2018 Investment and Economic Outlook

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1 2018 Investment and Economic Outlook Presented 3/19/18 Jeffrey Neer, CFA Client Portfolio Manager

2 Monetary Policy: Key Factors Inflation U.S. U.S. Labor Market 2.4% 11.0% 4.0% 2.2% 10.0% 3.5% 2.0% 1.8% 9.0% 8.0% 3.0% 1.6% 1.4% 7.0% 6.0% 5.0% 2.5% 2.0% 1.2% 4.0% 1.5% 1.0% Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan % % Core Consumer Price Index (CPI) Core Personal Consumption Expenditure (CPE) U.S. Unemployment Rate (Left Axis) Average Hourly Wage Growth, Year-Over-Year (Right Axis) 2 Source: FactSet, PNC Capital Advisors analysis

3 Financial Conditions Remain Highly Favorable Goldman Sachs U.S. Financial Conditions Index Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 3 Source: FactSet, PNC Capital Advisors analysis

4 Common Themes: Low Inflation and Improving Labor Markets Inflation Global International Labor Markets Inflation Rate Annual Percent Change (end of period consumer prices) Unemployment Rates 18% 14% 15% 12% 12% 10% 9% 6% 3% 0% E 2018E 2019E 2020E 2021E 2022E 8% 6% 4% 2% 0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 World Advanced economies Emerging market and developing economies Germany Japan Canada U.S. Euro Zone 4 Source: International Monetary Fund, FactSet, PNC Capital Advisors analysis

5 Fiscal Policy: Tax Cuts and Jobs Act U.S. Budget Deficit (Surplus) as a Percent of GDP Total Estimated Change in Tax Revenues ( ) 4.0% 2.0% 0.0% -2.0% $3 $279 Exempt Organizations Foreign Income & Pensions -4.0% -6.0% ($1,438) BILLION ($976) Individuals -8.0% -10.0% ($745) Businesses -12.0% E 2020E 2022E 2024E 2026E Actual Estimate 5 Source: Congressional Budget Office, PNC Capital Advisors analysis

6 Volatility Returning to Markets Merrill Lynch Option Volatility Estimate (MOVE) Index CBOE Volatility Index Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 6 Source: FactSet, PNC Capital Advisors analysis

7 Fixed Income: Eyes on the Fed, Inflation, and Taxes U.S. Treasury Yield Curve BofA Merrill Lynch U.S. Corporate Master Option-Adjusted Spread 3.5% % 2.5% 2.0% As of February % % % % Effective Fed Funds Rate 1 Year Bill 2 Year Note 3 Year Note 5 Year Note 10 Year Note 30 Year Bond Q4 16 Q4 17 Current 7 Source: Bloomberg, Federal Reserve Bank of St. Louis, PNC Capital Advisors analysis

8 FOMC Policy: Key Factors Core Personal Consumption Expenditure Price Index FOMC Projections for PCE Inflation 2.5% 2.5% 2.0% 2.0% 1.7% 1.9% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% % Longer-Run Mar-17 Jun-17 Sep-17 Dec-17 8 Source: Economic Projections of Federal Reserve Board Members & Presidents, FactSet, PNC Capital Advisors analysis

9 Corporate Issuance Landscape As of December 31, 2017 Net Corporate Issuance ($ in billions) $900 $800 Investment Grade High Yield $700 $600 $500 $400 $300 $200 $100 $0 -$100 -$ Source: Barclays Capital, PNC Capital Advisors analysis

10 Corporate Earnings Remain Strong % of S&P 500 Companies Reporting Positive Surprise Financial Results Fourth Quarter 2017 Sales and Earnings Results by Sector (97% of Companies Reported) 76% 71% 69% 56% 78% 63% 73% 73% 90% 80% 83% 78% 91% 83% 80% 80% 73% 67% 68% 76% 73% 45% 33% 32% CONSUMER DISCRETIONARY CONSUMER STAPLES ENERGY FINANCIALS HEALTH CARE INDUSTRIALS INFORMATION TECHNOLOGY MATERIALS REAL ESTATE TELECOMM UTILITIES S&P 500 Sales Earnings 10 Source: FactSet, PNC Capital Advisors analysis

11 Global Yield Environment Global Aggregate Yields 10-Year Government Bond Yields 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 3.5% 3.0% 2.5% 2.0% 1.5% 0.20% 1.0% 0.00% 0.5% -0.20% 0.0% -0.40% -0.5% Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Bloomberg Barclays U.S. Aggregate Yield-to-Worst (YTW) less Bloomberg Barclays Global Aggregate YTW Japan U.S. Germany 11 Source: Bloomberg, FactSet, PNC Capital Advisors analysis

12 Global Synchronized Expansion Markit World Composite Purchasing Managers Index Central Bank Assets as a % of GDP % % BOJ % 60.0% 40.0% % U.S. Fed BOE % ECB Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec Source: FactSet, PNC Capital Advisors analysis

13 Municipal Market Technical Factors: Supply Municipal Supply (Monthly) Q4 New Issue Supply Q4 Average = Q4 Average New Issue Supply $ Billions Par $ Billions Par January February March April May June July August September October November December Issuance during the fourth quarter was significantly higher year over year. Tax reform moved debt issuance into Supply for the quarter was considerably higher comparable to the historical average for the time period. Sources: PNC Capital Advisors, Investment Company Institute, Thompson Reuters 13

14 Municipal Credit Spreads A and BBB Municipal Credit Spreads Spread in Basis Points NBER: "Great Recession" Official start date - Dec Fundamental credit metrics are improving at the state and local government level. However, there will be state and local pension funding winners and losers. Widespread default and bankruptcy risk continues to be unlikely NBER: "Great Recession" Official end date - June 2009 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Mar-08 Dec-07 Sep-07 Jun-07 Mar-07 Dec-06 A GO 10 yr - AAA GO 10 yr BBB GO 10 yr - AAA GO 10 yr Headlines are likely to continue to distort perception from fundamental credit reality. 14 Source: Thomson Reuters

15 Disclosures This publication is for informational purposes only. Information contained herein is believed to be accurate, but has not been verified and cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice or a forecast or guarantee of future results. To the extent specific securities are referenced herein, they have been selected by the author on an objective basis to illustrate the views expressed in the commentary. Such references do not include all material information about such securities, including risks, and are not intended to be recommendations to take any action with respect to such securities. The securities identified do not represent all of the securities purchased, sold or recommended and it should not be assumed that any listed securities were or will prove to be profitable. Investment involves risk. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. There may be less information available on the financial condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. A portion of the income may be taxable. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. Past performance is no guarantee of future results. PNC Capital Advisors, LLC claims compliance with the Global Investment Performance Standards (GIPS ). To receive a list of composite descriptions of PNC Capital Advisors, LLC and/or a presentation that complies with the GIPS standards, please send an to Compliance at pcacompliancegroup@pnc.com. PNC Capital Advisors, LLC is an SEC-registered investment adviser, offering an array of investment strategies. Registration with the SEC does not imply any level of skill or training. PNC Capital Advisors, LLC is an indirect subsidiary of The PNC Financial Services Group, Inc. PNC Capital Advisor s strategies and the investment risks and advisory fees associated with each strategy can be found within Part 2A of the firm s Form ADV, which is available at The PNC Financial Services Group, Inc. All rights reserved. 15 INVESTMENTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

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