Gleanings Published by Raymond James & Associates

Transcription

1 Published by Raymond James & Associates Jeffrey D. Saut, Chief Investment Strategist, (727) , Scott J. Brown, Ph.D., (727) , Andrew Adams, CFA, CMT, (727) , August 30, 2018 A Monthly Chart Presentation and Discussion Pulling Together the Disciplines of Economics, Fundamentals, Technical Analysis, and Quantitative Analysis Toto, I ve a Feeling We re Not in Kansas Anymore L. Frank Baum s book was penned in 1900 following unrest in the agriculture arena (read: farmers) due to the debate over gold, silver, and the dollar standard. The book, therefore, is supposedly an allegory of these historical events making the information easier to understand. In said book, Dorothy represents traditional American values. The Scarecrow portrays the American farmer, while the Tin Man represents the workers and the Cowardly Lion depicts William Jennings Bryan. Recall that at the time, Mr. Bryan was the official standard bearer for the silver movement, as well as the unsuccessful Democratic presidential candidate of Interestingly, in the original story, Dorothy s slippers were made of silver, not ruby, implying that silver was the populists solution to the nation s economic woes. Meanwhile, the Yellow Brick Road was the gold standard and Toto (Dorothy s faithful dog) represented the prohibitionists, who were an important part of the silverite coalition. The Wicked Witch of the West symbolizes President William McKinley and the Wizard is Mark Hanna, who was the chairman of the Republican Party and made promises that he could not keep. Obviously Oz is an abbreviation for ounce. It should be noted that before 1873, the U.S. dollar was defined as consisting of either 22.5 grains of gold or 371 grains of silver. This set the legal price of silver in terms of gold at roughly 16:1 and put the country on a gold/silver bimetallic standard. Since both metals had other uses than just coinage, whenever the ratio got out of whack, rational people would buy the cheaper metal and take it to the mint to coin. That provided a natural stabilizing arbitrage. With the 1873 Coinage Act, however, the silver dollar was omitted, effectively shifting the country from a bimetallic to a gold standard. Other countries soon followed this shift and as tons of silver were unloaded, the market price of silver, in terms of gold, rose from 16:1 to 40:1. The result was that the dollar was now linked to a metal that was getting scarcer and scarcer. Particularly hurt by these events were the net debtors, among them the farmers, because they had to face a rising real value of their debts combined with declining agricultural prices (in dollar terms). Now, while there was a bunch of noise in between (the Sherman Silver Purchase Act of 1890, the panic and depression of 1893, etc.), the situation hit its zenith in 1896 culminating with William Jennings Bryan s Cross of Gold speech at the Democratic National Convention. Text continues on page 3 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 Contents Market Review with Jeffrey Saut... 3 Economic & Market Update... 7 Stock Trends/Quantitative Analysis with Andrew Adams... 8 Economic Review with Scott Brown Important Disclosures International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 Jeffrey Saut Toto, I ve a Feeling We re Not in Kansas Anymore Continued from page 1 We revisit The Wizard of Oz story because of the great debate centered on the U.S. dollar. The question that typically arises is, Jeff, how can the dollar go down in a rising interest rate environment? Our response has been, Well, we have been bullish on the dollar since the 1Q18. In that timeframe, the Dollar Index (DXY/94.60) has rallied from ~88.5 to an intraday high of ~97.7 for a 9.6% gain and interest rates have risen. More recently, the DXY has pulled back to the ~95 level, which clearly is not much of a pullback. We remain bullish on the buck and think that has implications as to how to position portfolios. First, it is a huge headwind for emerging markets (EM) since they tend to borrow money in U.S. dollars and as the dollar rises it takes more local currency to pay back the loans. In fact, some of the EM portfolio managers we talk to think there are at least 13 countries that are currently unable to pay back their loans. A stronger dollar also