the dollar relative to EM currecies. Curretly, Chia is i the midst of its fourth moetary easig cycle i the past 10 years to combat a slowig ecoomy ad U.S. trade tariffs. The coutry s ability to spur ecoomic growth while other major ecoomies are tighteig ad trade tariffs are moutig will be somethig we cotiue to moitor. Accordig to Corerstoe Macro research, Chia has implemeted 37 differet fiscal or moetary easig moves i just the last five moths, ragig from a weaker yua/dollar to tax cuts. Ultimately, we view these measures as, at best, offsettig the slowdow effects of U.S. trade tariffs. Ecoomically, Chia has diversified away its depedece o the Uited States, which accouts for 20% of the atio s total exports ad oly 3.6% of the coutry s GDP. I fact, the strogest growth i Chiese exports has bee drive by developig ad emergig ecoomies. Whe aggregated, the category s exports are 2.4 times larger tha those of the Uited States ad grew 19.3% year over year, accordig to secod-quarter data. This is early double the rate of U.S. exports. The growig iterdepedece betwee Chia ad other emergig ecoomies has played a large part i the uderperformace of EM equities year to date. Curretly, approximately 42% of the MSCI EM idex is made up of Greater Chia domiciled stocks, however over 56% of the reveues of the MSCI EM idex holdigs come from Greater Chia. Year to date, the MSCI Chia idex is dow 14.5%, while the MSCI Emergig Markets idex is dow 11.9%. Most ivestors typically view EM equities as a sigle asset class. However, ot all EM coutry ecoomies or stock markets are created equal. Oe way to view this basket of stocks is through each ecoomy s relatioship to commodities. Specifically, it should be oted which are commodity et importers ad which are et exporters. Performace over the moth illustrates this distictio as traditioal commodity importers, such as Chia ad Idia, have posted some of the best performace (up 6.3% ad 9.7%, respectively) as commodity prices declied. Coversely, two ecoomies highly depedet o commodity prices have suffered. Brazil is dow 1.0% while Russia is up oly 0.4% this moth. 3

4 Meawhile EM currecies look to have stabilized recetly. While the Chiese yua remais ear five-year lows due to ogoig trade tesios, other currecies are begiig to regai groud agaist the dollar. The improvemet idicates that expectatios are relatively stable after a series of weak ecoomic surprises. Give the egative correlatio betwee the dollar ad EM currecies ad equities, ay further stabilizatio would likely bode well for the asset class. Commodities Commodities ear Correctio after Crude Crash, Natural Gas Surge The broader commodities complex, as measured by the Bloomberg Commodity Idex (BCOM), declied 1.1% this moth, brigig six-moth returs to -8.5%. The idex remais above the threshold typically used to measure correctios of 10%. However 14 of the 18 commodities icluded i the idex have falle beyod the threshold, suggestig that recet weakess has bee broad-based. Year-to-date dollar stregth has likely played a cotributig role i the breadth of weakess over the past six moths, with the currecy up early 5.2% o a trade-weighted basis over the same timeframe. Typically, commodities are priced i dollars, meaig dollar stregth makes it icremetally more expesive for buyers usig foreig currecy. I quatifyig this effect, the Chart 1 Correlatio betwee Stocks ad Iterest Rates As of 11/29/2018 Correlatio Week Correlatio Source: Bloomberg L.P., PNC correlatio betwee the Broad Trade Weighted Dollar Idex ad the BCOM idex has bee over the past 20 years, solidifyig our view that dollar weakess will be key for commodities to reassert stregth o a sustaied basis. I eergy commodities, crude oil ad atural gas represeted opposig extremes i November. Crude oil etered a bear market, fallig over 20% i oe moth aloe as the supply outlook improved amid margially dimiished demad expectatios ad ample ivetories. Comparatively, atural gas futures rose over 30% as tight ivetories were met with seasoally high demad due to colder-tha-expected weather across much of the Uited States. The et effect was a 4.4% declie i the eergy subcompoet of the BCOM idex. I respose to the recet weakess i crude oil, iflatio expectatios have moderated below 1.98% from 2.17% i mid-october. Lower iflatio should serve as a boo to real wage growth ad savigs as a percet of disposable icome, which