Year in Review - Edward Jones Investments

Asset Class Performance

15%

Fixed Income

10%

Third Quarter 3-year Annualized Return -

Equities

5%

0%

-5%

-10%

-15%

Cash

U.S.

High-yield

Investment- Bonds

grade Bonds

Int'l Bonds

Int'l High-yield

Bonds

U.S. Large-cap

Stocks

Real Estate

Developed Int'l Largecap Stocks

U.S. Mid-cap Stocks

U.S. Small-cap

Stocks

Int'l Small-cap

Stocks

Emerging- Commodities market Stocks

Source: Morningstar Direct, 9/30/2020. Cash represented by the Barclays U.S. Treasury Bellwethers 3Mon Index. U.S. investment-grade bonds represented by the Barclays U.S. Aggregate Bond Index. High-yield bonds represented by the Barclays U.S. HY 2% Issuer Cap Index. International bonds represented by the Barclays Global Aggregate Ex U.S. Index. International high-yield bonds represented by the BbgBarc Global High-yield Index. U.S. large-cap stocks represented by the S&P 500 Index. REITs represented by the FTSE NAREIT All Equity REITs Index. Developed international large-cap stocks represented by the MSCI EAFE NR Index. U.S. mid-cap stocks represented by the Russell Mid-cap Index. U.S. small-cap stocks represented by the Russell 2000 Index. International small- and mid-cap stocks represented by the MSCI EAFE Small-cap Index. Emerging-market stocks represented by the MSCI EM Index. Commodities represented by the S&P GSCI Index. Past performance does not guarantee future results. An index is unmanaged and is not available for direct investment.

QUARTERLY MARKET OUTLOOK: FOURTH QUARTER 2020

Third Quarter in Review

Despite a turbulent September, equities in Q3 continued a strong rebound from their March lows. We think this bounce in economic activity sets a solid backdrop of support for a new bull market. However, elevated uncertainty tied to the pandemic and presidential election is likely to trigger periodic downswings in equities for the remainder of 2020.

Late-quarter turbulence ? International small-cap stocks, which benefited from a weakening dollar over the summer, had the strongest returns for the quarter, up 10.3%. Strong performance in Asian equities also led emergingmarket stocks to return 9.6% in Q3. China, which makes up roughly a third of the MSCI emerging-market index, contained the virus early and sharply increased fiscal spending. China is one of the few economies expected to have positive GDP growth in 2020, according to the International Monetary Fund. Despite falling 4% in September, U.S. large-cap stocks continued their steep rally as well ? up 8.3% over the quarter and 5.9% for the year.

Keeping a lid on bond returns ? Cash returns were mostly flat, and investmentgrade fixed-income returns were up just 0.6% for the quarter, as the Federal Reserve kept the benchmark federal funds rate near zero. The 10-year yield drifted between 0.5% and 0.7%, far lower than the 1.9% yield at the beginning of the year. In addition to adding $3 trillion to its balance sheet through bond purchases, the Fed pledged to keep rates low for several years.

Elevated volatility likely to continue ? We think slower growth, the unpredictable path of the pandemic and the upcoming presidential election will make markets vulnerable to occasional downward swings. But with the recovery in corporate earnings likely already underway, we expect the bull market to continue, aided by accommodative monetary policy and fiscal stimulus spending.

Action for Investors

Given elevated uncertainty tied to the pandemic, we recommend broadly diversifying across asset classes to help buffer your portfolio from downward market swings. Adding highyield bonds, as appropriate, may help enhance fixed-income returns in an environment where rates are likely to stay low for the next few years.

Diversification does not ensure a profit or protect against loss in a declining market. Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.

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RES-10486Q-A EXP 31 JAN 2021 ? 2020 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.

A Strong Rebound but Still a Lot of Ground to Cover

New York Fed Weekly Economic Index

Tracks GDP growth based on timely economic activity indicators

6%

4%

2%

0%

-2%

-4%

-6% -3.9%

-8%

-10%

-12%

-14%

2008

2010

2012

2014

2016

2018

2020

4%

Weekly Economic Index in 2020

2%

0%

-2%

-4.7%

-4%

-6%

-8%

-10%

-12%

-14% Jan. 2020

-11.5%

Mar. 2020

May 2020

July 2020

Sept. 2020

Source: FactSet, Federal Reserve Bank of New York, 9/30/2020.

QUARTERLY MARKET OUTLOOK: FOURTH QUARTER 2020

Economic Outlook

We believe the economy has formed a durable bottom, but the pace of growth will slow and the return to pre-pandemic levels will take time. A gradual improvement in the labor market, along with low interest rates and fiscal stimulus, should help sustain the economic recovery into 2021.