has implications as to whether you tilt portfolios toward U.S. companies that have large sales from outside the country, or domestic companies that have little international revenues. For example, according to S&P, approximately 44% of the S&P 500 companies have revenues from outside the country. Further, a strong dollar tends to keep inflation in check, which should put more money into the hands of the consumer (favorable for the Consumer Discretionary sector). We will say that a stronger dollar does give foreign investors the notion to buy U.S. stocks because they not only have the tailwinds of a secular bull market, but they also get the benefit of the stronger dollar vis-a-vis their local currency. Speaking to the secular bull market, our pal, Leon Tuey, writes: Investors have to be impressed by the market's ability to ignore "bad news." But, then again, the market always climbs a wall of worry. From late 2008 to date, investors have been bombarded with black headlines - "Global Depression," "China, China, China," "European Debt Crisis," "Arab Spring," "Japanese Tsunami," "Gridlock," "Overvaluation," "Fed Tightening," "Russian Collusion," "Inflation," "Inverted Yield Curve," "Trade War," "Turkey," "Contagion," ad nauseum. As the market climbs, the doomsayers become more numerous and more vociferous, but all fall on deaf ears as the market kept heading in a northeasterly direction. Why? Because earnings continued to improve and, thanks to the Fed, earnings will continue to improve in the months and years ahead. That is what drives stock prices, earnings momentum, not headlines or P/E. Amen to our friend Leon and we will add, Never underestimate the power of a secular bull market! International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Jeffrey Saut The U.S. Dollar Index Has Been Strong Since 1Q18 and We Have Been Bullish Recently, There Has Been a Small Pullback, Yet We Remain Bullish on the Dollar Source: FactSet. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 Jeffrey Saut U.S. Dollar in Portfolio Construction Should investors reduce exposure to companies with large foreign sale and favor domestic companies with little foreign sales? We tend to favor the latter strategy. One thing is for sure, a stronger dollar tends to keep inflation in check, which puts more money in the hands of consumers. Accordingly, we favor the Consumer Discretionary sector. Source: StockCharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Jeffrey Saut Secular Bull Markets Typically Last 14+ Years and Compound at About 15% per Year ( or ). Never Underestimate the Power of a Secular Bull Market. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Economic & Market Update Equity Markets/Technical Analysis Monetary Policy, Inflation, FX U.S. Economy Global Economy Market Outlook Earnings continue to drive the market, however, there is widespread underinvestment, signaling room to move to the upside. While the move is not likely to be straight up, we still believe in our S&P 500 target above 3000 by year-end S&P 500 Earnings With 91% of S&P 500 companies reporting, 79% have reported positive EPS surprises while 72% have reported positive sales surprises. At the sector level, Telecom, Healthcare, and IT all had >90% of companies report earnings beats; Energy was the laggard at 45%. With only about 15% of S&P 500 companies issuing 3Q18 guidance, 74% (55) have issued negative guidance above the 5-year average of 72%. S&P 500 Earnings estimates* $157.81, $ Current P/E: x, x Continue to see multiple expansion in both 2018 and 2019 S&P 500 Key support: 2872, 2850, 2815, 2800 Key resistance: 2900 Sectors The recent S&P 500 breakout to new all-time highs has been confirmed by several of the cyclical and growth-oriented sectors. Technology, Health Care, Financials and Consumer Discretionary all are seeing highest levels in several months. Interest-sensitives (Utilities, Staples, Telecom) lagging. Source: FactSet, Bloomberg, Raymond James Research. Fed Chair Powell at Jackson Hole (August 24) Powell downplayed notion of natural rate of unemployment and threat of higher inflation. The future pace of action will depend on whether the strength in the economy and the job market continues. FOMC Minutes (August 22) - Minutes confirm view that a September 26 hike is a near certainty and the FOMC is likely