remais healthy ad i lie with the historical average of 6.2%. However, the dowtur i crude is likely to have a egative impact o busiess ivestmet as drillers adjust to a moderated price eviromet. Strategy Views Are Iterest Rates Too High? Lookig at the Correlatio betwee Stocks ad Iterest Rates Most ofte, stocks ad bods are discussed withi the cotext of portfolio diversificatio, as exposure to both asset classes is used to balace risk ad retur over time. Diversificatio ad ucorrelated retur streams are key compoets i buildig a strategic, durable portfolio. However, there are other, ofte overlooked aspects of how the asset classes iteract over the course of a ecoomic cycle ad what those dyamics ca mea for your portfolio. The correlatio betwee stocks ad iterest rates (10-year Treasury yield) has typically bee positive over the past two decades (Chart 1). As iterest rates rise, equity markets ormally respod positively, with yields icreasig i reactio to improvig domestic growth (positive correlatio betwee stocks ad iterest rates). However, at some poit iterest rates 4

5 Table 1 Negative Correlatio betwee Stocks ad Iterest Rates as a Idicator As of 11/29/ Average 10-Year Treasury Yields -0.9% -0.5% 0.9% -0.2% 12-Moth Chage Ivestmet Grade Spread 0.2% 0.1% 0.6% 0.3% High Yield Spread 1.1% -0.2% 1.5% 0.8% S&P 500 Idex (% Chage) 12.4% 16.7% 12.6% 13.9% 10-Year Treasury Yields -0.7% -1.4% -0.7% -0.9% 24-Moth Chage Ivestmet Grade Spread 0.5% 1.6% 0.5% 0.8% High Yield Spread 2.8% 3.8% 1.9% 2.8% S&P 500 Idex (% Chage) 11.6% 7.5% -2.2% 5.6% Source: Bloomberg L.P., PNC reach a level that costrais busiess activity ad forward expectatios for growth. Equity markets the struggle i reactio to restrictively higher iterest rates (correlatio betwee stocks ad iterest rates turs egative). As this correlatio curretly approaches egative territory, it suggests to us that iterest rates may have reached a level high eough to weigh o future ecoomic activity. This 52-week correlatio has tured egative oly three times over the past two decades: 1999, 2006, ad Each of these periods preceded a declie i growth prospects, to varyig degrees, as iterest rates treded lower ad corporate bod spreads wideed durig the followig moths (Table 1). The outcomes for equities were more mixed, with a wide degree of variability ad directio. Though we ackowledge recessios followed two of the previous three egative correlatio readigs, our opiio is that expectig a ecoomic slowdow of similar magitude may be overly pessimistic. We expect the domestic ecoomic expasio to cotiue, ad poit to the iterest rate hikig cycle as a example that ot all moetary tighteig cycles must ed i a ecoomic recessio (Chart 2). Although imperfect, history ofte provides ivestors with a reasoable roadmap whe tryig to avigate the markets. What traspired followig the mid-1990s moetary tighteig cycle may provide a reasoable expectatio for what could occur followig the curret iterest rate hikig cycle. Startig i 1994, the Federal Ope Market Committee raised the bechmark rate from 3.0% Chart Iterest Rate Hikig Cycle Percet Iterest Rate Hikig Cycle Federal Fuds Rate (L) 10-year Treasury Yield (L) US ISM Maufacturig Idex (R) Source: Bloomberg L.P., PNC to 6.0% over a 14-moth period, which tighteed fiacial coditios ad resulted i a moderatio i domestic growth rather tha a recessio. After iitially moderatig, the Istitute for Supply Maagemet (ISM) Maufacturig Idex, which serves as a barometer of ecoomic growth, stabilized for approximately seve years before the ecoomy cotracted. Cocurretly, log-term iterest rates iitially declied, the were relatively steady for the remaider of that busiess cycle. Bottom lie, a orecessioary moderatio i domestic growth appears icreasigly likely i 2019, which may also limit the ability of log-term iterest rates to rise further. Should the trajectory of iterest rate hikes moderate, looser fiacial coditios may result i a extesio of what has already bee the

6 secod logest ecoomic expasio i U.S. history. We agree with Fed Chair Powell whe he likeed hikig rates to walkig aroud i a dark room you move slowly to avoid stubbig your toe. Give the cotrolled ature of the rise i iflatio, we see o reaso for the Fed to purposefully decelerate the ecoomy. Our opiio is that the Fed will be extremely cautious i attemptig ot to overly tighte policy, leadig to a pause i rate hikes at some poit durig This would be a importat developmet, i our opiio, allowig the market to advace i the comig quarters. Jeffrey D. Mills Hawthor Chief Ivestmet Strategist Daiel J. Brady Equity Strategist Erik Casaliuovo, CFA Seior Ivestmet Strategist Matthew D. Feda Seior Ivestmet Strategist Joh W. Moore Ivestmet Strategy Aalyst 6

