CI ISM IC Investment Insights...2 of 13 April 2020 – Investment Insights stages. Eventually, Phase 4, or the pent-up demand cycle, should emerge as consumption strengthens and a

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April 2020The Great Separation

3060073 4/2020

Investment InsightsCHIEF INVESTMENT OFFICE

The opinions are those of the author(s) and subject to change.

AUTHORED BY:

Chris HyzyChief Investment Officer

Joseph QuinlanManaging Director and Head of CIO Market Strategy

Marci McGregorManaging Director, Investment Solutions

Lauren J. SanfilippoVice President and Market Strategy Analyst

Kirsten CabacunganInvestment Analyst

Data as of 4/27/2020 and subject to change.

As the journey out of the valley and over the bridge continues, the potential phases of recovery remain largely in focus (Exhibit 1). The double exogenous shock from the coronavirus and oil price war in Phase 1 led to historic market volatility and liquidity concerns. The Federal Reserve (Fed) responded by aggressively lowering its policy rate to zero, restarting quantitative easing (QE) and providing significant liquidity through various facilities to help ensure financial markets operated smoothly. Still the economy braced for a sharp downturn as containment efforts effectively shut down the economy, ushering in Phase 2, a bridge period, characterized by massive fiscal stimulus packages designed to cushion the fallout and provide relief in the face of social distancing. The unprecedented levels of liquidity injection and stimulus measures, and eventual progress on the health crisis, should help to ultimately present Phase 3, the economic recovery. On the other side of the bridge, this phase could see the economy slowly reopen and follow a U-shaped recovery, with a cautious consumer and a workforce reintroduced in

Exhibit 1: The Journey Along the Great Separation.

1

1

2

2

3

3

4

4

5

5

• Consumption strenthens• Economic data improves• Unemployment levels decline• Profit cycle climbs back to prior level• Equity markets revalued upward as

multiples expand and rates stay low

• Economy reopens• Testing, tracking, treatment ramp up• Volatility declines further• U-shaped recovery unfolds• Steady pace toward normalization

• Fiscal stimulus Coronavirus Aid, Relief, and Economic SecurityAct ("CARES Act")

• Synchronized global policy response• Equity markets bottom complete• Credit and liquidity trend to normal• Restrictions ease slowly by region

• Fixed Income Market Seizes

• Record Volatility• Equity Market Freefall

3/2020• Liquidity Crunch• Virus Freefall • Shutdown• Massive Policy Support• Liquidity Programs• Small Business

Lending Program

2/19/2020 S&P 500 3,386.15

Q3 2018–2019Tight Monetary Policy,

US-China Trade War

2011–2012U.S. Debt Downgrade,European Sovereign

Debt Crisis

3/09/2009S&P 500676.53

3/23/20S&P 5002,237.40

Q1 through Q3 2020 Q4 ’20Q1 ‘21

Q2 2021YE 2021

2010Greece

Debt Crisis

Q4 2015–Q1 2016Double Oil PriceCollapse

Global Financial Crisis (GFC) Market Bottom

• Coronavirus cases pick up globally• Social distancing begins• Volatile markets andliquidity concerns• Monetary policy response (cut rates

to zero, “unlimited” QE, liquidity facilities)

PHASE 1: LIQUIDITY

PHASE 1: LIQUIDITY

PHASE 2:THE BRIDGE

PHASE 3:ECONOMICRECOVERY

PHASE 4:PENT-UPDEMANDCYCLE

PHASE 5:THE NEWFRONTIER

PHASE 2: THE BRIDGE PHASE 3: ECONOMIC RECOVERY PHASE 4: PENT-UP DEMAND CYCLE

• Quality• Bio-Security• Brand Power• Innovation• Social Distancing• Health/Wellness• Personal Protection

• Expect equities to outperform fixed income• Emphasize Quality, Yield, Growth• Favor U.S. over the rest of the world• Stay disciplined with a goals-based plan• Maintain a diversified portfolio

• Telecommuting• Equity Culture Reborn• Environmental, Social and Governance (ESG)• Big Is Better• Artificial Intelligence (AI), 5G, the Cloud• Localization• e-Everything

PHASE 5: THE NEW FRONTIER

CIO PORTFOLIO STRATEGY OVERVIEW

2022

Source: Chief Investment Office as of April 27, 2020. Past performance is no guarantee of future results.