to jettison the language indicating that monetary policy remains accommodative. There is uncertainty regarding the neutral federal funds rate and the impact of trade disputes - prospects for a mid-december move remain unclear. Personal Income and Spending (Bureau Economic Analysis) - Headline personal income and spending figures matched expectations (+0.3%). Core PCE Price Index has reached Fed s 2% goal, but Fed has signaled a tolerance for inflation moving above that bogey for some time. Consumer Price Index/Producer Price Index: CPI (August 10) The CPI (July) was up 2.9% from a year ago (vs. +2.9% y/y in June). Core inflation (ex. food & energy) grew 2.4% y/y (highest y/y gain since September 2008). PPI (August 9) The PPI was unchanged y/y (+0.3% in June, +0.5% in May). Pickups were seen in hotel rooms, apparel retailing, inpatient care, and trucking freight. Exchange rates (August 29) EUR/USD $ GBP/USD $ USD/JPY USD/CAD $ Real GDP 2nd Estimate 2Q18 (Bureau of Economic Analysis) The headline figure was a bit better than expected (4.2% vs. 4.0% median forecast) and up 10 bp vs. the advance estimate. Consumer spending (reminder: 68% of GDP) was revised lower (3.8% vs. 4.0% in advance estimate) and now stands at 2.1% for the 1H18. Industrial Production (Federal Reserve) The headline figure (+0.1%) rose less than expected in July (median forecast: +0.3%), while revisions were mixed (May lower, June higher). Details remain consistent with a moderate trend not especially strong, but not weak either. Retail Sales (Census Bureau) - Retail sales rose more than expected in the initial estimate for July (median forecast: +0.1%), but with a downward revision to June. Core retail sales (which exclude autos, building materials, and gasoline) rose 0.6% (median forecast: +0.4%), with little revision to May and June. July Employment Report (Bureau of Labor Statistics) Nonfarm Payrolls rose by 157,000 in the initial estimate for July (median forecast: +190,000). The three-month average gain for private-sector payrolls was 221,000 (a 215,000 average monthly gain in 2018, vs. +180,000 in 2017, +178,000 in 2016). The Unemployment Rate fell to 3.9% (median forecast: 3.9%) vs. 4.0% in June. Brexit: Deal or No Deal? PM May s draft of a Brexit deal with the EU losing support from both Brexiters and Remainers. Initial Treasury report forecasts growth would slow and borrowing would grow significantly over 15 years. However, May points to much brighter WTO forecasts. Either way, insists a no-deal wouldn t be the end of the world but Brussels likely to blame if nothing done by October. Reminder: negotiating phase ends March 29, Central Bank Balance Sheets Finally Shrinking Assets on leading central banks balance sheets now equate to 31% of their governments debt, down slightly from 32% last year. While U.S. Fed s holdings of Treasuries shrunk by $150B y/y, both the ECB and BoJ s balance sheets increased by $900B and $276B, respectively over same period. Germany May Assist Turkey - Considering providing emergency financial assistance to Turkey as concerns grow that a full-blown economic crisis could destabilize the region. Berlin s concern is crisis could undo deal that sees Turkish government cracking down on Europe-bound refugees passing through in exchange for funding. S&P 500 earnings estimates are bottom-up operating earnings as of 8/23/18 market close, provided by Standard & Poor s. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 Andrew Adams S&P 500 Back at New Highs The S&P 500 has broken back out to new all-time highs, eclipsing its late January prior peak after trading sideways for almost seven months. That January-August trading range should now act as a fairly strong base on which to build the next move higher. It can be difficult to identify likely resistance areas with an index hitting unprecedented levels, but based on the ~340 point size of the recent range, we can get a rough projection of an eventual price target for the S&P 500 by adding 340 to the breakout point of That gives us a minimum price target of around 3212, which would be a little over 11% above the previous all-time high. And, ideally, the index will not drop back below the 2872 breakout point in the near term, since that could negate the breakout signal. Source: TC2000. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

