Investment Advisory Group

Economic & Market Insights 2015

May 2015

Ernest, N. Dawal, CFA

Chief Investment Officer

Executive Vice President

Economic/Market Cycle Drives Risk Decision

Prior Peak Dec 2007

Prior Trough June 2009

Early

Expansion

RECESSION

Mid to Late

Expansion

Neutral RiskGrowth is firm

Confidence & credit growth

Large scale M&A/capex

Underweight RiskOutlook deteriorating

Credit growth stalls

Companies cut costs

Overweight RiskOutlook uncertain but improving

Credit growth weak but improving

Leverage cutting, low risk appetite

4.5%

3.5%

4.6%

5.0%

2.6%

0.2%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2008 2009 2010 2011 2012 2013 2014 2015

Quarterly US Economic Growth (GDP)

GDP has grown

>3.5% during

4 of past 7

quarters, but

1Q15 was

weak

?

The US Economy in 2015

Data Source: Haver

US Economic Growth Drivers & Risks

GDP Component Comment Outlook*

Personal

Consumption

Although spending should increase, the rate of growth will likely slow

as tepid wage growth hampers finances.Neutral

Business

Investment

Capital spending, especially industrial equipment and intellectual

property, should reaccelerate in 2015. Improve

Residential

Investment

While much slower than any recent recovery, housing should continue

to modestly build upon steady improvement over past two years

contributing to economic growth.

Improve

Inventory

InvestmentInventories should build in 2015 as companies anticipate future sales. Improve

Net Exports

The drop in crude oil prices has lowered total imports, meanwhile,

exports should get a boost from an improving global economy, though a

stronger US dollar presents a headwind.

Neutral

Government

Purchases

With improved tax revenue, government spending is poised to grow;

state and local should outpace federal.Improve

* Improve/neutral/decline denotes change relative to 2014.

Will the Fed Finally Raise Rates in 2015?

Data Source: Haver

0%

1%

2%

3%

4%

5%

6%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Federal Funds Rate

?

The FOMC abandoned its prior “patient” language at their March 17-18 meeting. Their decision to raise rates will now likely be “data dependent”.

Points to consider…- Real GDP growth estimate was lowered to 2.3 to 2.7% for

2015- Core PCE inflation is expected to be 1.3 to 1.4%- Stronger US dollar will likely serve as a headwind for US

exports, while at the same time making imports cheaper- Cheaper oil & commodity prices will also help to keep

inflation at bay

No recession on the immediate horizon

Low rates and inflation support borrowing and multiples

Low oil prices provide a boost to the economy

A strong dollar supports higher multiples

Foreign inflows attracted to higher relative growth

M&A activity picks up later in the cycle

US Stock Market Should Move Higher in 2015

Our base case = 5-9% return

But We are Later in the Cycle

Data Source: Factset, SunTrust IAG

Past performance does not guarantee future performance

Begin End Years Price Change %

Dec-87 Mar-00 12.3 582%

Jun-49 Aug-56 7.1 267%

Aug-82 Aug-87 5.0 229%

Mar-09 Dec-14 5.8 209%

Apr-42 May-46 4.1 158%

Mar-35 Mar-37 2.0 132%

Oct-74 Nov-80 6.2 126%

Feb-33 Jul-33 0.4 121%

Jun-32 Sep-32 0.3 112%

Oct-02 Oct-07 5.0 101%

Top Historic S&P 500 Bull Markets

And the 2015 Landscape is More Balanced

BEAR CASE FOR STOCKS BULL CASE FOR STOCKS

1. Market cycle longer than average 1. Expect solid US economic growth

2. Valuations are above average 2. Half world’s gov’t bond yields < 1%

3. Earnings have declined: US$/Energy 3. Oil = $1,200 savings per household

4. Fed transition = volatility 4. Global central bank stimulus rising

5. Emerging market growth is mixed 5. Japan and Europe are improving

Opportunities Outside the US

Data source: Factset, MSCI; Shown net in USD terms

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Brazil

South

Africa Russia China Brazil Japan Brazil

South

Africa US Germany Germany India

114% 44% 73% 83% 83% -29% 128% 33% 2% 32% 33% 23%

China Brazil Brazil Russia India US Russia Russia UK India US US

85% 37% 56% 55% 72% -38% 103% 19% -4% 26% 32% 13%

India Australia India India China

South

Africa India India Australia Australia Japan China

78% 31% 36% 51% 64% -39% 101% 18% -12% 23% 27% 7%

Russia UK

South

Africa Brazil Germany France Australia US

South

Africa China France

South

Africa

76% 20% 29% 45% 37% -42% 74% 16% -16% 23% 27% 6%

Germany France Japan Germany Australia Germany China Japan Japan France UK Australia

64% 20% 27% 37% 30% -45% 59% 15% -16% 23% 20% -3%

Australia India China France Russia UK

South

Africa Australia France

South

Africa Australia Japan

50% 17% 21% 35% 25% -49% 55% 14% -17% 19% 4% -3%

South

Africa Germany Australia Australia

South

Africa Australia UK UK China UK China UK

48% 17% 18% 32% 22% -51% 42% 9% -18% 15% 4% -6%

France Japan France UK France China France Germany Germany Russia Russia France

39% 15% 12% 31% 15% -51% 33% 8% -19% 15% 1% -9%

Japan US Germany

South

Africa UK Brazil US Brazil Russia US India Germany

36% 11% 12% 21% 9% -56% 28% 5% -20% 14% -4% -9%

UK Russia UK US US India Germany China Brazil Japan

South

Africa Brazil

31% 4% 8% 16% 7% -64% 26% 4% -22% 9% -6% -14%

US China US Japan Japan Russia Japan France India Brazil Brazil Russia

29% 1% 6% 6% -5% -74% 7% -3% -37% 0% -16% -42%

10

Monetary Policy in 2015 Set to Diverge

0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Centr

al Bank B

ala

nce S

heet

as

a %

of

GD

P

Data Source: Haver

BoJ

ECB

Fed

Equities Attractive on Relative Basis

21.1

13.6

9.9

15.5

23.8

50.0

5x

10x

15x

20x

25x

30x

35x

40x

'60s '70s '80s '90s '00s Current

Average Bond "P/E" by Decade(100/10-Year Treasury Yield ~2.0%)