Action for Investors

We expect gradually improving economic fundamentals and

Recovery likely entering a slower phase ? Following a record GDP decline in Q2, the economy experienced an initial V-shaped recovery. We believe this strong rebound will give way to slower but sustained growth as fiscal relief is gradually phased out and the initial reopening boost fades. Timely economic activity indicators such as tax collection data, employment and electricity consumption suggest that as of Q3, the economy has recovered almost twothirds of its pandemic-induced losses. That's a good first step, but there is still a lot of ground to cover, and the next leg of the rebound will likely take longer.

low rates to support rising equities. While the range of economic outcomes remains wide, in our view it's narrower than in the early stages of the pandemic. This is why we believe an allocation in the

Labor market holds the key ? Provided that medical solutions for the virus continue to progress, we think a gradual improvement in the labor market will drive a durable and self-sustaining recovery heading into 2021. Unemployment remains high, and further employment gains are needed to support the handoff from stimulus to growth and help drive consumer spending, which makes up the lion's share of the economy. But consumers are in better shape compared to past recessions, with the personal saving rate elevated (14.1% vs. a 7% average over the last 30 years) and debt ratios low.

middle of the equity/fixedincome range is generally appropriate.

A two-track economy until a vaccine arrives ? Major industries either remain capacity-constrained or experience weak demand, which is preventing the economy from reaching its full potential. This uneven recovery is evident in the shifting demand patterns from services to goods. As of August, consumer spending in goods was 5% above the February peak, but spending on the far bigger category of services (e.g. restaurants, hotels) remained 7% below peak.

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RES-10486Q-A EXP 31 JAN 2021 ? 2020 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.

S&P 500 Revenue & Earnings Estimates (YoY Change %)

40%

30%

Actuals

Estimates

20%

10%

0% -10% -20%

-11% -35%

-8% -15%

-5%

-9%

-30%

-40%

Q2 '20

Q3 '20 E

Q4 '20 E

Revenue

EPS

27% 8%

FY '21 E

Source: Bloomberg, 9/30/2020.

QUARTERLY MARKET OUTLOOK: FOURTH QUARTER 2020

Equity Outlook

The longer-term outlook for stocks is positive in our view, with support from economic growth, corporate earnings and interest rates. In the near term, we expect volatility to remain elevated and markets to consolidate recent gains. We don't believe the gains experienced since March will be matched in the months ahead, but we do think a durable economic expansion will give legs to the new bull market.

A new bull market emerges ? Following a powerful six-month rally, the S&P 500 eclipsed February's high. We expect a gradual economic recovery, accommodative central bank policy and improving corporate earnings to support this new bull market. Stocks are looking across the valley in economic activity, which likely explains the disconnect between the stock market and the economy. While the virus will largely dictate market outcomes, if history is any guide, gains are not exhausted.

Earnings on track to inflect higher ? Corporate earnings have taken a sizable hit, declining 35% in Q2. Earnings are expected to improve in the latter part of 2020 and then rebound strongly in 2021. This severe recession was shortlived, which helped corporate profitability hold up better than expected. In addition, earnings for the two most heavily weighted sectors ? technology and health care ? remained resilient. As the economic recovery plays out, we expect the equity rally to broaden, potentially driving a rebound in asset classes and sectors that have lagged.

Action for Investors

Stay balanced and diversified but also opportunistic, deploying available cash toward your longterm goals, if appropriate. We think diversification across a broad mix of asset classes and sectors can best position you for the longer-term bull market, while also helping defend against volatility.

Diversification does not ensure a profit or protect against loss in a declining market.

Markets may take a breather ? The quarter ahead looks increasingly challenging amid virus concerns, waning fiscal support and rising U.S.-China tensions. At the same time, full valuations leave little margin for error and are likely to drive more moderate gains. We think the new bull market has legs, but we expect periodic setbacks to produce episodes of volatility.

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RES-10486Q-A EXP 31 JAN 2021 ? 2020 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.

Lower for Longer Interest Rates through 2023

U.S. Recessionary Periods

10-year Treasury Yield %

20%

Real 10-Year Treasury Yield, Adjusted for Inflation

15%

10%

5%

0%

-5%

-10% Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan. May 1962 1964 1966 1969 1971 1973 1976 1978 1980 1983 1985 1987 1990 1992 1994 1997 1999 2001 2004 2006 2008 2011 2013 2015 2018 2020

Source: FRED, 1962 ? 2020.