2 of 13 April 2020 – Investment Insights

stages. Eventually, Phase 4, or the pent-up demand cycle, should emerge as consumption strengthens and a more robust economy and profit cycle climbs back to previous levels. The recovery journey culminates in Phase 5, the new frontier, where new behaviors cement themselves into daily consumer and business life, supporting new industries and an acceleration in innovation. The charts that follow provide a visual roadmap through these phases.

PHASE 1: LIQUIDITY

Exhibit 2: A melt-up scenario was on track until the virus picked up globally.

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1/22 1/25 1/28 1/31 2/3 2/6 2/9 2/12 2/15 2/18 2/21 2/24 2/27

New Daily Coronavirus CasesTotal Number

S&P 500 IndexPrice LevelMainland China World excl. China S&P 500

New global cases surpass new cases within China

S&P 500 Peak

Source: World Health Organization. Data as of February 2020. February 17 data for mainland China new daily cases interpolated due to change in calculation methodology. Past performance is no guarantee of future results.

Exhibit 3: The coronavirus outbreak led to historic uncertainty.

0%20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25

20%

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100%

2000

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20

2

0

Total Return Monthly Volatiliy (LHS)

Oct ‘29: TheGreat Crash

Oct ‘87: “Black Monday”Oct ‘08: GFC

Feb ‘20: Coronavirus

S&P 500 total return (RHS)

Source: BofA Global Research. Data as of March 2020. Past performance is no guarantee of future results.

• Markets reacted slowly to the coronavirus outbreak in China as the S&P 500 continued to reach all-time highs, despite the rapidly rising number of cases.

• As coronavirus cases picked up globally, uncertainty over the magnitude and duration of the virus led to mass de-risking and highly sensitive markets to news headlines.

• Liquidity fears increased as long-term bond yields reached record lows and credit spreads widened out.


Exhibit 4: Markets stop panicking once policymakers start panicking.

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2007–2009 Global Financial CrisisS&P 500 Index Level

FOMC* first cuts rates to 4.75% from 5.25%

Stock Market Peaks

Treasury Creates $75b Superfund Fed cuts rates a fifth time to 3%

Economic Stimulus Act

Fed guarantees $30b of Bear Stearns' assets; Announces PDCF**, TSLF***.

FOMC cuts rates a 7th time (to 2%)

Housing & Economic Recovery Act

Fannie/Freddie nationalized; Lehman fails; AIG rescue; Fed announces AMLF****.

Congress Passes TARP*****; Fed announces Commercial Paper Funding Facility (CPFF).

Fed Announces QE and TALF******; Unemployment Compensation Extension Act

FOMC cuts rates to zero (10th and final rate cut during crisis); Auto bailouts begin

American Recovery and Reinvestment Act ($787b stimulus)

Stock Market Bottoms

Supplemental Appropriations Act

Fed announces US$ swaplines and term auction facility

* Federal Open Market Committee (FOMC). ** Primary Dealer Credit Facility (PDCF). *** Term Securities Lending Facility (TSLF). **** Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). ***** Troubled Asset Relief Program (TARP). ****** Term Asset-Backed Securities Loan Facility (TALF). Sources: Bloomberg; Chief Investment Office. Data as of April 22, 2020. Past performance is no guarantee of future results.

• Lessons from the Global Financial Crisis 2008/2009 reveal fragile markets look for an aggressive policy response before conditions improve.

• After some fits and starts, various policy measures over 2008/2009, and in subsequent years, helped cushion the negative economic impact of the financial crisis. Policy makers learned that bigger was better—in terms of both fiscal and monetary responses—which helped form a bottom in U.S. and global equities.

Exhibit 5: The Fed responded quickly and aggressively to the Coronavirus Panic.

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Index Level $ Trillions S&P 500 Index (LHS) Federal Reserve Total Balance Sheet Assets (RHS)

Sources: Bloomberg; Chief Investment Office. Data as of April 22, 2020. Past performance is no guarantee of future results.

• Given the stress in the credit markets, the Fed responded by cutting interest rates to the effective zero lower bound (0–25 basis points (bps)), restored QE, and launched a series of emergency funding programs to keep markets functioning.

• The Fed’s balance sheet grew by trillions in the span of several weeks and is expected to continue to move higher in the coming months.


PHASE 2: THE BRIDGE, OR ECONOMIC BUFFER

Exhibit 6: From record employment to record unemployment.