9 Andrew Adams Similar Breakout in NASDAQ Unlike the S&P 500, the NASDAQ has continued to trade higher even after the broad market temporarily peaked in late January. And it is breaking out once again after consolidating for about a month. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

10 Andrew Adams Small Caps Looking Good Too The Russell 2000 has also continued to trade higher over the last few months and it recently broke back out again. At the same time, it has recently been outperforming the S&P 500. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

11 Andrew Adams Not Just the Big Tech Stocks Breaking Out And for anyone worried about market breadth, the Value Line Geometric Index, which is equally weighted using a geometric average of more than 1600 stocks, is also hitting new all-time highs. This does not happen when the market is weak. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

12 Andrew Adams Our Preferred Sectors Mostly Looking Good The fact that several of the more cyclical and growth-oriented S&P 500 sectors are hitting new reaction highs at the same time the index is breaking out helps confirm the breakout. Technology, Health Care, Financials, Consumer Discretionary, and Industrials are all hitting their highest levels in at least three months, and Energy and Materials have been acting better recently too. The recent laggards have been the more defensive and rate-sensitive areas like Staples, Utilities, and Telecom, which shows that investors are becoming more confident again. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

13 Andrew Adams Interesting Action in U.S. Dollar Index Over the last couple of weeks, we have witnessed the U.S. Dollar Index break out of its trading range, shoot higher very quickly, and then almost immediately pull back into previous the trading range. The overall trend is still supportive of a stronger dollar, but the index should be watched closely, because if it breaks down through that green support line in the chart below, it could flip the path of least resistance back to the downside and the dollar could then weaken further. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

14 Andrew Adams 10-Year U.S. Treasury Range-Bound but Remains Supported The 10-Year U.S. Treasury yield has mostly headed sideways after quickly breaking up and then back down earlier this year. We think the combination of higher rates in the U.S. compared to the rest of the developed world and perceived safety during the trade war has helped keep demand high for Treasuries and has put downward pressure on the 10-Year. However, the fact that the 10-Year yield has not gone lower than it has leads us to believe that eventually we see it head higher. It remains well supported in the 2.75%-2.80% range. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

15 Andrew Adams Oil Still Stuck Meanwhile, crude oil remains stuck in the range between ~$65-$75 where it s spent most of this year. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

16 Andrew Adams China Still Out of Favor, but Showing Signs of a Bottom China, the most important developing market, has been an obvious loser in the trade war, as the Shanghai Composite Index had lost about 25% of its value at the August low. Global investors have wanted nothing to do with China, but we continue to think it offers a good risk-to-reward opportunity here near the 2016 lows. If progress is made on trade, investors could rotate back into the country and boost its market back up. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

17 Scott Brown The Economy in Brief The U.S. economy was expected to be pushed and pulled by three factors in 2018: fiscal policy; monetary policy, and labor market constraints. Judging by the increase in the federal budget deficits, fiscal stimulus now appears to be larger than anticipated, adding to the economy s momentum. The pace of job growth has remained strong, beyond a long-term sustainable pace, as there appears to have been more available slack than thought earlier. Data for early 3Q18 are consistent with moderately strong growth in the near term. The Federal Reserve raised short-term interest rates further in March and June, and is very likely to do so again on September 26. With monetary policy near neutral, the pace of tightening beyond that is unclear (a December hike appears more likely than not, but that may change). Fed officials are well aware of the risks of raising rates too fast or too slow. Trade policy remains a significant wildcard in the economic outlook, although investors generally remain optimistic that trade deals will be reached without significant disruptions. The economic impact will depend on the severity and length of the trade conflicts. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

18 Scott Brown Fiscal Stimulus Has Boosted the Federal Budget Deficit International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

19 Scott Brown Job Growth Has Remained Strong International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

20 Scott Brown The Labor Market is Getting Tighter International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

21 Scott Brown Employment Cost Inflation is Rising, but Moderately International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

22 Scott Brown Real Wage Growth Has Been Weak International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

23 Scott Brown Capital Goods Orders and Shipments Up in Early 3Q18 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

24 Scott Brown The Yield Curve Has Flattened (Not Inverted) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

25 Scott Brown While Flatter, the Yield Curve is Not Signaling Recession International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

26 Scott Brown The CFNAI Points to Moderate Growth (Not a Recession) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

27 Scott Brown Trade Policy The U.S. has imposed tariffs on $50 billion in Chinese goods and is poised to raise tariffs on an additional $200 billion in September. China has responded with increased tariffs on U.S. exports. This has had a negative impact on the farm sector. Soybean prices have fallen as a record crop comes to market. While the U.S. has reached an agreement with Mexico, readjustment to the North American Free Trade Agreement (NAFTA) will require Canada s approval. Supply chains for motor vehicle production are deep and complex, and trade disruptions would have significant effects on vehicle output and sectors supplying inputs into the auto sector. Tariffs are a tax paid for by U.S. consumers and businesses. Tariffs raise costs, invite retaliatory tariffs, disrupt supply chains, and discourage international investment. To date, while increased tariffs have had a significant impact on certain sectors, the aggregate impact has been small. However, the risks of broader trade conflicts are a key downside risk to the growth outlook. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

