A R G U S R E S E A R C H C O M P A N Y

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Wednesday, January 8, 202011:00 a.m. ET

61 Broadway • NYC, N.Y. 10006Telephone: (212) 425-7500

THE MONTHLY RESEARCH CONFERENCE CALLTHE OUTLOOK FOR 2020

Kevin HealInterest Rate Strategist

Mark Arbeter, CMT

MODERATORS

John M. EadeArgus President

Jim Kelleher, CFADirector of Research

A R G U S R E S E A R C H C O M P A N Y

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WHAT’S NEW AT ARGUSJANUARY 2020

■ A Very Good Year • At Argus, we thank you for your support and trust• Argus added extensively to coverage in 2019• We continue to outperform our competitors as measured by BARR, Investars, etc.• Most Model Portfolios beat benchmarks on 1-yr, 3-yr basis• We will continue to position our clients to thrive and preserve wealth

■ New to Coverage in 2019 • Argus added over 35 names to coverage in 2019• Regionals & exchanges: AMP, CFG, NDAQ, etc.• Unicorns & App Economy: UBER, W, PINS, PTON, etc.• Household names (AML, SJM) and foreign (LRLCY)• We will continue to add to coverage across 2020

■ Argus Dividend Growth Portfolio • Dividend growth is an important element of return• Prioritizing companies that consistently raise payouts at above average rates• Balance sheet strength, strong outlook• Focus on shareholder return• Find it on the site: Portfolio Strategy, Theme Portfolios

A R G U S R E S E A R C H C O M P A N Y

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MACRO FORECASTS

REAL GDP W/FORECASTS (%) TREASURY YIELD CURVE (%)

S&P 500 QUARTERLY EARNINGS GROWTH MARKET SECTOR DISTRIBUTION - PERCENT OF S&P 500

-8

-6

-4

-2

0

2

4

6

8

'00 '02 '04 06 08 10 12 14 16 18 20 E

Source: Bureau of Economic Analysis, Argus Research Corp.1

2

3

4

3-Mo bill 2-Yr Note 5-Yr Note 10-Yr Bond 30-Yr Bond

Year-Ago Current 6-Month Forecast

-40%

-20%

0%

20%

40%

60%

80%

100%

'00 '02 '04 06 '08 '10 '12 '14 '16 '18 20E 0% 5% 10% 15% 20% 25%

Technology

Financial Services

Real EstateHealthcare

Energy

Consumer StaplesIndustrial

Consumer Discretionary

UtilitiesBasic Materials

Communication Services

Sectors in Green are Recommended Overweight; Blue are Marketweight; Red are Underweight

A R G U S R E S E A R C H C O M P A N Y

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MARKET PERFORMANCEDATA AS DECEMBER 31, 2019

MAJOR INDEX SECTOR

GLOBAL EQUITY MARKETS

0% 5% 10% 15% 20% 25% 30% 35% 40%

Nasdaq Composite

S&P 500

Growth Stocks (Wilshire Large Growth)

Russell 2000

DJIA

Value Stocks (Wilshire Large Value)

Lehman US Aggregate Bond Index

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Technology

Industrials

Utilities

Consumer Discretionary

Real Estate

Materials

Consumer Staples

Communication Services

Financials

Health Care

Energy

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Russia

US

Euro Zone

Brazil

Canada

Japan

DJ World Index

India

China

UK

Mexico

A R G U S R E S E A R C H C O M P A N Y

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8 FUNDAMENTAL FORECASTS FOR 2020

1. U.S. GDP growth will remain positive, but will continue to slow from the 2.8% rate of growth recorded in 2017. GDP growth was 2.5% in 2018, an estimated 2.3% in 2019 and we estimate 2.0% in 2020. We do not see a recession through 2021.

2. Global GDP growth will improve from the 3.0% rate of 2019, which was the lowest rate since the 2007-2009 recession.

3. China will be the largest contributer to global GDP growth, as the Chinese economy expands approximately 6.0%. Europe, after Brexit is settled, will move further away from recession, though growth will be slower than in the U.S.

4. The dollar will stabilize or decline, as global growth improves. The dollar is currently perched near cycle highs. A stable to weaker dollar would be positive for commodity and energy prices, as would modest acceleration in global GDP.

