March 3, 2017

United States

US Weekly Kickstart
Portfolio Strategy Research

Macro tailwinds for Financials, but hedge funds and mutual funds disagree on the sector
Investor optimism rests on the belief that tax reform and deregulation are just around the corner. However, a delay in tax cuts until 2018
will postpone the accretive earnings impact incorporated into many current year EPS forecasts. Hawkish comments by Fed officials have
accelerated the expected pace of tightening. Since the election, Financials have rallied by 25% led by a 33% surge in Banks, outpacing the
12% rise in the S&P 500. Cyclical sectors including Financials and Energy typically outperform during periods of rising rates and inflation.
Hedge funds have a low 11% net exposure to Financials while large-cap core and growth mutual funds overweight the sector.

Performance Sector views and performance

David J. Kostin
The S&P 500 was up 0.8% this week. Utilities was Domestic Cyclicals up 6.9% vs. Global Cyclicals up
(212) 902-6781 david.kostin@gs.com
the best-performing sector (+1.7%) while 6.5% YTD. O/W Financials and Information Goldman, Sachs & Co.
Telecommunication Services was the worst- Technology. U/W Consumer Staples, Telecom
performing sector (-0.4%). We expect the Services, Utilities, and Real Estate. Ben Snider
S&P 500 will rally to 2400 in 1Q but end 2017 at (212) 357-1744 ben.snider@gs.com
Goldman, Sachs & Co.
2300 (-3.4%). See pages 5-15 for performance Key pages for portfolio managers
charts by sector, style, size, themes. Markets and Money flow (page 5) Brett Sanchez
Absolute and risk-adjusted returns for markets, (801) 884-4794 brett.sanchez@gs.com
S&P 500 earnings and valuation
Goldman, Sachs & Co.
sectors, styles, and strategies (page 6)
Goldman Sachs Consensus
Correlation, breadth, and dispersion (page 21)
Portfolio Strategy Bottom-Up Arjun Menon
(212) 902-9693 arjun.menon@gs.com
2017E 2018E 2017E 2018E Chart of the Week: Return Dispersion Goldman, Sachs & Co.
EPS $116 $122 $131 $147 3-month return dispersion falls sharply (p. 21)
Growth 10 % 5% 10 % 12 % Ryan Hammond
(212) 902-5625 ryan.hammond@gs.com
NTM 2018E NTM 2018E US Portfolio Strategy recommendations Goldman, Sachs & Co.
P/E 20.8x 19.6x 18.2x 16.2x Buy S&P 500 / Sell 10-year Treasury: +6.7% YTD
* Consensus Bottom-Up reflects adjusted EPS; GS reflects Buy US vs. International Sales: -5.1% Cole Hunter, CFA
operating EPS (212) 357-9860 cole.p.hunter@gs.com
Buy High Tax Rate vs. S&P 500: -0.7% Goldman, Sachs & Co.
Source: I/B/E/S, FirstCall and Goldman Sachs Investment Research
Buy Low Labor Costs vs. High Labor Costs: +5.3%
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US
affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research