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8000

U.S. Initial Jobless ClaimsThousands

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Weekly jobless claims peakedat 665,000 in March 2009

Weekly jobless claims surged to ahigh of 6.9 million in March 2020Weekly jobless claims surged to ahigh of 6.9 million in March 2020


Exhibit 7: Unprecedented monetary policy is met with the fiscal “bazooka.”

0

1

2

CARES Act

$ Trillion

Added Treasury Capital to backstop the Fed's lending Facilities

Loans for small business and nonprofitsIndustry support for airlines and other significantly affected sectorsAdditional tax relief measures

Recovery rebates to individuals

Expanded unemployment insurance

Appropriations for public services

Payments to states and territories

Individuals

Businesses

PublicServices

Sources: Cornerstone Marco Research; Chief Investment Office. March 2020.

Exhibit 8: The crisis has ushered in a synchronized global policy response.

Central Bank Liquidity Injection

Government Fiscal Stimulus

Central Bank Liquidity Injection and Government

Fiscal Stimulus

$ Trillion % GDP** $ Trillion % GDP $ Trillion % GDP

U.S. $4.80 22.4% $2.71 12.7% $7.51 35.0%

Eurozone $1.10 8.3% $1.43 10.7% $2.53 19.0%

Japan $0.20 3.9% $0.99 19.2% $1.19 23.1%

UK $0.25 9.0% $0.07 2.4% $0.31 11.4%

China $1.27 8.9% $0.54 3.8% $1.81 12.8%

Others* $0.65 $1.85 $2.50

Total $8.27 9.5% $7.59 8.8% $15.86 18.3%

* includes Rest of World and Asian Development Bank, International Monetary Fund, World Bank. ** Gross domestic product. Source: Cornerstone Macro. Data as of April 12, 2020. Past performance is no guarantee of future results.

• Weekly initial jobless claims surged to levels 10x the peak seen during the Global Financial Crisis.

• The government passed the “CARES Act”, a stimulus bill with a projected cost at over $2 trillion with the goal of providing relief to businesses, individuals and public services.


Exhibit 9: Credit markets have started to trend back to normal.

0

1

2

3

4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Investment Grade Option Adjusted Spread (OAS)Percent (%)

April 21: 2.14%


Exhibit 10: A record fast decline to a record fast rally.

Duration (Trading Days)

5%0 10 20 30 40 50 60 70 80 90 100

10%

15%

20%

25%

30%

35%

Mag

nitu

de %

S&P 500 Bear Market Rallies (1950 to Present)

Sep. ‘01 to Jan. ’02

Nov. ‘08 to Jan. ’09

Average:+15%, 34 Trading Days

Current:30%, 15 Trading Days

Source: Strategas. Data as of April 17, 2020. Past performance is no guarantee of future results.

Exhibit 11: Equities still remain more attractive relative to fixed income.

8%

12%

16%

8%

4%

4%

0%

0%1957 1967 1977 1987 1997 2007 2017

1957 1967 1977 1987 1997 2007 2017

-4%

-8%

Earnings Price Yield (EP) for S&P 500 Minus Yield to Maturity (YTM) of 10-Year Treasuries

Spread

S&P 500 E/P

MedianS&P 500 E/P Minus 10-Yr. Treas. YTM

10-year Treasury YTMS&P 500 E/P

Source: Bhirud Associates. Data as of April 17, 2020. Past performance is no guarantee of future results.

• Since the liquidity injection by the Fed, investment grade spreads have started to narrow back to a normal range between 1-2%.

• Following the fastest move to a bear market in decades, equity markets bounced back just as fast, as investors look forward to the reopening of the economy supported by massive stimulus.

• In a low-yielding world, equities are expected to continue to outperform fixed income; preference: Quality (U.S. large cap), Yield (secure dividends) and Growth.


PHASE 3: THE ECONOMIC RECOVERY

Exhibit 12: Virus containment could lead to a U-shaped recovery.

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16.5

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19.5

Trillions of U.S. Dollars(chained to 2012)

Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21

Real GDP (Trillion USD$, Seasonally Adjusted Annual Rate) BofA Global Research forecast

Sources: BofA Global Research; Bureau of Economic Analysis. Data as April 2020. Past performance is no guarantee of future results.

Exhibit 13: China’s sharp rebound in manufacturing signals encouraging signs of economic recovery.

