LPL RESEARCH PRESENTS outlook

1 L P L R ESE ARC H PR ESE NTS. outlook 2 0 2 2. PASSING THE BATON. OUTLO OK 2022. Passing the Baton INTRODUCTION. o Our resurgent economy grew at over also multiply potential mistakes and a 6% pace in the first half of the year make robust, complex systems more and is on track for over 5% growth for fragile. We've had a hand up that has the year when 2021 draws to a close. helped us through a period of unique The current economic recovery, which economic challenges. In 2022, the started in May 2020, has benefited economy may be ready for a handoff, from widespread vaccine availability back to a greater emphasis on the and additional fiscal stimulus. individual choices of households While the economy continues to and businesses.

2 How smoothly that move forward, we're still feeling the handoff is executed may determine aftershocks of the COVID-19 Delta the course of the recovery. variant, whether through elevated On a smaller scale, for many of inflation, supply chain bottlenecks, or us, those individual relationships an imbalanced labor market. But 2021 that always sustain us have been also saw positives beyond economic that much more vital over the last growth, with schools opening their two years. We managed to stay doors and extended family gathering connected with friends and family. around many Thanksgiving tables, Found new ways to work together activities that were far less common with our colleagues.

3 And relied in 2020. At the same time, the S&P on our relationships with skilled 500 Index continued to advance professionals to navigate difficult as corporate America faced this decisions. Sound financial advice in generational challenge with resiliency particular has helped guide many and saw earnings growth that surprised through this period of uncertainty. even the most optimistic pundits. LPL RESEARCH 's outlook 2022: Passing The recovery has been a testament the Baton is here to provide insight to our ability to manipulate our world. and analysis for the next set of Scientists developed several vaccines challenges the economy and markets extraordinarily quickly. Central banks may face.

4 But for any investor, making and policymakers found ways to progress toward your financial goals insert themselves into the complex will continue to take a steady hand network of economic relationships to and a good plan. Please reach out help bridge the worst of the economic to your financial professional for crisis. But the same scale that guidance on how to stay on track as multiplies our control of the world can we progress through 2022. LPL RESEARCH . O UTLO OK 2022 OVERVIEW. Economy Stocks Bonds As the economy moves more to We expect solid economic and earnings We expect interest rates to move modestly mid-cycle, our 2022 forecast is for growth in 2022 to help stocks higher in 2022 based on near-term inflation gross domestic product deliver additional gains next year.

5 If we expectations above historical trends and (GDP) growth in 2022. Fiscal and are approaching or are already in the improving growth expectations once the monetary policies played big roles middle of an economic cycle with at impact of the COVID-19 Delta variant recedes. in the economic recovery in 2021, least a few more years left (our view), Our year-end 2022 forecast for the 10-year but we see 2022 playing out as a then we believe the chances of another Treasury yield is However, an handoff from stimulus bridging a good year for stocks in 2022 are quite aging global demographic that needs income, pandemic recovery to an economy high. A double-digit percentage increase higher global debt levels, and an ongoing growing firmly on its own, with in S&P 500 earnings per share (EPS) in bull market in equities may keep interest consumers, productivity, small 2022 is possible, but COVID-19-related rates from going much higher over the next businesses, and capital investments supply chain issues, combined with year.

6 Nonetheless, with starting yields still all playing a part in the next stage of materials and labor shortages, could low by historical standards, returns are likely economic growth. lead to higher costs and constrain profit to be flat to the low single digits in 2022. As we move past COVID-19 globally, margins. We believe the S&P 500 could With credit spreads as low as they've been Europe and Japan could be ripe for be fairly valued at 5,000 5,100 at the in years, we remain neutral on investment- potentially better economic growth end of 2022, based on an EPS estimate grade corporate credit. We think equities in 2022. Meanwhile, emerging market of $235 and an index P/E between 21 continue to offer better return potential economies may disappoint as growth and We favor over developed than high- yield bonds, while bank loans may in China could be constrained by international, value over growth, and make sense for appropriate income-oriented regulatory crackdowns.

7 Cyclical sectors over defensives. investors willing to take on more risk. Alternative Inflation Commodities Investments 2021 was the year nearly everything One of the more surprising things With bond yields low and prospects was in a shortage, and it all translated about 2021 was that it saw both of modestly rising rates, it may be to added inflationary pressures. Record commodities and the dollar an appropriate time to check back numbers of ships waiting at ports, a advance significantly. We don't expect in with alternative investments, lack of materials, unfilled job openings, this same dynamic to continue into especially those that have historically higher commodity prices, and a myriad 2022.

8 We remain positive on industrial acted as a way to diversify interest of supply chain disruptions have added metals like copper and expect rate related fixed income risk to price pressures. While we believe continued gains. Our precious metals without simply acting like stocks. these pressures will steadily decrease view is neutral, and we see limited These strategies include global over the next year and we will eventually near-term upside for oil prices after macro, multi-strategy, equity market settle back to 2 inflation, it will such a strong rally along with rising neutral, and our preferred solution . likely be a gradual process. risk of increased supply. event driven.

9 Please see page 15 for important disclosures. 002. FROM HAND UP TO HAND OFF. The economy bounced back from its worst year since the Great Depression in 2020. with one of the best years of growth in nearly 40 years in 2021. a A combination of record stimulus, a came roaring back to produce what is first. Supply chain backlogs, materials healthy consumer, an accommodative currently expected to be over 5% GDP and labor shortages, and higher Federal Reserve (Fed), vaccinations, growth in 2021, more than making up prices all held the economy back to and reopening of businesses all for the drop in GDP in 2020. Of varying degrees. The good news is, contributed to a big year in 2021.

10 Course, there have been hiccups along demand is still very strong, and as In what amounted to the shortest the way. You can't shut down a $20 the backlogs unwind (which could recession on record, only two months trillion economy and then expect it to take years in some cases), we expect in March and April 2020, the economy get going again without warming up above-trend economic growth and see 1. low risk of a recession in 2022. With various measures of output matching or exceeding pre-pandemic Continued strong growth levels, it's clear last year's recession expected for is in the rearview mirror, and it may go down as the shortest one in history . GROWTH FORECASTS 2021 2022 even shorter than the six-month united states recession from the early 1980s.