Goldman Sachs Global Investment Research 1
March 3, 2017
Conversations we are having with clients: Path of market, Fed hikes, Financials exposure
This week the S&P 500 index traded intra-day above the 2400 level for
the first time. The benchmark now stands at 2382, 7% higher than at the
start of the year and up 12% since the election. Current investor optimism
rests on the belief that tax reform and deregulation are just around the
corner. Our tactical view remains that the market will peak at 2400 in 1Q but
fade towards a year-end level of 2300. The shift from hope to reality will
occur as investors come to recognize that tax reform will be delayed and the
accretive benefit to corporate profits from lower tax rates will be postponed
until 2018 at the earliest, and that the recent stretch of strong economic data
will accelerate the Feds path toward higher rates.
Hawkish comments from the Fed this week lifted the probability of a
rate hike on March 15th at the conclusion of the next FOMC meeting
(Exhibit 1). The futures market now assigns a 92% probability of a 25 bp
hike in March followed by a 50% chance of a subsequent rate hike by June.
Our economists Current Activity Indicator shows a 4% pace of US growth.
The shift in FOMC expectations during the past week coincided with a
20 bp jump in 10-year US Treasury yields back above 2.5% and spurred
further outperformance of Financials stocks. During the four months
since the US presidential election, 10-year yields have risen by 60 bp and
Financials have rallied by 25%, outpacing S&P 500 by 13 percentage points.
Bank stocks have surged by 33%, outperforming the market by 21 pp.
History suggests that cyclical sectors including Financials and Energy
typically outperform during periods of rising rates and inflation
(Exhibit 2). Among S&P 500 industries, Banks and Diversified Financials
display the highest positive correlation with both rising rates and inflation.
We recommend investors overweight the Financials sector based on our
expectation that the Fed will hike three times in 2017 and 10-year Treasury
yields will rise to 3%. The potential for deregulation is another tailwind, as is
the prospect of greater business activity implied by recent economic data.
Our analyses of the newest positioning data show that hedge funds and
mutual funds hold opposing views on the Financials sector (Exhibit 3).
Hedge funds have 11% net exposure to Financials, which ranks as their
largest net sector underweight vs. the Russell 3000, at -430 bp. In contrast,
Financials is the most overweight sector among large-cap core mutual funds
(17%, +250 bp vs. S&P 500) and large-cap growth funds (7%, +400 bp vs.
Russell 1000 Growth). Although the allocation to Financials by large-cap
value mutual funds is dramatic at 26.3%, it is actually 50 bp underweight
versus the Russell 1000 Value benchmark.
Goldman Sachs Global Investment Research
United States
Rising bond yields and hope for reduced regulation boosted Financials
stocks during 4Q 2016. Hedge funds reduced their net exposure to the
sector while growth mutual funds sharply increased their allocations. In
contrast with growth funds, large-cap value mutual funds slashed their
allocation to Financials to 50 bp underweight from 40 bp overweight.
Despite opposing views on Financials, Banks stocks remain popular
across hedge funds and mutual funds. Large-cap core, growth, and value
mutual funds are all significantly overweight banks vs. their respective
benchmarks. Banks also account for five stocks (10%) of our Hedge Fund VIP
list of the most popular hedge fund long positions (ticker: GSTHHVIP). The
five banks include BAC, C, and JPM, which also rank as constituents in our
basket of the 50 most popular mutual fund overweights (GSTHMFOW).
Other stocks loved by both hedge fund and mutual fund stock-pickers
include AMZN, FB, and GOOGL. See the overlap between our baskets of
hedge fund and mutual fund favorite and least favorite stocks in Exhibit 5.
Hedge funds and large-cap mutual funds both came into the year
overweight Energy stocks, another sector where we see opportunity.
Although the performance of Energy stocks relative to the broad S&P 500
typically tracks the price of crude oil, the equity sector and the commodity
have recently reached their widest divergence in more than five years. Since
early December, while the S&P 500 has rallied by 8% and WTI has climbed
by 2%, the S&P 500 Energy sector has declined by 3% (Exhibit 4).
We believe the divergence between Energy stocks and oil creates an
opportunity. Tactical investors can trade convergence by buying Energy
stocks, selling the S&P 500, and selling oil. Depending on expectations for
oil prices and US equities in aggregate, investors may choose instead to buy
Energy stocks either outright or relative to the S&P 500. Investor overweight
positioning in Energy at the start of 2017 likely helped create the current
divergence, as expectations for range-bound oil prices led investors to
reallocate, weighing on the performance of Energy stocks. For more, see US
Macroscope, March 1, 2017.
At the stock level, we suggest investors position for a rise in dispersion
by focusing on the stocks with the greatest potential to generate alpha.
Our recent Hedge Fund Trend Monitor, Mutual Fundamentals, and US
Equity Views: The search for alpha reports discuss fund positioning
including the widespread tendency to own stocks unlikely to generate alpha.
We suggest investors focus on stocks with low mutual fund active share,
low hedge fund concentration, and high dispersion scores.
2
March 3, 2017 United States

Charts we are watching: Performance and positioning in Financials

Exhibit 1: Market implies a 92% probability that the Fed will hike in March Exhibit 2: Financials and Energy outperform when rates and inflation rise
as of March 3, 2017 as of March 2, 2017
100% 0.06
92%
90% Market-implied probability of hike at March
FOMC meeting 0.04 S&P 500 sector sensitivity to
Financials
inflation and real rates

Sensitivity () to 10-year real rates

80%

70% 0.02
Info Tech
Industrials
60% Energy
0.00
50% Health Care Materials
Consumer
Telecom Services Discretionary
(0.02)
40%
Consumer Staples