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45

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352007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

China Manufacturing Purchasing Managers’ Index (PMI)Index ( >50 = Expansion)

Sources: Bloomberg; China Federation of Logistics and Purchasing; Chief Investment Office. Data as of April 22, 2020. Past performance is no guarantee of future results.

Exhibit 14: After China’s peak in cases, some workers began to return to work.

0%% of employeesreturned to work

Resumption rate Utilization rate

10%

20%

30%

40%

50%

60%

70%

80%

90%Rate of Work Resumption as of February 20 State-Owned Enterprises Private

Note: For top 500 manufacturers. Sources: BofA Global Research; China Enterprise Confederation. Data as of March 2020. Past performance is no guarantee of future results.

• Progress on the health crisis could support a slow reopening of the economy, allowing workers to return to work and the economy to begin to resume.

• The large flush of liquidity into the system could help the recovery follow a U-shape, as uncertainty over the duration of the health crisis subsides and the focus shifts to a strong resumption in economic activity.

• According to modeling research estimates, the pandemic’s timeline has followed a similar pattern in each region. The rise in new cases tends to peak about six weeks after the outbreak begins and decline for about six weeks thereafter. Once new cases begin to decline, phased reopenings can likely begin. If this pattern continues, the path toward normalization and economic recovery seen in countries already “on the other side” could be potential examples for countries farther behind. China’s recovery could be a glimpse into what lies ahead for the rest of the world.


Exhibit 15: A pickup in Chinese auto sales shows a strengthening consumer.

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China Automobile Sales Passenger CarMillions

Auto Sales jumped 366% in Marchfrom the February trough

Sources: Bloomberg; China Federation of Logistics and Purchasing; Chief Investment Office. Data as of April 22, 2020. Past performance is no guarantee of future results.

Exhibit 16: Traffic volumes are steadily trending higher as China eases slowly back into their routines.

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1,050Index

-10 10 20 30 40 50 60 70 80 90day

0

2020 2019Nationwide migration

Lunar New Year Ching Ming Festival

InternationalLabor Day

Ching Ming Festival

Sources: BofA Global Research; Baidu. Data as of April 19, 2020. Past performance is no guarantee of future results.


PHASE 4: THE PENT-UP DEMAND CYCLE

Exhibit 17: Consumers cut back on spending across the board…

Bank of America Corporation (BofA Corp.) Monthly Aggregated Card Spending Growth by Major Sector for March% Month-over-Month % Year-over-Year(YoY) Prior 5-yr % YoY Average

Grocery stores 31.4% 32.0% 2.10%

General Merch* 3.9% 10.8% 4.40%

Home improvement 1.7% 5.5% 2.50%

Sporting goods -1.8% -5.7% -0.50%

Gasoline stations -19.5% -19.7% -2.20%

Furniture -23.8% -21.1% 0.70%

Home goods -29.0% -25.7% 1.80%

Restaurants -33.8% -31.1% 5.30%

Department stores -38.3% -41.9% -2.90%

Clothing -39.4% -42.2% 2.30%

Discount apparel -47.0% -46.5% 3.40%

Luxury -50.5% -47.8% 5.90%

Airlines -64.2% -67.6% 4.20%

Lodging -68.0% -67.4% 5.00%

Cruise -81.0% -83.5% 8.70%

* Includes Hobbies and Electronics. Sources: BofA Global Research; BofA Corp. internal data. Data as of March 31, 2020. Past performance is no guarantee of future results.

Exhibit 18: …But signs of stabilization have emerged.

0.601–Feb 11–Feb 21–Feb 02–Mar 12–Mar 22–Mar 01–Apr

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Daily total card spending (Indexed, January 1, 2020 = 1) 2020 2019

Sources: BofA Corp. internal data; Total card spending includes total BofA Corp. card activity which captures retail sales ex-autos +services that are paid with cards. Does not include ACH payments. Data as of March 2020. Past performance is no guarantee of future results.

Exhibit 19: Retail sales saw sharper declines compared to 2008/2009.

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Adjusted Retail & Food Services Sales (Seasonally Adjusted)Total Monthy % Change


• An improvement in spending could be a signal that a reopening of the economy could be met with strong pent-up demand on certain spending categories, especially given the fiscal cushion to individuals.

• The U.S. consumer appeared to be in better shape heading into the coronavirus outbreak compared to previous cycles. U.S. savings rates had been rising, reaching 8.2% in February, well above the average during the 2001–2007 business cycle at about 4.6%. Higher savings could be cushioning some consumers through this recession.


