CAPITAL MARKETS REVIEW - Raymond James …

1 REVIEW ING T HE QUART ER ENDED SEPT EMBER 30, 20181 CAPITAL MARKETS REVIEWT able of ContentsQuarterly 23-30 CAPITAL 10-22 Index Returns Asset Class Returns S&P 500 Sector Returns Equity Styles Treasury Yield Curve Fixed Income Yields Global Sovereign Debt Yields S&P 500 Yield vs. Treasury Yield S&P 500 Valuations Foreign Exchange rates Commodity Prices2 Economic 3-9 Gross Domestic Product Employment Inflation Housing market Consumer Confidence Mid-Term Elections Growth vs. Value Investing Housing market The Yield Curve GROSS DOMESTIC PRODUCT3 Real gross domestic product (GDP) increased at an annual rate of in the second quarter of 2018 , according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased this third estimate for the second quarter, the general picture of economic growth remains the same; a downward revision to private inventory investment was offset by small upward revisions to most other GDP ReviewSource: Bloomberg, as of 6/30/ 2018 -10-7-4-12589800020406081012141 618 Quarterly Change in Real GDP (%, Annualized)YearQuarte rly Change in Re al GDPQ uarterly Change in Real GDP (%, Annualized) TO % CHANGE IN REAL GDP4 Source: Bloomberg, as of 6/30/ 2018 Economic REVIEW -4-2024682010201120122013201420152 01620172018 Percent (%)Contributions to % Change in Real GDPP rivate InvestmentConsumer SpendingGovernment Spending (Fed, State, Local)Net ExportsThe percent change in real GDP was unrevised from the second estimate.

2 The updated estimates reflected more consumer spending on goods, more investment by state and local governments, and less spending on imports, which are a subtraction in the calculation of GDP. These upward revisions were offset by less inventory : Bloomberg, as of 9/30/ 2018 Economic ReviewThe unemployment rate declined to in September, and total nonfarm payroll employment increased by 134,000, the Bureau of Labor Statistics reported. Job gains occurred in professional and business services, in health care, and in transportation and (%)YearCivilian Unemployment RateRecessionCivilian Unemployment Rate (%)-1,000-750-500-2500250500750970003060 9121518 Change in Payrolls (000s)YearMonthly Payroll ChangeMonthly Change in Nonfarm Payrolls (000s)Recession134 Source: Bloomberg, as of 9/30/ 2018 MAJOR INDUSTRY CONTRIBUTIONS TO JOB GROWTH6 Source: Bureau of Labor Statistics, as of 9/30/ 2018 , a preliminary estimate of the net number of jobs in the various industries in the latest REVIEW -20-175131318182354-20-10010203040 50 Job Gains.

3 1 Mo Net Chg (000s)Industry Contribution (%) Retail TradeLeisure and HospitalityMining and LoggingGovernmentFinancial ActivitiesManufacturingEducation and Health ServicesConstructionProfessional and Business ServicesIn September, job gains occurred in professional and business services, in health care, and in transportation and warehousing. Employment in professional and business services, the top category for job gains, increased by 54,000 in September and has risen by 560,000 over the year. -2%-1%0%1%2%3%4%5%0809101112131415161718 PCE Inflation (%)YearInflation: Personal Consumption ExpendituresRecessionPersonal Consumption Expenditures Inflation (Annual)PCE Core (ex Food & Energy) Inflation (Annual) : Bloomberg, as of 8/31/ 2018 Personal Consumption Expenditure (PCE) is the preferred measure of inflation by the Bureau of Economic ReviewThe year-over-year PCE Index dropped slightly last quarter, from in May to in August.

4 Core PCE, which excludes food & energy, remained the same at Labor cost inflation remains moderate. Core consumer price inflation is at the Fed s target level, but officialshave indicated a tolerance for somewhat higher inflation in the near term. -Dr. Scott Brown, Chief Economist, Equity Research Positive shifts in buyer behavior, pent up demand and a strong economy continue to drive our more positive view on the housing recovery. -Paul Puryear, Vice Chairman of Real Estate ResearchHOUSING MARKET8 Source: Bloomberg, as of 7/31/ 2018 Source: Census Bureau, as of 8/31/ 2018 Economic IndexYearHome Price IndexRecessionS&P/Case-Shiller Home Price Index1,24905001,0001,5002,0002,500980002 0406081012141618 Building Permits (000s)YearBuilding PermitsRecessionAnnual Building Permits, SA (000s)Economic ReviewCONSUMER CONFIDENCE9 Source: Bloomberg, as of 9/30/ 2018 After a considerable improvement in August, Consumer Confidence increased further in September and hovers at an 18-year high.

5 The September reading is not far from the all-time high of reached in 2000. Consumers assessment of current conditions remains extremely favorable, bolstered by a strong economy and robust job growth. These historically high confidence levels should continue to support healthy consumer spending, and should be welcome news for retailers as they begin gearing up for the holiday season. -Lynn Franco, Director of Economic Indicators at The Conference Confidence IndexYearConsumer ConfidenceRecessionConference Board Consum er Confidence Index$ $ $ $ $ $ $- $50 $100 $150 $200 $250 $300200820092010201120122013201420152016 20172018 Growth of $ Fixed IncomeGlobal Real EstateCommoditiesCash & Cash AlternativesASSET CLASS RETURNS: GROWTH OF A DOLLAR10 CAPITAL MarketsSource: Morningstar Direct, as of 9/30 Fixed Global Real Estate (REITs) & Cash : Morningstar Direct, as of 9/30/ 2018 Past performance is not indicative of future results.

6 Please see slides 31-34 for asset class definitions. Blended Portfolio Allocation: 45% Equity / 15% Equity / 40% Fixed IncomeANNUAL ASSET CLASS TOTAL RETURNS 11 CAPITAL MarketsBestWorseSource: Morningstar Direct, as of 9/30/20182007200820092010201120122013201 4201520162017 YTD m m m & Cash & Cash & Cash Alternatives & Cash Alternatives & Cash Alternatives m m & Cash Alternatives Incom Incom Incom m & Cash Alternatives Incom Incom m Incom Incom m Incom & Cash Alternatives Incom m & Cash Alternatives m Incom Incom Incom m & Cash Alternatives m & Cash Alternatives & Cash performance is not indicative of future results. Please see slides 31-34 for asset class definitions. Global equity MARKETS are experiencing diverging trends as international equity performance is stalled by negative sentiment.

7 Fears of a trade war, which would disrupt global supply chains critical to manufacturers, continue to weigh on MARKETS , particularly emerging MARKETS . ASSET CLASS RETURNS 12 CAPITAL MarketsSource: Morningstar Direct, as of 9/30/ 2018 Asset Aggregate ex Em erging market Developed Mkt Equity-Small CapInvestment-Grade Aggregate Developed Mkt Equity-Large CapHigh Yield Corporate Small Cap Large Cap EquityTotal Return 12 Months Ending 9/30/2018Q3 2018 Past performance is not indicative of future results. Please see slides 31-34 for asset class definitions. Health Care was the market leader in the third quarter, earning over the three-month period ending 9/30/18. Upside to earnings in second quarter encourages us that more upside may remain in coming quarters. Valuation is mixed, with P/E-to-Growth one standard deviation above the 15-year average while P/E is well below the 15-year average.

8 -J. Michael Gibbs, Managing Director of Equity Portfolio & Technical EstateUtilitiesFinancialsConsumer StaplesS&P 500 Consumer DiscretionaryInformation TechnologyTelecom ServicesIndustrialsHealth CareTotal Return12 Months Ending 9/30/2018Q3 2018S&P 500 SECTOR RETURNS13 CAPITAL MarketsSource: Morningstar Direct, as of 9/30/ 2018 Returns are based on the GICS Classification model. Returns are cumulative total return for stated period, including reinvestment of dividends. S&P 500 SectorsPast performance is not indicative of future results. Please see slides 31-34 for asset class definitions. NEW! COMMUNICATION SERVICES SECTOR The Telecommunication Services sector is being broadened to include select companies from the media industry group, internet retail, and the technology sector involved in communication services. The new sector, called Communication Services, will contain two industry groups -telecommunication services and media & entertainment.

9 Sector weighting, growth prospects, valuation, dividend yield, etc. are all expected to be significantly affected by the changes. Moreover, there were significant changes to the Technology sector and Consumer Discretionary sector. As much has been made of the FAANG stocks, it is important to note that the Technology sector only contains one of the FAANG stocks going forward (AAPL). The new Communications Services sector will include 3 of the FAANG stocks (GOOG/GOOGL, FB, and NFLX) while the Consumer Discretionary sector will include one name (AMZN).S&P 500 SECTOR UPDATE14 CAPITAL MarketsSource: Source: FactSet, Raymond James Equity Portfolio & Technical Strategy Telecom/Communication Services will go from the smallest sector to the 5th performance is not indicative of future results. Please see slides 31-34 for asset class definitions. 15 EQUITY STYLESG rowth stocks continue to experience momentum, fund flows, and profitability over value in the near term.

10 Still, growth stock valuations are near 2001-2002 levels and analysts' downgrades are starting to pick Asset Allocation Outlook, 3Q2018 Investment Strategy QuarterlyStyle box returns based on the GICS Classification model. All values are cumulative total return for stated period including reinvestment of dividends. The indices used from left to right, top to bottom are: Russell 1000 Value Index, Russell 1000 Index, Russell 1000 Growth Index, Russell Mid-Cap Value Index, Russell Mid-Cap Blend Index, Russell Mid-Cap Growth Index, Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index. Past performance is not indicative of future results. Please see slides 31-34 for asset class definitions. CAPITAL MarketsValueBlendGrow 2018 Total ReturnValueBlendGrow Total ReturnSource: Morningstar Direct, as of 9/30/ 2018 Source: Morningstar Direct, as of 9/30 (%) Tre asury Yie ld CurveCurrent (9/30/ 2018 )9/30/20171 m3 m6 m1 y2 y3 y5 y7 y10 y20 y30 y Given that the economy continues to show solid growth, there is reason to believe the Fed will continue its gradual pace of hikes and that intermediate and long-term rates will not keep pace, thus causing a yield curve inversion.