28 Scott Brown Federal Policy Outlook Business contacts in a few districts reported that uncertainty regarding trade policy had led to some reductions or delays in their investment spending. Nonetheless, a number of participants indicated that most businesses concerned about trade disputes had not yet cut back their capital expenditures or hiring but might do so if trade tensions were not resolved soon... Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation Several participants cited statistical evidence for the U.S. that inversions of the yield curve have often preceded recessions Other participants emphasized that inferring economic causality from statistical correlations was not appropriate. A number of global factors were seen as contributing to downward pressure on term premiums, including central bank asset purchase programs and the strong worldwide demand for safe assets. In such an environment, an inversion of the yield curve might not have the significance that the historical record would suggest; the signal to be taken from the yield curve needed to be considered in the context of other economic and financial indicators -FOMC Minutes (July 31-August 1) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

29 Scott Brown Federal Policy Outlook 1. With the unemployment rate well below estimates of its longer-term normal level, why isn't the FOMC tightening monetary policy more sharply to head off overheating and inflation? 2. With no clear sign of an inflation problem, why is the FOMC tightening policy at all, at the risk of choking off job growth and continued expansion? These questions strike me as representing the two errors that the Committee is always seeking to avoid as expansions continue--moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating... While the unemployment rate is below the Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain over time, inflation has become much less responsive to changes in resource utilization While inflation has recently moved up near 2%, we have seen no clear sign of an acceleration above 2%, and there does not seem to be an elevated risk of overheating... if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate -Powell Jackson Hole Speech (August 24) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

30 Scott Brown Economic Indicator Status Comments Growth GDP growth is expected to remain moderately strong in the second half of 2018, although likely uneven across time and sectors. Employment Labor demand should remain strong in the near term, but supply constraints are expected to become more binding. Consumer Spending Business Investment Manufacturing Housing and Construction Inflation Monetary Policy Long-Term Interest Rates Fiscal Policy The Dollar Rest of the World Job growth has been supportive and tax cuts have added a bit to take-home pay, but inflation-adjusted earnings are trending flat on a year-over-year basis. Sentiment remains strong, although there is concern about the negative impact of tariffs. Orders and shipments of capital goods have improved into 3Q18. New orders and production have been mixed, but the pace has been generally moderate. Trade tariffs are a concern, disrupting supply chains and dampening expectations for exports. Builders continue to note supply constraints (lack of skilled labor, higher costs). Demand remains strong. Home prices have continued to rise, making affordability an important issue. Labor cost inflation remains moderate. Core consumer price inflation is at the Fed s goal, but officials have indicated a tolerance for somewhat higher inflation in the near term. Fed policy remains accommodative (according to the August 1 FOMC statement), but is nearing neutral. The Fed is expected to raise rates further, but the pace should be gradual. A strengthening economy and increased government borrowing would normally send bond yields higher. However, trade policy concerns and geopolitical risks have led to a flight to safety. Tax cuts and added spending are providing support for economic growth in the near term, but budget deficit projections have risen sharply. Trade policy conflicts and concerns about global economic risks have led to a flight to safety into U.S. Treasuries and the dollar. Fed rate increases have had negative impacts on emerging market economies and trade policy has disrupted supply chains. Nationalistic tendencies and Brexit are concerns in Europe. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

31 Scott Brown Key Calendar Dates September 3 September 4 September 5 September 6 Labor Day (markets closed) ISM Manufacturing Index (August) Motor Vehicle Sales (August) ADP Payroll Estimate (August) ISM Non-Manufacturing Index (August) September 7 September 12 Employment Report (August) Producer Price Index (August) Fed Beige Book September 13 September 14 Consumer Price Index (August) Retail Sales (August) Industrial Production (August) September 19 September 26 November 6 November 8 December 19 Building Permits, Housing Starts (August) FOMC Policy Decision (Powell press conference) Election Day FOMC Policy Decision (no press conference) FOMC Policy Decision (Powell press conference) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