30% (0.04)
20%
(0.06) Utilities
10% Real Estate

0% (0.08)
Jun-16 Sep-16 Dec-16 Mar-17 (0.05) (0.04) (0.03) (0.02) (0.01) 0.00 0.01 0.02 0.03 0.04
Sensitivity () to 10-year breakeven inflation

Source: Bloomberg and Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

Exhibit 3: Mutual funds and hedge funds hold opposing views on Financials Exhibit 4: Energy stocks have performed far worse than justified by oil prices
holdings as of December 31, 2016 as of March 2, 2017
20 %
Large-cap Core Large-cap Growth Large-cap Value Hedge funds Energy stocks attractive
Avg. fund OW Avg. fund OW Avg. fund OW Net OW 16 %
Oil Convergence
weight UW weight UW weight UW weight UW Energy sector excess return
12 %
Cons. Discretionary 12 % 16 bp 20 % (50)bp 7% 288 bp 17 % 444 bp and WTI crude oil
Consumer Staples 9 (31) 7 (276) 7 (117) 6 (323)
8%
Energy 8 3 2 183 12 (133) 8 143
Financials 17 248 7 394 26 (51) 11 (429) +1 Stdev
4%
Health Care 13 (5) 16 (15) 12 194 15 253
Industrials 11 28 8 (276) 11 133 9 (149) 0%
Info Tech 21 31 35 337 13 331 23 298
Materials 3 43 2 (114) 4 92 8 449 (4)%
-1 Stdev
Real Estate 2 (136) 1 (127) 1 (319) 1 (307)
(8)%
Telecom Services 2 (87) 0 (80) 3 (118) 1 (125)
Utilities 2 (112) 0 24 3 (301) 0 (253)
(12)%
Note: Benchmark indices used for overweight/(underweight) calculations were as follows: Energy stocks expensive
S&P 500 for large-cap core, Russell 1000 Growth for large-cap growth, Russell 1000 Value for large-cap value
(16)%
Russell 3000 for hedge funds 2012 2013 2014 2015 2016 2017 2018

Source: FactSet and Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 3

March 3, 2017 United States

Overlap between mutual fund and hedge fund positioning

Exhibit 5: Stocks that are fund favorites have outperformed YTD
For details on the baskets, see Mutual Fundamentals (February 27, 2017) and Hedge Fund Trend Monitor (February 21, 2017).

Overlap with our MUTUAL FUND baskets

Overweight Underweight
Mutual Fund Overweight Positions Mutual Fund Underweight Positions
<GSTHMFOW> <GSTHMFUW>
HEDGE FUND baskets

AMZN BAC C AAPL BRK.B RAI YHOO

Overlap with our

Hedge Fund CELG FB GOOGL

Long

VIP List JPM PCLN SHW

<GSTHHVIP> V

Hedge Fund AXP CRM CSCO ABBV CVX D DIS GE

Very Important CVS ORCL UNH IBM INTC JNJ KO MMM
Short

PG PM PSA SPG T
Short Positions
UPS VZ WMT XOM
<GSTHVISP>

19 stocks in our
10 stocks in our
mutual fund
mutual fund overweight basket are
underweight basket
also important
are also important
hedge fund holdings
hedge fund shorts

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 4

March 3, 2017 United States

Markets and Money Flow

S&P 500 level and EPS 10-yr. Treasury Yields Fed Funds Target Rate
2500 5.0 % 7%
S&P 500 Current 2018E
US 10-Year GS
Price
2382 2400 145 Fed Funds
2400 2017E 4.5 %
Treasury Yield forecast 6%
2300 Target Rate
2300 4.0 % 2018E
135 5% GS forecast
S&P 500 Price

3.50%

S&P 500 EPS

2200 3.5 % 2017E
2018E
3.00% 4%
$122 125 Current 2018E:
2100 2017E 3.0 %
$116 2.5% 2.4%
3%
2000 115 2.5 % 2017E:
2016E Futures
2% 1.4%
1900 $105 2.0 % market
Goldman Sachs 105 Current:
1.5 % 1% Futures
1800 EPS Forecast 0.9%
market
1700 95 1.0 % 0%

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

2004

2008

2012

2016

2020

2024
Sentiment Indicator Rotation Index Volatility
100 (2.0) 44
>90 = HIGH net positions 100 Risk on; favors EQUITY flows
VIX
(1.5) 40
S&P 500 Futures Sentiment

