CAPITAL MARKETS OUTLOOK - AllianceBernstein

First Quarter 2018

CAPITAL MARKETS OUTLOOK

The information herein reflects prevailing market conditions and our judgments, which are subject to change, as of the date of this document. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Opinions and estimates may be changed without notice and involve a number of assumptions that may not prove valid. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice.

Investment Products Offered:

Are Not FDIC Insured

May Lose Value

Are Not Bank Guaranteed

2017 Returns Recap: Everything Is Awesome

Returns in US Dollars

Equities

Credit

Government Bonds Alternatives

4Q:2017 Returns

Full-Year 2017 Returns

(Percent)

(Percent)

US Large-Cap US Small-Cap

6.6 3.3

21.8 14.6

EAFE*

4.2

25.0

Emerging Markets

7.4

37.3

US High Yield Emerging-Market Debt

Global Corporate

0.5 1.2 1.2

7.5 10.3

5.7

Municipals US

Japan Euro Area

0.7 0.0

0.9 2.3

5.4 2.3 1.9

3.4

Long/Short Equity Nontraditional Bond

Multialternative

3.3 0.4

1.7

10.5 4.3

5.6

As of December 31, 2017 Past performance does not guarantee future results. Global corporates and Japan and euro-area government bonds in hedged USD terms. All other non-US returns in unhedged USD terms. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AllianceBernstein (AB) portfolio. The unmanaged index does not reflect the fees and expenses associated with the active management of a portfolio. *Europe, Australasia and the Far East Returns reflect Morningstar US open-end fund category averages. Source: Bloomberg Barclays, Morningstar, MSCI, S&P and AB

CMO 1Q18 | 1

2018 Baseline Forecast: "Goldilocks" Is Still in the Driver's Seat

Base Case

Growth: Another year of solid global growth; 3.2%, similar to 2017

Inflation: Gradual increase in underlying inflation/wages as we move through 2018

Fiscal Policy: Gentle stimulus at global level

China: "Quality" of growth now assuming greater importance

Politics, Populism and Geopolitics: Important risks remain

Central Bank Response

Global: Gradual withdrawal of monetary accommodation

Fed: Four rate hikes expected in 2018

ECB: Asset purchases to end in September; rates to rise in 1Q:2019

BOJ: Likely to stay the course; focus on yield level rather than volume of purchases

PBC: Increased focus on containing leverage risk

Market Implications

Risk Assets: Still a generally benign backdrop, but risks higher than they were

Core Yields: Further rise likely, led by the US and Europe; Japan still anchored

USD: Fed rate hikes may help USD reverse some of last year's lost ground

EM Risk: Higher core yields/ stronger USD point to slightly less supportive backdrop; continue to be selective

As of December 31, 2017 Current analysis does not guarantee future results. Fed: US Federal Reserve; ECB: European Central Bank; BOJ: Bank of Japan; PBC: People's Bank of China; EM: emerging market Source: AB

CMO 1Q18 | 2

Global Cyclical Outlook: The Recovery Gains Strength and Breadth

Trade Cycle Shifts to Higher Gear

YoY Percent Change YoY Percent Change

Global Real GDP and PMI Proxy

4.5

4.0 PMI Proxy

3.5

3.0

2.5 Real GDP

2.0 10 11 12 13 14 15 16 17

Manufacturing PMIs December 2017*

Germany Europe US UK DM Canada Global Japan EM China

1.2 1.1 1.1 0.9 0.8 0.8 0.3 0.2

2.0 1.8

As of December 31, 2017 Historical analysis does not guarantee future results. *Standard deviation from mean DM: developed markets EM: emerging markets Source: Haver Analytics and IHS Markit

Global Trade and IP Growth Three-Month Moving Average

6

Global Trade 5

4

Industrial Production

3

2

1

0 12 13 14 15 16 17

CMO 1Q18 | 3

Inflation Remains Low Today, but Cyclical/Structural Forces on the Horizon

Inflation Backdrop Demographics Globalization/Populism Debt Overhang Technology Monetary Regime Net Impact

Rearview Mirror Past 5?10 Years

As of January 3, 2018 Historical analysis and current forecasts do not guarantee future results. Source: AB

Strategic Horizon Next 2?5 Years

Secular Horizon 5+ Years

CMO 1Q18 | 4

Central Banks (Ever So Slowly) Beginning to Remove the Punch Bowl...

