10. FANGMAN Recent Performance and Contribution to S&P 500 Earnings

10. FANGMAN Recent Performance and Contribution to S&P 500 Earnings and Market Cap YTD Return % Decline From | % of S&P 500 [% of S&P 500 (Through 10/12) 2018 Peak Earnings Market Cap 0 1 Netflix 76.9% -19.0% 0.0% 6% 2 Amazon 52.9% -12.3% 0.2% 3.6% 3 Apple 32.8% -4.3% 44% 44% 4 Microsoft 29.7% -5.2% 24% 3.5% 5 Nvidia 27.6% -14.8% 0.2% 0.6% 6 Google 6.4% -12.8% 1.9% 3.2% 7 Facebook -12.9% -29.3% 1.3% 1.8% FANGMAN 23.9% -7.1% 10.4% 17.7% This is not a recommendation to buy or sell individual securities but rather an assertion that these stocks represent a small portion of S&P 500 earnings. Anyone looking to buy or sell single name equities should consult Goldman Sachs Global Investment Research. Source: Investment Strategy Group, Bloomberg. Nevertheless, we believe that some of the headwinds that have plagued this sector will continue. These include: e Data privacy issues impacting a broad range of companies, including Facebook, Google, Twitter, Alipay and Tencent. e High likelihood of greater regulatory scrutiny in the US? and Europe as policy makers increasingly believe that these companies will not address “the privacy and security issues of social media users” on their own. e Increased focus by ESG investors (Environment, Social, and Governance) that many of the technology and social media companies are falling short on social and governance issues. While this basket of stocks may or may not lead the market in the future, it is important to note that they represent only 10% of S&P 500 earnings. Investment Implications The recent market downdraft has understandably rekindled fears that the longest bull market in history is coming to an end. While there are no certainties in investing, we do not think the odds support that conclusion based on our read of the steady and unsteady factors discussed above. Keep in mind that about 75% of historical US bear markets—defined here as equity market declines of 20% or more—have occurred during economic recessions. In fact, US equity returns have remained favorable until about five to six months prior to the onset of recession, highlighting the penalty for prematurely exiting the market (see Exhibit 11). With only 10% odds of recession over the next year, we think the economic backdrop remains favorable for stocks. HOUSE_OVERSIGHT_026919