Exhibit 20: Social distancing measures turned the lights off for many stores.

-60%

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-10%

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Clothing Dining Out Autos NonstoreRetailers

GeneralMerchandise

Stores

GroceryStores

Total Monthly Change in Retail Sales

-51%

-27% -26%

3% 6%

27%

Sources: Bloomberg; U.S. Census Bureau; Chief Investment Office. Data as of April 22, 2020. Past performance is no guarantee of future results.

Exhibit 21: A strong recovery in growth relies heavily on the U.S. consumer.

U.S. Consumer

China GDP

Japan GDP

Germany GDP

U.S. Government

UK GDP

Italy GDP

Spain GDP

Share of Global GDP (2018)

0% 5% 10% 15% 20%

17%

16%

6%

5%

4%

3%

2%

2%

Sources: World Bank; Bureau of Economic Analysis. Data as of April 22, 2020. Past performance is no guarantee of future results.

PHASE 5: THE NEW FRONTIER

Exhibit 22: The shift from globalization to localization of supply chains should likely continue.

-40%06 07 08 09 10 11 12 13 14 15 16 17 18 19

-30%

-20%

-10%

0%

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EM Asia manufacturing exports to the U.S. Year-on-year change Southeast Asia (Indonesia, Philippines, Vietnam, Malaysia, Thailand) China

Sources: Census Bureau, CEIC. Data as of July 2019. Past performance is no guarantee of future results.

• Retail sales confirm that consumers have shifted spending toward essential items. The decline in sales for clothing, restaurants and autos reflects the government imposed social distancing measures.

• The U.S. consumer represents 70% of U.S. GDP and a large share of the world’s GDP. If the pent-up demand story plays out, stronger consumption should help boost growth.

• Supply chains were already under pressure as trade tensions between the U.S. and China increased costs and forced companies to shift portions of production out of China.


Exhibit 23: China maintains a firm hold on the supply of U.S. drugs.

0%

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100%China's share as a % of U.S. imports of specified drugs

Ibuprofen Hydrocortisone Acetaminophen Penicillin Heparin All Antibiotics

95%91%

70%

45%40%

80%

Source: U.S. Commerce Department. Data as of 2020. Past performance is no guarantee of future results.

Exhibit 24: U.S. e-Commerce still has some room to grow.

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2010 2011 2012 2013 2014 2015 2016 2017 2018

eCommerce as a % of total retail

Source: BofA Corp. internal data. Data as of 2019. Past performance is no guarantee of future results.

Exhibit 25: Trends in eSports reveal shifting consumption behaviors.

Occasional Viewers

eSports Audience Growth

eSports Enthusiasts

2018 2019 2020 2023E

395M

222M

173M 198M 223M295M

245M272M

351M

443MTOTAL AUDIENCE

+12.3%YOY

TOTAL AUDIENCE

+11.7%YOY

495M

TOTAL AUDIENCE

+10.4%CAGR 2019–2023

646M

Note: Due to rounding, Esports enthusiasts and occasional viewers do not always add up to the total audience. E=Estimate. Source: Newzoo. Data as of March 2020. Past performance is no guarantee of future results.

• The coronavirus shutdown has exposed how fragile global supply chains may be to disruption and the heightened risk involved in relying too heavily on one country for critical materials. Shifts in supply chains should likely accelerate from here.

• As the world heals from the coronavirus, a shift towards e-Everything should likely take hold. e-Commerce represents less than 16% of total U.S. retail spending and will likely increase as new online behaviors develop.

• The growth in eSports coincides with the next wave of consumers who grew up in a digitally connected, on-demand world and who prefers to consume online. Shifting trends will drive new areas of innovation virtually.


Exhibit 26: Higher-ESG ranked equities have performed better during market declines, debunking the “bull market luxury” critique.

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Performance of top quintile ESG-ranked equities (Sustainalytics) vs. the Equity weighted S&P 500 universe since Q4 2018Normalized to a factor of 100

Sep/18 Dec/18 Mar/19 Jun/19 Sep/19 Dec/19 Mar/20

Size-neutralSector-neutralQ1 (Sustainanalytics) vs. Equity Weight S&P 500Market sell-off > 15%

Note: Sector-neutral adheres to the sector weightings of the benchmark. Size-neutral removes market capitalization short term disclosure constraints. Sources: Sustainalytics, FactSet, BofA Global Research US Equity and Quant Strategy. Data as of March 25, 2020. Past performance is no guarantee of future results. Short-term performance shown to illustrate more recent trend.

Exhibit 27: Emerging Markets (EMs) drove much of the global growth seen in the last decade.

-42010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021*

-2

0

2

4

6

8Real GDP Growth (%, year-over-year)

WorldChina Advanced economies excl. U.S. Developing economies excl. ChinaUSA

* = Estimate. Source: BofA Global Research. Data as April 15, 2020. Past performance is no guarantee of future results.

Exhibit 28: Millennials have overtaken Baby Boomers, but Gen Z is not far behind.

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Total PopulationMillions

Baby Boomer Millennial Gen Z

Millennials overtook baby boomers in 2018

Gen Z is expected to overtakebaby boomers by 2022and millennials by 2035

Sources: United Nations, Department of Economic and Social Affairs, Population Division 2019 Estimates; Chief Investment Office. Data as of April 2020. Past performance is no guarantee of future results.

• Given demographic trends and the relative outperformance of higher ESG-ranked equities during selloffs, sustainable and impact investing should come more in focus, especially as investors evaluate companies for their coronavirus response.

• EMs face challenges ahead including under developed healthcare systems and less fiscal flexibility, but some exposure may still be warranted given the rise of the EM consumer. Countries with competitive growth models will likely surge ahead.

• Strong demographic trends are shifting spending power into the hands of a more diverse and tech-savvy consumer, forcing companies to adapt or face disruption.


Exhibit 29: Progress with millennial household formation remains gradual.

301982 ‘85 ‘90 ‘95 2000 ‘05 ‘10 ‘15 2019

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50

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90PercentAnnual Homeownership Rates for the United States by Age Group: 1982–2019

65 and over55–6445–54United States35–44

Under 35

Recession

Source: U.S. Census Bureau. Current Population Survey/Housing Vacancy Survey, March 10, 2020. Data as of March 2020. Past performance is no guarantee of future results.

Exhibit 30: An equity culture could soon be reborn.

20%

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50%

60%

70%

Percentage of families with stockholdings by head of household age in years

1992 1995 1998 2001 2004 2007 2010 2013 2016

Less than 35 35–44 45–5455–64 65–74 75 or more

Sources: United States Federal Reserve (Survey of Consumer Finances). Deloitte Services LP economic analysis. Data as of 2018. Past performance is no guarantee of future results.

Exhibit 31: Spending on infrastructure has lagged since the Global Financial Crisis.

1.4%

1.5%

1.6%

1.7%

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1989

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U.S. Public Construction Spending as % of GDP


Where the path of recovery ends, the New Frontier begins, led by rapidly transforming business models, powerful demographic trends, a new spending cycle and an equity culture reborn.

• Pent-up demand in millennial homeownership could be unleashed as this cohort looks to start families and spending power rises. But the bulge in supply as baby boomers return stock to market, could create a mismatch in the market, as millennials look for more affordable housing given lower income levels, higher levels of debt and attractive interest rates.

• Households headed by those under 35 years old have been slower to increase stock holdings since the Global Financial Crisis relative to other age groups, but as rates remain low, higher equity allocations will be needed to produce returns.

• The increasing buildup of cash today, with money market fund assets under management reaching $4.5 trillion, now greater than the eurozone market capitalization, should help solidify a strong equity recovery once redeployed back into equities as uncertainty declines.

• Much needed infrastructure spending could induce a new capital expenditures (capex) cycle driven by major spending on software and technology as well as health care, strengthening productivity growth and supporting a new digital economy.


Index DefinitionsS&P 500 Index: Stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States.

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies.

Important DisclosuresThis material was prepared by the Chief Investment Office (CIO) and is not a publication of BofA Global Research. The views expressed are those of the CIO only and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill or Bank of America entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

Global Wealth & Investment Management (GWIM) is a division of Bank of America Corporation. The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.

Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Companies may reduce or eliminate dividend payment to shareholders. Historically, dividends make up a large percentage of stocks’ total return.

Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.

Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

The economic and market forecasts presented are for informational purposes as of the date of this report. Economic or financial forecasts are inherently limited and should not be relied on as indicators of future investment performance.

© 2020 Bank of America Corporation. All rights reserved.

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CI ISM IC Investment Insights...2 of 13 April 2020 – Investment Insights stages. Eventually, Phase 4, or the pent-up demand cycle, should emerge as consumption strengthens and a