USD Trillions USD Trillions

Aggregated DM Central Bank Balance Sheet and Flow of Purchases

12

Expected

G3

10

Aggregate Balance

Sheet

8

G3 Central Bank

Balance Sheet*

6

Fed

4

Expected

Purchases

BOJ

2

0

ECB

?2 08 09 10 11 12 13 14 15 16 17 18F 19F

G3 Net Issuance

3.5

Budget Deficit 3.0

2.5

Central Bank

2.0

Purchases

1.5

1.0

0.5

0.0 Net Issuance

?0.5

?1.0 08 09 10 11 12 13 14 15 16 17 18F 19F

As of September 30, 2017 Historical analysis and current forecasts do not guarantee future results. *G3 is the US, euro area and Japan. Source: Bloomberg, International Monetary Fund and AB

CMO 1Q18 | 5

...but at Different Speeds

AB 2018 Rates and Growth Forecasts

Policy Direction:

Policy Direction:

Rates

Expected tapering will likely put upward pressure on Bund yields

Rates

AB 2018 forecast: 0.00%

Two hikes expected

Growth

Policy Direction: Rates

AB 2018 forecast: 1.00%

Growth

Slower economic growth due to slowdown in real income growth and Brexit concerns

AB 2018 forecast: 1.6%

UK Euro Area

Continued economic strength from robust economic data (higher growth, pickup in inflation, stronger PMI)

AB 2018 forecast: 2.5%

US

Four hikes expected

AB 2018 forecast: 2.38% Growth

Policy Direction: Emerging Markets

Continued economic expansion (supported by buoyant asset prices, consumption, investment growth)

Rates

Most EM countries are expected to loosen monetary policy or keep policy stable

AB 2018 forecast: 4.79%

AB 2018 forecast: 2.3%

Growth

Economic growth should remain steady in

absence of drastic changes to inflation or

DM

tighter-than-expected global monetary

policy EM

AB 2018 forecast: 4.6%

As of December 31, 2017 Current analysis and forecasts do not guarantee future results. *QQE: quantitative and qualitative easing; YCC: yield-curve control Source: AB

China

Policy Direction:

Rates QQE/YCC policy in play for

foreseeable future, anchoring 10-year yields close to zero* AB 2018 forecast: ?0.10% Growth Fiscal and monetary stimulus, along with improved private sector demand, to produce abovetrend growth AB 2018 forecast: 1.7%

Japan

Policy Direction:

Rates Cautious tightening on

financial leverage continues. AB 2018 forecast: 3.10% Growth Growth will moderate somewhat due to tighter regulations on financing and environmental control AB 2018 forecast: 6.0%

CMO 1Q18 | 6

US Growth Continues to Expand, but 2H:2018 May Mark an Inflection Point

Survey Measures of Confidence Index

160

The Conference Board120

Consumer Confidence

(Left Scale)

140

110

120

100

100

90

80

80

60

70

40

60

University of Michigan

Survey of Consumers

20

50

82 87 92 97 02 07 12 17

Small Businesses Are Surging NFIB Survey of Small-Business Sentiment (Percent)*

60 50 40 30 20 10

0 ?10 ?20 ?30 ?40

87 92 97 02 07 12 17

Macroeconomic Cycle Transitioning from the Sweet Spot in 2018?

Growth Rising/ Inflation Low

18 17

16

Growth High/ Inflation Rising 18

19

15

Growth Low/ Inflation Falling

Growth Falling/ Inflation High

As of December 31, 2017 Historical analysis and current forecasts do not guarantee future results. *NFIB: National Federation of Independent Business Source: The Conference Board, Thomson Reuters Datastream and AB

CMO 1Q18 | 7

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