80
36
Standard deviations

(1.0)
6-month 32
60 (0.5) trend
28
0.0
24
40
0.5
Rotation Index 20
Sentiment
1.0 (4-wk moving avg)
20 Indicator (SI) 16
12
1.5
12
<10 = LOW net positions Risk off; favors BOND flows
0 2.0 8
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-15

Jun-16
Dec-14

Mar-15

Sep-15

Dec-15

Mar-16

Sep-16

Dec-16

Mar-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17
Note: Sentiment Indicator ranks net futures positioning versus the past 12 months. Readings Note: Rotation Index plots the first principal component of weekly reallocation activity
below 10 or above 90 indicate extreme positions that are significant in predicting future returns. across equity and debt mutual fund categories as a measure of retail risk appetite.

Source: Haver, Lipper, FactSet, CFTC, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 5

March 3, 2017 United States

Market Performance: 2017 YTD absolute and risk-adjusted returns

Total Return Risk Adjusted Return (Sharpe Ratio)

INFORMATION TECHNOLOGY 11 HY Credit 4.5
Nasdaq 100 11 Nasdaq 100 4.0
HEALTH CARE 10 Russell 1000 Growth 3.6
MSCI Emerging Markets 9 INFORMATION TECHNOLOGY 3.4
Russell 1000 Growth 8 MSCI Emerging Markets 2.8
CONSUMER DISCRETIONARY 7 HEALTH CARE 2.6
CONSUMER STAPLES 7 CONSUMER DISCRETIONARY 2.6
Gold 7 S&P 500 2.5
FINANCIALS 7 MSCI Developed Markets 2.5
S&P 500 7 CONSUMER STAPLES 2.3
UTILITIES 6 Equity L/S HF Index 1.7
MATERIALS 6 Gold 1.6
INDUSTRIALS 6 Russell 1000 Value 1.6
MSCI Developed Markets 6 INDUSTRIALS 1.5
Russell 1000 Value 5 MATERIALS 1.4
REAL ESTATE 4 UTILITIES 1.3
HY Credit 3 FINANCIALS 1.1
Russell 2000 3 REAL ESTATE 1.0
Equity L/S HF Index 3 IG Credit 0.5
Global Macro HF Index 1 Russell 2000 0.5
IG Credit 1 Global Macro HF Index 0.3
10-year US Treasury 0 10-year US Treasury 0.0
$/Euro (0) $/Euro (0.0)
TELECOM SERVICES (2) TELECOM SERVICES (0.4)
Crude Oil (S&P GSCI) (4) Crude Oil (S&P GSCI) (0.5)
ENERGY (5) ENERGY (0.8)

(8) (6) (4) (2) 0 2 4 6 8 10 12 14 (3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0 6.0

Note: Crude Oil (S&P GSCI) return represents S&P GSCI Crude Oil Index total return. Spot change equals (3)% YTD.

Source: Haver, Lipper, FactSet, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 6

March 3, 2017 United States

Sector Baskets Performance Relative to S&P 500

Cyclicals Defensives Domestic Global
104 112 104 102
Bloomberg <ticker> GSSBDEFS GSSBDOMS GSSBGLBL
GSSBCYCL
110
102 103
101
108

100 102
106
100

98 104 101

99
102
96 100

100
98
94 99
98

92 96 98 97
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Domestic Cyclicals Global Cyclicals Domestic Defensives Global Defensives
104 104 116 112
GSSBDCYC GSSBGCYC GSSBDDEF GSSBGDEF
102 110
102
100 112 108

100 106
98
104
96 108
98
102
94
100
96
92 104
98
Autos FoodRetailing
90 94 CapitalGoods HealthCare 96
Banks Energy RealEstate ConsumerDurables
88 100 94
Financials Materials Retailing ConsumerServices
92 Professional Services
Insurance TechHardware Food,Beverage&Tobacco
86 Telecom 92
Media Semiconductors Household&PersonalProducts
Transportation Software Utilities Pharmaceuticals
84 90 96 90
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 7

March 3, 2017 United States

Sector Basket Performance

Cyclicals vs. Defensives Domestic vs. Global

110 106
CYCLICALS DOMESTIC
outperforming outperforming
105 104

100 102

95 100

90 98

85 96
DEFENSIVES GLOBAL
outperforming outperforming
80 94
Mar-15

Mar-16

Mar-17
Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Mar-15

Sep-15

Mar-16

Mar-17
Dec-14

Jun-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Performance and fundamentals of our sector baskets
Bloomberg % of
Ticker # of S&P 500 Non-US Earnings Growth Sales Growth NTM LTM Div Total Return
Basket <GSSBXXXX> Stocks Cap Beta Sales 2017E 2018E 2017E 2018E P/E P/B Yield 1 Wk 1 Mo 3 Mo LTM YTD

