Quarterly Market Update

Commentary Fourth Quarter 2021

Quarterly Market Update

PRIMARY CONTRIBUTORS

Lisa Emsbo-Mattingly, CBE

Director of Asset Allocation Research

Dirk Hofschire, CFA

SVP, Asset Allocation Research

Jake Weinstein, CFA

Research Analyst, Asset Allocation Research

Jenna Christensen

Research Associate, Asset Allocation Research

Andrew Garvey

Research Associate, Asset Allocation Research

Table of Contents

Market Summary Economy/Macro Backdrop Asset Markets Long-Term Themes

Market Summary

SUMMARY

Supply Challenges, Peaking Growth, and Policy Support

The broadening global expansion faced numerous crosswinds, leading to mixed asset-market results. Global vaccination progress continued, but supply disruptions due to virus outbreaks, labor-market constraints, and severe weather restrained growth and sustained inflationary pressures. The cyclical backdrop is still favorable, but a move to a less accommodative stance by policymakers likely would present a challenge to asset returns.

MACRO

ASSET MARKETS

Q3 2021

? Global economic expansion continued, but virus ? Asset prices were largely unchanged. and supply disruptions weighed on momentum.

OUTLOOK

? Vaccination advances likely to keep global expansion proceeding, but varied progress across regions.

? China's deceleration and regulatory tightening are the greatest risk to global growth.

? U.S. activity rates passed their peak, but a solid consumer sector supports a steady, midcycle phase.

? Supply-side constraints are likely less transitory than expected, generating more persistent inflationary pressures for longer.

? Monetary and fiscal policy still accommodative, but stimulus and liquidity growth likely to ebb.

? Policy decisions are likely to have an increasingly large influence on asset returns.

? Buoyant asset valuations reflect positive expectations built into asset prices.

? Slower liquidity growth and the potential for a more inflationary backdrop may raise the odds of higher market volatility.

? Cyclical outlook remains constructive, but portfolio diversification is as important as ever.

4 Diversification does not ensure a profit or guarantee against a loss.

SUMMARY

Flattish Returns for Many Assets During Range-Bound Q3

Prices for most asset categories finished largely unchanged from where they started the quarter. Commodities posted strong gains, ranking as the top-performing category year to date, supported by solid industrial demand and restrained production. Emerging-market equities declined on concerns around China's regulatory tightening and slowing growth. Year to date, U.S. stock performance remained strong, while bond returns were lackluster.

Commodities Real Estate Stocks High Yield Bonds Non-U.S. Small Cap Stocks U.S. Large Cap Stocks Long Government & Credit Bonds Investment-Grade Bonds

Q3 2021 (%)

6.6 1.0 0.9 0.9 0.6 0.1 0.1

YTD (%)

29.1 23.1 4.7 10.0 15.9 -4.6 -1.6

U.S. Corporate Bonds Non-U.S. Developed-Country Stocks Emerging-Market Bonds Gold U.S. Mid Cap Stocks U.S. Small Cap Stocks Emerging-Market Stocks

Q3 2021 (%)

0.0 -0.4 -0.5 -0.7 -0.9 -4.4 -8.1

YTD (%)

-1.3 8.3 -1.5 -7.4 15.2 12.4 -1.2

20-Year U.S. Stock Returns Minus IG Bond Returns Since 1946

Annualized Return Difference

15%

13%

11%

9%

7%

Average since 1946: 5%

5%

3%

1%

-1%

-3%

5.1%

1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2021

Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. See Appendix for important index information. IG: Investment grade. Assets represented by: Commodities--Bloomberg Commodity Index; Emerging-Market Bonds--JP Morgan EMBI Global Index; Emerging-Market Stocks--MSCI EM Index; Gold--Gold Bullion, LBMA PM Fix; High-Yield Bonds--ICE BofA High Yield Bond Index; Investment-Grade Bonds--Bloomberg U.S. Aggregate Bond Index; Non-U.S. Developed-Country Stocks--MSCI EAFE Index; Non-U.S. Small Cap Stocks--MSCI EAFE Small Cap Index; Real Estate Stocks--FTSE NAREIT Equity Index; U.S. Corporate Bonds--Bloomberg U.S. Credit Index; U.S. Large Cap Stocks--S&P 500?; U.S. Mid Cap Stocks--Russell Midcap? Index; U.S. Small Cap Stocks--Russell 2000? Index; Long Government & Credit Bonds--Bloomberg Long Government & Credit Index. 5 Source: Bloomberg Finance L.P., Haver Analytics, Fidelity Investments Asset Allocation Research Team (AART), as of 9/30/21.

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