18.1

12.511.7

19.520.1

17.0

7x

10x

13x

16x

19x

22x

'60s '70s '80s '90s '00s Current

Average Stock P/E by Decade(S&P 500 TTM EPS)

12

But Bonds Still Have a Role

6% 7%

-2%

9% 9%

2%5% 3%

1% 1%3%

8%6% 5%

-1%

5% 6%

1%

9% 10%13%

8%

13% 13%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

'29 '30 '31 '32 '34 '37 '39 '40 '41 '46 '53 '57 '62 '66 '69 '73 '74 '77 '81 '90 '00 '01 '02 '08

Bond returns in years when stocks were down 1926-2013

S&P 500

US Government Bonds (Intermediate)

Source: SunTrust IAG, Fidelity, Morningstar, US Government intermediate bonds

Commodities Not Compelling

0

100

200

300

400

500

600

700

1948 1955 1962 1970 1977 1984 1992 1999 2006 2014

Commodities Go Through Cycles of Price Surges Followed by Periods of Stability as Supplies Adjust

+192%

+212%

Source: Index: KR-CRB Spot Commodity Price Index: Raw Industrials; Source: Haver

InvestmentsProductivity gains

+ New entrants

Supply increases

?Will prices be range bound for the foreseeable future?

Global economy should show modest growth

Stocks move higher but returns moderate

Bias to US, but don’t give up on international

Low but slowly rising interest rates

Commodity upside limited with high volatility

2015 Outlook

2015 Items to Watch

Fed policy

Domestic Politics(Affordable Care Act | Highway Funding Bill | Sequestration & Fiscal Spending | Debt Limit/ Default | Border Security | Immigration | Tax

Reform | 2016 Election)

$Dollar

Oil

Foreign Policy(Military | Economic | Social)

Central Bank Policies

Euro Politics

Currency Valuations

Greek exit from Euro Zone

Arab Spring (…or is it Winter)

IS/IL

Iranian Nuclear Program

Russia / Ukraine

China

Rising Tensions in Asia

EM Political Unrest

U.S. Domestic Global

What Are We Recommending?

Investment Why Favored

Modest tilt to stocks

relative to bonds• Stage of cycle, limited upside in bonds

US, Japanese equities • Valuation, earnings, catalysts in place

Munis • Low rates, repaired B/S, tax-advantage

Alternatives • Stock/bond returns moderate, unique strategies

Opportunities:

Investment What We Need to See

Emerging Markets • Commodity/earnings stabilization, stimulus, reforms

Interest rate risk • Move in rates, stronger economy, Fed action

Commodities • Global demand, weaker dollar, supply/demand

Areas to De-emphasize:

Important DisclosureThe opinions and information contained herein have been obtained or derived from sources believed to be reliable, but SunTrust Investment Services, Inc. (STIS) makes no representation

or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis

of any security, company, or industry involved. This material is not be construed as an offer to sell or a solicitation of an offer to buy any security. The information and material

presented in this commentary are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific

person who may receive this commentary. Investing in any security or investment strategies discussed herein may not be suitable for you, and you may want to consult a financial

advisor. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur either profits or losses. Past performance

should not be taken as an indication or guarantee of future performance.

Expected returns reflect SunTrust’s current average annual return assumptions (calculated using a geometric mean) over the next 10 years for each asset class as of January 2014, are not

guaranteed and are subject to revision without notice. Expected returns are derived from a combination of fundamental research incorporating business cycle analysis and long-term

secular themes along with quantitative methods and mean-reversion analysis. Long-term historical data shown is based on the last 25 years (depending on the availability of data).

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The S&P 500 Index is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities

and is meant to reflect the risk/return characteristics of the large cap universe.

Russell 1000 index is a measure of the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1000 of the

largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

MSCI EM index is defined as a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets - Brazil, Chile, China, Colombia,

Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Barclays US Gov’t Intermediate index is an unmanaged index comprised of all publicly issued, non-convertible domestic debt of the U.S. government or any agency thereof, or any quasi-

federal corporation and of corporate debt guaranteed by the U.S. government.

JP Morgan GBI-EM Global Diversified Composite which is a comprehensive emerging market debt index that tracks local currency bonds issued by Emerging Market governments. It includes

only those countries that are directly accessible by most of the international investor base and excludes countries with explicit capital controls, but does not factor in regulatory/tax

hurdles in assessing eligibility. The maximum weight to any country in the index is capped at 10%.

HFRI Fund of Funds Diversified Index is defined as strategy exhibiting - investment in a variety of strategies among multiple managers; historical annual return and/or a standard deviation

generally similar to the HFRI Fund of Fund Composite index; demonstrates generally close performance and returns distribution correlation to the HFRI Fund of Fund Composite Index. A

fund in the HFRI FOF Diversified Index tends to show minimal loss in down markets while achieving superior returns in up markets.

MSCI indices are free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of countries within the developed and emerging

markets.