32 Important Investor Disclosures Raymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in the United States. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, FL 33716, (727) Non-U.S. affiliates, which are not FINRA member firms, include the following entities that are responsible for the creation and distribution of research in their respective areas: in Canada, Raymond James Ltd. (RJL), Suite 2100, 925 West Georgia Street, Vancouver, BC V6C 3L2, (604) ; in Europe, Raymond James Euro Equities SAS (also trading as Raymond James International), 40, rue La Boetie, 75008, Paris, France, , and Raymond James Financial International Ltd., Broadwalk House, 5 Appold Street, London, England EC2A 2AG, This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Investors should consider this report as only a single factor in making their investment decision. For clients in the United States: Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may entail certain risks. The securities of non-u.s. issuers may not be registered with, nor be subject to the reporting requirements of, the U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask your Financial Advisor for additional details and to determine if a particular security is eligible for purchase in your state. The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. Persons within the Raymond James family of companies may have information that is not available to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute transactions in the securities listed in this publication that may not be consistent with the ratings appearing in this publication. Raymond James ( RJ ) research reports are disseminated and available to RJ s retail and institutional clients simultaneously via electronic publication to RJ's internal proprietary websites (RJ Investor Access & RJ Capital Markets). Not all research reports are directly distributed to clients or third-party aggregators. Certain research reports may only be disseminated on RJ's internal proprietary websites; however such research reports will not contain estimates or changes to earnings forecasts, target price, valuation, or investment or suitability rating. Individual Research Analysts may also opt to circulate published research to one or more clients electronically. This electronic communication distribution is discretionary and is done only after the research has been publically disseminated via RJ s internal proprietary websites. The level and types of communications provided by Research Analysts to clients may vary depending on various factors including, but not limited to, the client s individual preference as to the frequency and manner of receiving communications from Research Analysts. For research reports, models, or other data available on a particular security, please contact your RJ Sales Representative or visit RJ Investor Access or RJ Capital Markets. Links to third-party websites are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any website s users and/or members. Additional information is available on request. Simple Moving Average (SMA) - A simple, or arithmetic, moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Exponential Moving Average (EMA) - A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. Relative Strength Index (RSI) - The Relative Strength Index is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

33 International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small-cap stocks generally involve greater risks. Dividends are not guaranteed and will fluctuate. Past performance may not be indicative of future results. Investors should consider the investment objectives, risks, and charges and expenses of mutual funds and exchange-traded funds carefully before investing. The prospectus contains this and other information about mutual funds and exchange traded funds. The prospectus is available from your financial advisor and should be read carefully before investing. Not approved for rollover solicitations. For clients in the United Kingdom: For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and is not intended for use by clients. For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of interest management. RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct Authority in the United Kingdom. For clients in France: This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in Code Monétaire et Financier and Règlement Général de l Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers. For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted. For Canadian clients: This report is not prepared subject to Canadian disclosure requirements, unless a Canadian analyst has contributed to the content of the report. In the case where there is Canadian analyst contribution, the report meets all applicable IIROC disclosure requirements. Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client relea sable research This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

34 J.P. Morgan Asset Management Risks & disclosures The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields is not a reliable indicator of current and future results. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other EEA jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number Kanto Local Finance Bureau (Financial Instruments Firm) No. 330 ); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN ) (AFSL ); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc. In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only. Copyright 2018 JPMorgan Chase & Co. All rights reserved Prepared by: Samantha M. Azzarello, Gabriela D. Santos, Alexander W. Dryden, David M. Lebovitz, Abigail D. Yoder, John C. Manley, Jordan K. Jackson, Tyler J. Voigt and David P. Kelly. Unless otherwise stated, all data are as of June 30, 2018 or most recently available. Guide to the Markets U.S. JP-LITTLEBOOK 0903c02a81c1da5b International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida