Capital Markets: Observations and Insights

Not All Fundamentals Are Created Equally ​ Reframing Risk

RISK

• Understanding the downside to sales, earnings, and cash flows in a difficult economic environment is key to understanding risk in portfolios ‒ Value stocks have often acted like sailboats that depend on the wind of economic activity, while Growth stocks enjoy a secular motor to help protect against volatility

Look for Stocks Where Fundamentals May Prove Resilient

S&P 500 Growth

S&P 500 Value

S&P 500 Growth

S&P 500 Value

20%

20%

0%

0%

-20%

-20%

-40%

-40%

Change in EPS

Change in EPS

-60%

-60%

0 1 2 3 4 5 6 7 8 9 10 11 12

0 1 2 3 4 5 6 7 8 9 10 11 12

Months After Beginning of 2001 Recession

Months After Beginning of 2008 Recession

Source: FactSet.

Page 7