Defensives DEFS 251 55 % 0.9 22% 6% 10 % 4% 5% 19.4x 4.3x 2.0 % 0.8 % 5% 9% 12 % 7%

Cyclicals CYCL 249 45 1.1 39 17 14 9 4 17.0 2.3 2.0 1.0 5 9 30 7

Global GLBL 262 58 % 1.0 48% 13 % 12 % 7% 5% 19.1x 4.1x 2.1 % 0.9 % 4% 9% 21 % 7%

Domestic DOMS 238 42 1.0 15 8 11 5 5 17.1 2.3 1.9 0.8 5 9 25 6

Global Defensives GDEF 101 30 % 0.9 46% 6% 11 % 4% 5% 19.7x 5.4x 1.8 % 0.8 % 6% 10 % 10 % 8%
Domestic Cyclicals DCYC 88 18 1.2 21 10 13 6 4 15.1 1.6 1.6 0.8 6 10 38 7
Global Cyclicals GCYC 161 28 1.1 48 22 14 9 4 18.4 3.2 2.3 0.7 4 9 27 6
Domestic Defensives DDEF 150 24 0.9 13 5 9 5 5 18.9 3.5 2.1 0.7 4 8 14 6

S&P 500 500 100 % 1.0 30% 10 % 12 % 7% 5% 18.2x 3.1x 2.0 % 0.8 % 5% 9% 23 % 7%

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 8

March 3, 2017 United States

Sectors Relative Performance vs. S&P 500

Consumer Discretionary Financials Information Technology

Recommended Sector Positioning
112 104 116 Goldman S&P
Sachs 500
110
100 Sectors Weighting Wgt YTD
112
108 Info Tech 21% 11 %
96 Overweight
106 Financials 15 7
108
Health Care 14 10
104 92
Cons umer Dis cr 12 7
104
102 Materials Neutral 3 6
88
100 Industrials 10 6
100
84 Energy 7 (5)
98
Cons umer Staples 9 7
96 80 96
Utilities 3 6

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Underweight

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17 Real Estate 3 4

Telecom Services 2 (2)
S&P 500 100% 7%

Industrials Energy Materials Real Estate

106 105 108 116

104 100 104 112

102 95 108
100
100 90 104
96
98 85 100
92
96 80 96

94 88 92
75

92 70 84 88

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Mar-15

Mar-16

Mar-17

Consumer Staples Health Care Telecommunication Services Utilities

116 115 130 115

112 110 125 110

120
108 105 105
115
104 100 100
110
100 95 95
105
96 90 100 90

92 85 95 85
Jun-15

Jun-16

Jun-17
Dec-14

Mar-15

Sep-15

Dec-15

Mar-16

Sep-16

Dec-16

Mar-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Mar-15

Mar-16

Mar-17
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 9

March 3, 2017 United States

S&P 500 Sector and Industry Group Performance

1 Week Prior Week 1 Month 3 Months Last 12 Months YTD
S&P 500 0.8 % 0.7 % 4.7 % 9% 23 % 6.8 %
Utilities 1.7 % 2.6 % 5.9 % 12 % 16 % 6% Top quartile

Health Care 1.5 1.2 6.3 11 13 10 Bottom quartile

S Industrials 1.0 (0.3) 4.9 6 26 6

E Energy 0.9 (0.9) (0.9) (3) 22 (5)
C Financials 0.9 0.6 7.0 10 42 7
T Materials 0.7 (0.2) 1.5 6 26 6
O Consumer Discretionary 0.7 0.2 3.1 8 16 7
R Consumer Staples 0.5 1.8 5.2 11 11 7
Information Technology 0.5 0.8 5.1 14 30 11
Real Estate 0.1 2.0 4.0 9 10 4
Telecommunication Services (0.4) 2.5 2.2 6 7 (2) Region Cycle

Utilities 1.7 % 2.6 % 5.9 % 12 % 16 % 6% Domestic Defensives

Pharmaceuticals Biotechnology & Life Sciences 1.5 1.2 6.8 11 10 9 Global Defensives

Health Care Equipment & Services 1.4 1.2 5.5 11 20 11 Domestic Defensives

Consumer Durables & Apparel 1.4 1.4 5.7 5 (2) 7 Global Cyclicals

Automobiles & Components 1.3 0.6 5.2 9 19 9 Global Cyclicals

I Food Beverage & Tobacco 1.2 1.7 4.8 12 14 7 Global Defensives

N Diversified Financials 1.2 0.9 7.1 9 38 7 Domestic Cyclicals

D Technology Hardware & Equipment 1.2 1.1 7.9 22 41 17 Global Cyclicals

U Transportation 1.1 (1.2) 3.9 6 31 6 Domestic Cyclicals

S Capital Goods 1.0 (0.1) 5.2 6 25 6 Global Cyclicals

T Retailing 1.0 0.2 3.3 7 19 7 Domestic Defensives

R Energy 0.9 (0.9) (0.9) (3) 22 (5) Global Cyclicals

Y Banks 0.9 0.4 7.7 13 53 8 Domestic Cyclicals

Materials 0.7 (0.2) 1.5 6 26 6 Global Cyclicals

G Commercial & Professional Services 0.6 1.1 5.6 6 17 5 Domestic Cyclicals

R Semiconductors & Semiconductor Equipment 0.5 0.1 1.7 10 43 4 Global Cyclicals

O Insurance 0.4 0.7 4.8 7 29 5 Domestic Cyclicals

U Consumer Services 0.3 0.1 4.2 7 11 6 Global Defensives

P Software & Services 0.2 0.9 4.9 13 23 10 Global Defensives

Media 0.2 (0.3) 0.6 11 24 7 Domestic Defensives

Real Estate 0.1 2.0 4.0 9 10 4 Domestic Defensives

Household & Personal Products (0.2) 2.4 6.1 13 10 11 Global Defensives

Telecommunication Services (0.4) 2.5 2.2 6 7 (2) Domestic Defensives

Food & Staples Retailing (0.5) 1.4 5.3 4 2 3 Domestic Defensives

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 10

March 3, 2017 United States

Style and Size

Growth vs. Value Large-cap vs. Small-cap

114 115
Growth outperforming Russell 1000 outperforming
112
110
110

108
105

106

100
104

102
95
100

Value outperforming Russell 2000 outperforming

98 90

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Dec-14

Sep-15

Dec-15

Sep-16

Dec-16
Mar-15

Jun-15

Mar-16

Jun-16

Mar-17

Jun-17
Sectors: Russell 1000 Growth vs. Value Sectors: Russell 1000 vs. Russell 2000
Weight (%) 1-Week (% Return) YTD (% Return) Weight (%) 1-Week (% Return) YTD (% Return)
Russell Sector Growth Value Growth Value (bps) Growth Value (bps) Russell Sector R1000 R2000 R1000 R2000 (bps) R1000 R2000 (bps)
Health Care 16 11 2 1 84 9 11 (123) Energy 6 3 1 (3) 392 (5) (8) 374
Industrials 12 10 1 1 68 6 5 123 Consumer Staples 8 2 1 (2) 292 7 (6) 1,298
Consumer Staples 8 7 1 0 52 5 9 (347) Financials 21 28 1 (1) 156 7 1 545
Cons Discretionary 22 6 1 0 48 8 3 467 Technology 18 15 0 (1) 118 11 6 517
Technology 26 9 0 0 19 12 8 338 Industrials 11 14 1 1 32 6 2 393
Materials 4 3 1 0 17 6 7 (169) Utilities 5 5 1 1 25 3 3 (32)
Financials 10 32 0 1 (43) 8 6 220 Cons Discretionary 14 13 1 1 (4) 7 0 690
Utilities 1 10 (0) 1 (116) (4) 3 (728) Materials 4 8 1 1 (47) 7 5 138
Energy 0 12 (1) 1 (162) (9) (4) (505) Health Care 13 13 2 3 (140) 10 12 (252)

