Weekly COVID-19 Market Webinar

May 18, 2020

2

S&P 500 Rally Fueled by Policy and Fiscal Measures

Source:S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis. As of 5/15/20

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2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

1/2/2020 1/16/2020 1/30/2020 2/13/2020 2/27/2020 3/12/2020 3/26/2020 4/9/2020 4/23/2020 5/7/2020

April 9th Municipal

Liquidity Facility -$500 B

March 15th

Open Market Purchases $700 B

March 12th

Expanded Reverse Repo Operations –

$1.5 T

3

United States COVID-19 Cases

Data from Covidttracking.com, map from https://coronavirus.jhu.edu/us-map

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0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

U.S. Cumulative Cases Worldwide Daily New Cases

4

U.S. Daily New Cases Declining, Positivity Rate Declining

Source: Covidtracking.com

0

500

1,000

1,500

2,000

2,500

3,000

3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28 5/5 5/12

U.S. Daily Deaths

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

2/15 2/22 2/29 3/7 3/14 3/21 3/28 4/4 4/11 4/18 4/25 5/2 5/9 5/16

U.S. Daily New Cases

- 50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28 5/5 5/12

U.S. CoV-2 PCR Tests Conducted Each Day

0%

5%

10%

15%

20%

25%

30%

3/11 3/18 3/25 4/1 4/8 4/15 4/22 4/29 5/6 5/13

U.S. Test Positivity Rate

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5

Excluding NY State, U.S. Daily New Cases Stable

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0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000U.S. Daily New Cases

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

3/6 3/13 3/20 3/27 4/3 4/10 4/17 4/24 5/1 5/8 5/15

U.S. Daily New Cases Excluding New York

Source: Covidtracking.com

6

Areas to Watch as They Re-open

0200400600800

1,0001,2001,4001,6001,8002,000

Texas Daily New Cases

0200400600800

1,0001,2001,4001,6001,800

Georgia Daily New Cases

0100200300400500600700800900

1,000

Indiana Daily New Cases

0

50

100

150

200

250

300

Nevada Daily New Cases

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Source: Covidtracking.com

7

Vaccine Technologies

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Traditional Vaccine approaches a) Inactivated viruses (hepatitis A, polio, rabies) b) Live-attenuated virus (measles, mumps,

rubella). Not suitable for immunocompromised or high risk individuals.

Novel Vaccine approachesa) Vectorized Vaccines: Use a non-replicating

virus to deliver the CoV-2 spike protein genetic code. JNJ and AstraZeneca are using these approaches. The first data from a phase 1 study should be available in June.

b) mRNA Vaccines: Encapsulate mRNA that codes for CoV-2 spike protein genetic code in lipids. Pfizer/BioNTech and Moderna/Lonza are taking this approach. Manufacturing may be constrained early on, but could see doses available for front-line workers by YE20 (if it works).

c) DNA Vaccines: Deliver DNA encoding CoV-2 spike protein. Easier to manufacture than mRNA vaccines, but delivery of the DNA is more difficult. Inovio is using this approach.

8

Percent of U.S. Population Under Shutdown

Source: Strategas. As of 5/14/20

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19-Mar 26-Mar 2-Apr 9-Apr 16-Apr 23-Apr 30-Apr 7-May 14-May 21-May 28-May 4-Jun

9

Green Shoots Begin to Appear

Source: Cornerstone. May 18, 2020.

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“Airbnb bookings in the U.S. are rebounding at an accelerating rate.” (PRnewswire.com, 5/11)

“MasterCard said it’s seeing the start of “normalization,” with purchase transactions showing much smaller year-over-year declines in the past few weeks.” (IBD, 5/16)

“Simon Property Group said: as of Monday, the company had re-opened 77 of its properties in the U.S. and is ‘encouraged by the consumer response thus far’.” (DJ, 5/16)

“Hotels are slowly starting to re-open and global occupancy rates are leveling off, Marriott said.” (WSJ, 5/12)

“For the first time since late March, truckload rates rose on most high-traffic lanes last week. Load posts on the DAT One network also continued to climb with businesses re-opening in some states.”

“AutoNation said car sales already started to pickup at the end of April.” (Bloomberg,5/11)

10

Shape of Recovery

Source: Cornerstone Macro. As of 5/14/20

17.00

17.50

18.00

18.50

19.00

19.50

16 17 18 19 20 21 22

U.S. Real GDP2020 1Q: $19.0 Trillion

11

Public Debt as a Percentage of GDP

Source: strategas. As of 5/18/20

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0%

20%

40%

60%

80%

100%

120%

1940 1950 1960 1970 1979 1989 1999 2009 2019

Debt Held by the Public as Percentage of GDP

OMB Projections

under President's

FY2021 Budget

CBO April 2020Projects for FY2020-2021

12

Sovereign Yields Tethered

As of 5/18/2020. Source: Bloomberg

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0.5

1.0

1.5

2.0

2.5 Difference Between 10-Year U.S. and 10-Year Germany

13

Federal Funds Futures

As of 5/14/2020. Source: Bloomberg

0

0.01

0.02

0.03

0.04

0.05

0.06

14

High Yield Spreads

As of 5/15/2020. Source: Bloomberg/Barclays Live

543

749

1,385

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Ba U.S. High Yield B U.S. High Yield Caa U.S. High Yield

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15

Fixed Income Supply

As of 5/15/2020. Source: The Bond Buyer and Bloomberg League Tables

0

50

100

150

200

250

300

350

January February March April May MTD

U.S. Municipal U.S. Investment Grade Corporate U.S. High Yield Corporate

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16 Source: Morningstar. As of 5/18/20

What Stocks are Driving the Rally?

17

First Drawdown Following Initial Rally Off Major Low

Source: Strategas. As of 5/15/20

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Market Low Initial Rally # of Days 1st Drawdown # of Days

October 1957 7.0% 26 -5.5% 12

June 1962 14.3% 40 -10.5% 43

May 1970 13.3% 6 -9.3% 23

October 1974 20.8% 25 -13.6% 20

August 1982 23.7% 31 -5.0% 6

October 1987 19.8% 1 -14.7% 31

October 1990 13.4% 39 -7.4% 25

October 2002 24.2% 36 -17.3% 68

March 2009 43.4% 67 -9.1% 18

Average -10.3% 27

18

Asset Class Positioning: Investment Strategy Committee Recommendations

As of 4/1/20.

Underweight Small Underweight Neutral Small

Overweight Overweight

Equity Large Cap Mid Cap Small Cap International Developed Large Cap International Developed Small Cap Emerging Markets Private Equity Private Equity-Real Estate

Fixed Income Treasuries Investment-grade Corporate Tax-exempt High Yield

Diversifiers Real Estate (REITs) Long/Short Hedge Absolute Return Hedge Managed Futures Commodities

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Q&A

Thank You

21

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