7 Hawthor Asset Allocatio Playbook As of 11/30/2018 Asset Class Sub Asset Class Equities Large Cap U.S. No-U.S. Mid Cap Fixed Icome U.S. Small Cap Itl. Large/Mid Cap Itl. Small Cap Emergig Markets (EMs) Short Mui Fixed Icome Core Mui Fixed Icome U.S. High Yield U.S. Leveraged Loas U.S. TIPS Global Bod No-U.S. Ucostraied Bod Emergig Market Bod Alteratives Private Real Estate Private Hedge Fuds Private Debt Private Equity Equity Log/Short Evet Drive Relative Value Directioal Favorability - Neutral + Poits of View We cotiue to favor large over small. Small caps have uderperformed year to date, as tailwids from tax-cuts ad shelter from global growth ad trade cocers have bee outweighed by less attractive fudametals. Large caps also ted to outperform small cap i this phase of the busiess cycle. We believe the ecoomy will cotiue to grow but at a potetially slowig pace as we move ito Valuatios appear relatively more attractive versus domestic equities, potetially creatig attractive log-term opportuities i may iteratioal markets. Global cetral bak moetary policy remais accommodative; however, sigs of slowig earigs growth could derail ay ear-term recovery. Political risk is agai elevated ad ecoomic mometum has weakeed versus what we are seeig i the Uited States. Our relative preferece for these markets would be greater if it were ot for some of the persistet fudametal divergeces we cotiue to observe relative to the Uited States. Although we believe recet weakess could persist, the recet selloff does create opportuity for patiet ivestors. The shorterterm bear case for EM equities rests maily o tighteig liquidity i Chia ad stregth i the dollar. Year to date, EMs have sigificatly uderperformed both developed iteratioal ad U.S. markets. Although iterest rates may drift higher give solid ecoomic mometum, we believe we may have already see the bulk of the move higher i rates for this busiess cycle give the fact that the projected peak federal fuds rate of 3.4% will serve as a weight to loger rates. Therefore, we favor positioig fixed icome portfolios i the itermediate part of the curve. The credit cycle is agig, ad valuatios should become a icreasig headwid for below-ivestmet-grade bods. Leveraged loas, although more seior i the capital structure, have see issuace balloo i recet years while coveats have weakeed. Give our view o iterest rates, credit risk may be startig to outweigh the protectio from higher rates. There is less value i Treasury Iflatio-Protected Securities (TIPS), with breakeve iflatio rates ow aroud 2.05%. We prefer to hedge iflatio over the log term via our equity exposure. Although we are ot overly egative o credit give the stregth of the ecoomy, we do believe slowly shiftig to higher-quality areas of fixed icome is sesible give the level of spreads. Ucostraied fuds have reached for yield i lower-rated credits. Key drivers iclude a still relatively costraied supply backdrop, modest leverage levels, ad the fact that capital flows ito the asset class are becomig icreasigly global (that is, ivestor demad is quite robust). Middle-market ledig i the corporate sector is still quite costraied, cotiuig to create opportuities for private debt ivestors. Some bakig deregulatio may ope this space up to more traditioal bak ledig, however. There may be opportuity i ew/less efficiet markets, ad a more diverse ivestable opportuity set, for example, via secodaries ad co-ivestmet optios. That said, as with public markets, valuatios are exteded. A trasitio from a primarily macro-drive market eviromet to a more fudametally drive oe will be positive for these alphageeratig strategies. Cetral baks ow appear more committed to a steady ormalizatio of iterest rates tha they have bee i the past. We believe differetiated retur streams ca add value i today s market versus a traditioal equity/bod portfolio. 7

8 Cash Tactical Allocatios Tactical Master Limited Parterships Ifrastructure Currecy Hedged Japa Eergy U.S. Baks Structured Note (Drawdow) Performace has rebouded after a choppy start to the year. Markets pealized the sector after a potetially ufavorable tax rulig; however, the ultimate outcome was far less severe tha may ivestors feared. Stroger fudametals ad risig eergy prices could spur ivestor iterest give curretly depressed valuatios ad uderweight eergy positioig amog equity portfolio maagers. Defesive qualities ad icome potetial that we like i the potetially more volatile later stages of the busiess cycle. Valuatios remai attractive ad cosumer cofidece is high, however recet earigs results have bee soft which we cotiue to moitor. We still like the currecy hedge sice the Bak of Japa remais easy relative to the Fed; however ye positioig has flipped to et short, thus o loger a headwid for the currecy. With higher ad more stable oil prices, better capital disciplie, ad attractive relative valuatios, we believe Eergy sector equities ca outperform the broad market o a tactical basis despite recet weakess. We thik valuatios, the regulatory backdrop, ad the cotiuatio of this busiess cycle are compellig reasos to tilt toward U.S. baks withi value allocatios. Baks are historically correlated with icreases i capital expeditures; however, compaies have bee more likely to fud ivestmets with cash give lower tax rates ad overseas repatriatios. The ability to ear a coupo while waitig for a better etry poit ito equities ca be a attractive strategy. However, cash has become more palatable give the rise i short-term iterest rates. For defiitios of idexes used i this publicatio, please refer to pc.com/idexdefiitios. The PNC Fiacial Services Group, Ic. ( PNC ) uses the marketig ame Hawthor, PNC Family Wealth to provide ivestmet, wealth maagemet, ad fiduciary services through its subsidiary, PNC Bak, Natioal Associatio ( PNC Bak ), which is a Member FDIC, ad to provide specific fiduciary ad agecy services through its subsidiary, PNC Delaware Trust Compay or PNC Ohio Trust Compay. Stadaloe custody, escrow, ad directed trustee services; FDIC-isured bakig products ad services; ad ledig of fuds are also provided through PNC Bak. This report is furished for the use of PNC ad its cliets ad does ot costitute the provisio of ivestmet advice to ay perso. It is ot prepared with respect to the specific ivestmet objectives, fiacial situatio, or particular eeds of ay specific perso. Use of this report is depedet upo the judgmet ad aalysis applied by duly authorized ivestmet persoel who cosider a cliet s idividual accout circumstaces. Persos readig this report should cosult with their PNC accout represetative regardig the appropriateess of ivestig i ay securities or adoptig ay ivestmet strategies discussed or recommeded i this report ad should uderstad that statemets regardig future prospects may ot be realized. The iformatio cotaied i this report was obtaied from sources deemed reliable. Such iformatio is ot guarateed as to its accuracy, timeliess, or completeess by PNC. The iformatio cotaied i this report ad the opiios expressed herei are subject to chage without otice. Past performace is o guaratee of future results. Neither the iformatio i this report or ay opiio expressed herei costitutes a offer to buy or sell, or a recommedatio to buy or sell, ay security or fiacial istrumet. Accouts maaged by PNC ad its affiliates may take positios from time to time i securities recommeded ad followed by PNC affiliates. PNC does ot provide legal, tax, or accoutig advice uless, with respect to tax advice, PNC Bak has etered ito a writte tax services agreemet. PNC does ot provide services i ay jurisdictio i which it is ot authorized to coduct busiess. PNC Bak is ot registered as a muicipal advisor uder the Dodd- Frak Wall Street Reform ad Cosumer Protectio Act ( Act ). Ivestmet maagemet ad related products ad services provided to a muicipal etity or obligated perso regardig proceeds of muicipal securities (as such terms are defied i the Act) will be provided by PNC Capital Advisors. Securities are ot bak deposits, or are they backed or guarateed by PNC or ay of its affiliates, ad are ot issued by, isured by, guarateed by, or obligatios of the FDIC, the Federal Reserve Board, or ay govermet agecy. Securities ivolve ivestmet risks, icludig possible loss of pricipal. Hawthor, PNC Family Wealth is a registered service mark of The PNC Fiacial Services Group, Ic The PNC Fiacial Services Group, Ic. All rights reserved. 8