MARKET INSIGHTS

MARKET INSIGHTS: NEW DEVELOPMENTS, WHAT TO CONSIDER, AND TOP QUESTIONS ANSWERED

Our Speakers

Host

Jim Armstrong Marketing Director, Fidelity Investments Jim Armstrong is a Marketing Director in Fidelity's Personal Investing division. In this position, he creates educational content for workplace participants to help with retirement planning and other financial wellness topics. Formerly, Jim distinguished himself as an Emmy-winning journalist, spending 17 years as a television reporter for network affiliates around the country.

Special guest panelists

Denise Chisholm Sector Strategist, Fidelity Investments Denise Chisholm is a sector strategist in the Equity and High Income division at Fidelity Investments. In this role, Denise is responsible for the research of portfolio construction strategies combining sector-based mutual funds and exchange-traded funds (ETFs). Prior to assuming her current responsibilities in April 2013, Denise held multiple roles within Fidelity, including research analyst on the megacap research team, research analyst on the international team, and sector specialist.

Lars Schuster Institutional Portfolio Manager, Fidelity Investments Lars Schuster is an institutional portfolio manager at Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company. In this role, he is a member of the investment management team and is responsible for delivering Strategic Advisers' managed account investment philosophy, process, and ongoing activities to a wide range of investors.

Fiscal Policy to Mitigate Downdraft -- but Not End It

CARES Act: Categories and Fiscal Multipliers

Category

Cash to Individuals Unemployment Insurance Aid to State and Local Governments Public Health Spending Loans to Small Businesses Tax Relief for Businesses Targeted Industry Support Risk Capital for Fed Facilities Total*

USD (Billions)

290 250 150 340 376 232 78 454 2,170

Multiplier

1.9 1.9 1.8 2.3 1.9 0.3 1.1 N/A 1.7

GDP Impact

3% 2% 1% 4% 3% 0% 0% N/A 14%

*Total multiplier and GDP impact columns exclude $454 appropriated to provide risk capital to support the Fed's lending facilities listed in the previous slide. While these facilities are helpful for financial conditions, their impact on GDP remains unclear. LEFT: CARES is defined as "Coronavirus Aid, Relief, and Economic Security." Targeted industry support assumes the average multiplier for cash transfers and tax relief. The multiplier is defined as the ratio of a change in GDP over a change in fiscal deficit. Source: Congressional Budget Office, Brookings Institution, Fidelity Investments (AART), as of 3/31/20. RIGHT: Source: Bloomberg Finance L.P., U.S. Treasury, Fidelity Investments (AART), as of 1/31/20.

What Are We Watching?

Proprietary COVID-19 Models High-Frequency Economic Indicators. Examples include:

Initial Weekly Jobless Claims Manufacturer New Orders Credit Card Spending Data Senior Loan Officer Surveys

Corporate Earnings Outlook

Likely too Late to be Bearish

Valuation Spreads Have Jumped in Recent Weeks amid Uncertainty

Average Valuation Spreads

Investors Have Also Rotated Quickly into Defensive Sectors

Cyclical Sectors Minus Defensive Sectors Cumulative Relative Performance (Average, Equal-Weighted across Sectors)

300

250

200

150

100

50

1996 1997 1998 1998 1999 2000 2001 2002 2003 2004 2004 2005 2006 2007 2008 2009 2009 2010 2011 2012 2013 2014 2015 2015 2016 2017 2018 2019 2020

Past performance is no guarantee of future results. Valuation spread measured as an equal-weighted average spread of trailing price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, forward P/E ratio, and price-to-free-cash-flow (FCF) ratio of the top 3,000 U.S. stocks by market capitalization. Sector analysis based on the top 3,000 stocks by market capitalization relative to the Russell 3000 Index. Cyclical sectors: communication services, consumer discretionary, energy, financials, industrials, materials, real estate, technology. Defensive sectors: consumer staples, health care, utilities. Source: Haver Analytics, Fidelity Investments, as of Mar. 31, 2020.

Well-Diversified Portfolio Advisory Services Accounts Have More Conservative Investment Positioning, Reflecting Our View of an Onset Recession

Total Return Approach Asset Class Positioning, September 2016 through March 2020

Relative weight versus long-term asset allocation mix (%)

Diversification does not ensure a profit or guarantee against loss. This chart represents the relative asset class weights over time versus the long-term asset allocation mix of a PAS Total Return Growth with Income Blended preference. Stocks reference both U.S. and international stock allocations. Bonds represent investment-grade bond allocations. Short-term investments include money market funds and short-duration bond fund allocations. Extended asset classes refer to allocations to funds not within traditional stock, investment-grade bond, and short-term investment categories, including high-yield bond, commodity, and alternative investment allocations. The Growth with Income strategy has a long-term asset allocation mix of 42% domestic stock (Dow Jones U.S. Total Stock Market Index), 18% foreign stock (MSCI All Country World ex-U.S. Index (net MA)), 35% bonds (Bloomberg Barclays US Aggregate Bond Index), 5% short-term investments (Bloomberg Barclays 3-Month Treasury Bill Index). As of 3/31/2020. Current composition may differ, perhaps significantly. Source: Strategic Advisers LLC, as of 3/31/2020.

Cyclical Sectors Often Led Following Recession Troughs

Overall, Cyclical Sectors Have Outpaced the Market in the Six Months after Recessionary Lows

Historical Odds of Sector Outperformance following a Market Trough, 1970?2019

Financials, Real Estate, and Discretionary Have Performed Best following Market Bottoms

Average Relative Returns following a Market Trough, 1970?2019

90%

86%

80%

71% 71%

71% 71% 71%

70%

60%

50% 43%

43%

43%

40%

30%

29%

29%

20%

10%

0%

12%

10%

9.3%

8% 6% 4% 2% 0.3% 0%

6.3% 1.1%

6.5%

3.7% 2.6%

-2%

-4%

-2.4%

-6%

-8%

-6.4%

-3.8%

-5.6%

Cons. Stpls. Utilities

Health Care Financials

Cons. Disc. Technology

Energy Industrials

Materials Real Estate Comm. Serv. Cons. Stpls.

Utilities Health Care

Financials Cons. Disc. Technology

Energy Industrials

Materials Real Estate Comm. Serv.

Past performance is no guarantee of future results. Sector analysis based on the top 3,000 U.S. stocks by market capitalization relative to the Russell 3000 Index. Data includes the seven recessionary market troughs between 1970 and 2019. Recessions as defined by the National Bureau of Economic Research (NBER), representing 10% of the periods studied. Source: NBER, Haver Analytics, Fidelity Investments, as of Mar. 31, 2020.

MARKET INSIGHTS: NEW DEVELOPMENTS, WHAT TO CONSIDER, AND TOP QUESTIONS ANSWERED

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