5. The Federal Reserve will remain on the sidelines in 2020, a U.S. election year. The Fed will want to appear independent, but also does not need to act to reduce unemployment, which is at a low 3.5% or inflation, which remains stubbornly below the central bank’s 2.0% target. After three rate cuts in 2019, the Fed no doubt would like to hike rates again after the election, in order to replenish its tool box ahead of the next financial crisis. At the long end of the yield curve, we expect rates to rise as foreign investors bring their money back into home markets.

6. U.S. corporate earnings are expected to once again increase in 2020, after a low-single-digit rise in 2019. We look for S&P 500 EPS growth in the 7-8% range, which will once again lift earnings to all-time highs.

7. We expect stock valuations to remain stable in 2020, as long-term rates rise and stock prices approach and move through fair value on our valuation model. Given an outlook for stable valuations and high-single-digit EPS growth, we expect the stock market to return 8-10%, or in line with long-term annual results. Our 2020 S&P 500 target price is 3550.

8. There are risks in the market, particularly related to the election year. We have found that the 4th year of a President’s term is the worst-performing year, with average gains of only 5%. The trade deal with China is not yet finalized, and the United King-dom has not yet technically exited the EU. Meanwhile, the market is no longer priced at a steep discount to fair value, and macro disappointments or geopolitical developments could lead to dramatic swings in stocks. We further note that investors are not particularly anticipating the worst: the VIX volatility index has averaged 15 in 2019, below the 10-year average of 17 and the 12-year average of 20.

A R G U S R E S E A R C H C O M P A N Y

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GDP DRIVERS

-800

-600

-400

-200

0

200

400

600

-800

-600

-400

-200

0

200

400

600

'00 '03 '06 '09 '12 '15 '18

NONFARM PAYROLLS (Thousands of jobs)

Monthly ChangeSix Month Average

Source: US BLS200

400

600

800

1000

1200

1400

1600

-20

-15

-10

-5

0

5

10

15

20

Jan '08 Jan '10 Jan '12 Jan '14 Jan '16 Jan '18

HOUSING MARKET TRENDS

Monthly Home Price Change (left axis, % Change)

Building Permits (right axis, Thousands of Units)

Sources: Case, Shiller; US HUD

80

90

100

110

120

130

140

0.80.9

11.11.21.31.41.51.61.7

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 19

CURRENCY TRENDS

Euro v $ (left scale)

Trade-W $ (right scale)

Source: FRB St. Louis

0

10

20

30

40

50

60

China UK US EuroZone Germany

PMI SURVEY READINGS

Sources: Institute for Supply Management; IHS Markit

A R G U S R E S E A R C H C O M P A N Y

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INTEREST RATE OUTLOOK

-6 -4 -2 0 2 4PPI Inter - UP Goods

PPI Inter -P GoodsPPI Final D

PPI Final D Ex F&EPCE Price Index

PPI Inter - SvcMB PCE Ex F&E

2-Yr T Note10-Yr TIP B-E iR

10-Yr T bondCPI

CPI Ex F&EAvg Hrly Earns Grwth

CURRENT INFLATION MEASURES (% Change Y/Y)

0

2

4

6

8

10

12

1984 1989 1994 1900 2004 2009 2014 2019

FEDERAL FUNDS TARGET RATE (%)

0

1000000

2000000

3000000

4000000

5000000

2003 2005 2007 2009 2011 2013 2015 2017 2019

FED BALANCE SHEET (FED Assets)

1.25

1.45

1.65

1.85

2.05

2.25

2.45

2.65

Fed Funds 3 Mo. Bill 2 Yr. 5 Yr. 10 Yr. 30 Yr.

