Capital Markets: Observations & Insights

Earnings Resurgence = Business Spending Acceleration Business Spending Boost

• After a two-year earnings recession, S&P 500 profits are growing strongly • Robust profit growth typically leads to higher business spending

…Implies Acceleration in Business Spending

Strong Relationship…

S&P 500 EPS

Business Spending

S&P 500 EPS

Business Spending

140

20%

2,000

120

15%

100

Forecasted

10%

1,500

$ Billions

80

5%

60

$ EPS

0%

1,000

40

-5% Year-over-Year Change

20

-10%

0

500

1996

1997

1998

1999

2001

2002

2003

2004

2006

2007

2008

2009

2011

2012

2013

2014

2016

2017

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Source: FactSet and U.S. Bureau of Economic Analysis as of 9/30/17. EPS is last 12 months. EPS forecast is based on bottom-up consensus estimates. Actual earnings per share might be materially different than shown. Business spending is U.S. private fixed nonresidential equipment and intellectual property expenditures.

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