QUARTERLY MARKET OUTLOOK: FOURTH QUARTER 2020

Fixed-income Outlook

Through near-zero interest rates, bond purchases and newly enacted credit facilities, the Federal Reserve has gone to extraordinary measures to provide ample liquidity to the credit market. We expect monetary policy will remain highly accommodative for several years to support the economic recovery.

Heavy-handed Fed policy continues ? The Fed is likely to keep the benchmark federal funds rate, which provides an anchor for short-term rates, near zero through 2023. Additionally, the central bank has committed to continued purchases of bonds (Treasuries, corporates and mortgage securities) to keep borrowing costs low for consumers and firms.

Fed inflation policy will keep benchmark rates low ? In September, the Fed announced it would no longer pre-emptively raise interest rates as inflation crept above its 2% target. Instead, higher levels of inflation would be tolerated "for some time" before the Fed hiked interest rates. Inflation was running below 2% even during the previous economic expansion. The COVID-19 pandemic has cut the inflation rate from 2.4% in February to 1.7% by the end of Q3. Even though we expect inflation to rise modestly as the economy improves, still-moderate price increases for goods and services give the Fed the latitude to keep rates low to stimulate the economy and, by doing so, help drive down the unemployment rate closer to pre-pandemic levels.

With yields this low, why own bonds? Even at low rates, bonds tend to move in opposite direction to equities. Moreover, real yields (nominal rates adjusted for inflation) are below zero, as shown in the chart. Cash and other short-term debt instruments are unlikely to hold their value in the current macro environment. Owning bonds across a range of maturities gives you the opportunity to reinvest maturing securities at higher yields as the economy recovers.

Action for Investors

Though bonds can help reduce

risk even when rates are low, be

sure to revisit your expectations

for your fixed-income portfolio's

ability to generate income.

We recommend you own

fixed-income securities across

sectors, including investment-

grade, high-yield corporate

debt and emerging-market

bonds as appropriate.

Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity. You must evaluate whether a bond ladder and the securities held within it are consistent with your investment objectives, risk tolerance and financial circumstances.

Member SIPC

RES-10486Q-A EXP 31 JAN 2021 ? 2020 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.

MSCI ACWI ex. U.S. Annual Return

Global GDP Growth (%)

Global GDP and International Equity Market Returns in Years of Improving Economic Growth

Global GDP Growth (%)

MSCI ACWI ex. U.S. Annual Return

ACWI Average Annual Return

8%

2021 Forecast

6%

5.4%

30%

4%

15% 2%

0%

0%

-2%

2020 Forecast

-15%

-4%

-4.9%

-6% 1 98 8

1 99 2

1 99 6

2 00 0

2 00 4

2 00 8

2012

2 01 6

2020

-30%

Source: Morningstar, MSCI All-Country World Index ex. U.S. returns. Past performance is not a guarantee of future performance.

QUARTERLY MARKET OUTLOOK: FOURTH QUARTER 2020

International Outlook

The global economy is in the early stages of a rebound, though disparate conditions between major economic regions and resurfacing pandemic challenges will likely make for a protracted recovery. We think monetary and fiscal policies will remain highly supportive. An enduring, though modest, expansion should support positive global equity market performance ahead.

Uneven global recovery ? The international rebound won't proceed in a rapid or steady fashion. In spite of reopening setbacks, threats to global trade activity and political instability, we think global growth will improve next year, aided significantly by continued sizable monetary and fiscal stimulus abroad. Coordination by EU policymakers to launch the euro recovery fund, aggressive stimulus from the world's major central banks and accommodative policies from Chinese authorities signal to us that global policymakers are committed to fostering a sustained recovery.

Help from the U.S. dollar ? The U.S. dollar appreciated steadily in recent years, but the pandemic-driven global recession has reshuffled the deck. We think the strength of the U.S. dollar could abate. Improving global growth can be a headwind for the greenback because the dollar is more of a safe-haven currency. Smaller interest rate differentials between the U.S. and foreign markets offer less upward support for the dollar.

International performance following global slowdowns ? As the global expansion gains footing, we think investment performance will broaden beyond the leadership so far in this rally. We think this warrants exposure to lagging areas such as global equities and cyclical assets/sectors, which have higher representation in foreign equity markets.

Action for Investors

We recommend a neutral allocation to international equities, with a larger exposure to developed markets such as Europe and Japan versus emerging markets.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

Member SIPC

RES-10486Q-A EXP 31 JAN 2021 ? 2020 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.

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