TREASURY YIELD CURVE & OUTLOOK (%)

Current 2020 Argus Forecast

A R G U S R E S E A R C H C O M P A N Y

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EARNINGS & VALUATION

-50%-40%-30%-20%-10%0%10%20%30%40%50%60%

0

50

100

150

200

250

1996 2000 2004 2008 2012 2016 2020E

S&P 500 EPS TRENDS & ESTIMATES

Annual Growth Rate % (right axis)EPS $ (left axis)

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

1960 1970 1980 1990 2000 2010

BOND V STOCK BAROMETER (Standard Deviations)

0 = STOCK/BOND EQUILIBRIUM

> 0, FAVOR BONDS

< 0, FAVOR STOCKS

0

2

4

6

8

10

12

14

16

18

1960 1970 1980 1990 2000 2010

TREASURY NOTE YIELD MODEL (%)

T-Bond YieldT-Bond Fair ValueUpper FV BoundaryLower FV Boundary

-60

-40

-20

0

20

40

60

1960 1970 1980 1990 2000 2010

S&P 500 VALUATION MODEL (0% = Fair Value)

Market Overvalued

Market Undervalued

A R G U S R E S E A R C H C O M P A N Y

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RISK FACTORS

0%

1%

2%

3%

4%

5%

1st QTR 2nd QTR 3rd QTR 4th QTR

AVERAGE QUARTERLY STOCK MARKET APPRECIATION

0

2

4

6

8

10

12

14

16

Year 1 Year 2 Year 3 Year 4 / Election Year

STOCK MARKET ANNUAL RETURNS THROUGH THE PRESIDENTIAL CYCLE (%)

50

60

70

80

90

100

110

120

130

140

2012 2013 2014 2015 2016 2017 2018 2019

CONSUMER CONFIDENCE

Source: Conference Board

RECESSIONS & UNEMPLOYMENT

A R G U S R E S E A R C H C O M P A N Y

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S&P 500 DAILY

A R G U S R E S E A R C H C O M P A N Y

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S&P 500 WEEKLY

A R G U S R E S E A R C H C O M P A N Y

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S&P ADVANCE/DECLINE LINES

A R G U S R E S E A R C H C O M P A N Y

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S&P 500 ABOVE 200-DAY

A R G U S R E S E A R C H C O M P A N Y

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CBOE EQUITY-ONLY PUT/CALL

A R G U S R E S E A R C H C O M P A N Y

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NAAIM EXPOSURE INDEX

A R G U S R E S E A R C H C O M P A N Y

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INVESTMENT THEMES FOR 2020

■ DIVIDEND GROWTH ■ MIN-VOL ■ CAUTIOUS CONSUMER ■ CHINA -- OPPORTUNITIES ■ CHINA -- RISKS ■ 5G & THE APP ECONOMY ■ MED-TECH ■ ELECTION YEAR ■ SUSTAINABLE IMPACT INVESTING ■ INNOVATION

A R G U S R E S E A R C H C O M P A N Y

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ARGUS ANALYSTS’ TOP PICKS 2020

• BASIC MATERIALS » Sherwin-Williams Company (SHW)

• CONSUMER DISCRETIONARY » Lowe's Companies Inc. (LOW) » lululemon Athletica (LULU)

• CONSUMER STAPLES » Colgate-Palmolive (CL)

• ENERGY » ONEOK, Inc. (OKE)

• FINANCIAL SERVICES » Citizens Financial Group Inc. (CFG) » Discover Financial Services (DFS) » Wells Fargo & Co. (WFC)

• HEALTHCARE » Zimmer Biomet (ZBH) » Emergent BioSolutions Inc. (EBS) » Novartis AG (NOV)

• INDUSTRIALS » Jacobs Engineering Group (JEC) » Lockheed Martin Inc. (LMT) » Republic Services Inc. (RSG)

• REAL ESTATE » Equinix Inc. (EQIX)

• TECHNOLOGY » Qualcomm Inc. (QCOM) » NVidia Corp. (NVDA) » Microsoft Corp. (MSFT) » Paychex Inc. (PAYX) » Square Inc. (SQ)

• UTILITIES » CMS Energy Corp. (CMS) » Eversource Energy Inc. (ES) » Xcel Energy Inc. (XEL)

A R G U S R E S E A R C H C O M P A N Y

DISCLAIMER

The Argus trademark, service mark and logo are the intellectual property of The Argus Research Group, Inc. Investing in any security or investment strategy discussed in this presentation may not be suitable for you and it is recommended that you consult an independent investment advisor. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus officers, employees, agents and/or affiliates may have positions in funds or stocks discussed in this presentation. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. Argus shall accept no liability for any loss arising from the use of this presentation or the materials contained in this presentation.