Index 100 100 1 1 21 8 5 340 Index 100 100 1 0 65 7 3 373

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 11

March 3, 2017 United States

US Portfolio Strategy Baskets

Bloomberg Total Return P/E P/B Div
YTD Performance Ticker 1 wk 1 mo YTD NTM LTM Yield
Macroeconomic
Dual Beta GSTHBETA 0.4 % 4% 8% 17x 2.2x 1.5 %
Western Europe Sales 9
Interest Rate Sensitive GSTHUSTY 0.2 3 7 15 3.0 1.2
Dividend Growth 9
High Operating Leverage GSTHOPHI (0.1) 2 7 20 3.6 1.1
High Sharpe Ratio 8 Low Operating Leverage GSTHOPLO 0.7 4 7 21 5.7 1.6
BRICs Sales 8 High Tax GSTHHTAX 0.8 4 5 18 3.6 1.4
Low Tax GSTHLTAX 0.5 4 7 17 3.2 2.2
Hedge Fund "VIP" List 8
High Labor Cost GSTHHLAB 0.4 5 6 19 3.1 1.7
Mutual Fund Overweight Positions 8
Low Labor Cost GSTHLLAB 0.7 3 8 16 2.7 1.6
International Sales 8 Geographic Sales
Dual Beta 8 Domestic Sales GSTHAINT 0.7 % 5% 5% 19x 3.2x 1.6 %
High Quality Stock 7 International Sales GSTHINTL 0.5 4 8 20 3.2 1.5
Interest Rate Sensitive 7 BRICs Sales GSTHBRIC 0.5 3 8 19 3.1 1.5
Western Europe Sales GSTHWEUR 1.0 6 9 21 3.6 1.1
High Revenue Growth 7
Fundamental
Overseas Earnings 7
High Revenue Growth GSTHREVG 0.8 % 3% 7% 24x 4.1x 0.3 %
Low Operating Leverage 7
ROE Growth GSTHGROE 1.0 5 6 19 3.7 1.8
S&P 500 7 High Quality Stock GSTHQUAL 0.9 5 7 21 5.4 1.4
Low Tax 7 Strong Balance Sheet GSTHSBAL 0.8 5 7 22 6.2 1.2
Weak Balance Sheet GSTHWBAL 0.2 2 7 15 3.1 1.1
Weak Balance Sheet 7
Shareholder Return
High Operating Leverage 7
Capex and R&D GSTHCAPX 0.3 % (0)% 6% 15x 3.2x 1.5 %
Strong Balance Sheet 7
Total Cash Return to Shareholders GSTHCASH (0.1) 2 4 14 2.9 2.3
Mutual Fund Underweight Positions 6 Buyback GSTHREPO 0.2 3 5 15 3.0 2.0
Capex and R&D 6 Dividend Growth GSTHDIVG 0.7 7 9 17 3.3 2.4
ROE Growth 6 Hedge Fund

Domestic Sales 5 Hedge Fund "VIP" List GSTHHVIP 0.5 % 3% 8% 21x 3.5x 1.0 %
Hedge Fund Very Important Shorts GSTHVISP 0.6 3 4 18 4.3 2.5
Buyback 5
High Hedge Fund Concentration GSTHHFHI (0.6) 2 1 20 3.0 0.1
Low Hedge Fund Concentration 5
Low Hedge Fund Concentration GSTHHFSL 1.3 6 5 20 3.7 3.4
High Tax 5 Mutual Fund
Hedge Fund Very Important Shorts 4 High Sharpe Ratio GSTHSHRP (0.3)% 4% 8% 20x 2.8x 0.9 %
Total Cash Return to Shareholders 4 Mutual Fund Overweight Positions GSTHMFOW 1.0 5 8 18 3.6 1.4
High Hedge Fund Concentration 1 Mutual Fund Underweight Positions GSTHMFUW 1.0 5 6 20 4.3 2.9
Overseas Earnings GSTHSEAS 0.7 6 7 18 3.4 2.6
(2) 0 2 4 6 8 10 12
S&P 500 0.8 % 5% 7% 18x 3.1x 2.0 %
S&P 500 Average 22 5.6 1.9
S&P 500 Median 19 3.4 1.8

For details and constituents of our baskets see Strategy Baskets: Anatomy of our US Portfolio Strategy Thematic and Sector Baskets, January 18, 2017.

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 12

March 3, 2017 United States

US Portfolio Strategy Baskets Relative performance vs. S&P 500

Macroeconomic Geographic Sales

Dual Beta Interest Rate Sensitive US Sales International Sales
108 106 108 106
Bloomberg <ticker> GSTHUSTY GSTHAINT GSTHINTL
GSTHBETA 104
104 104
106
102
102
100 100
104
100
98
96
96 102 98
92
94
96
100
88 92
94
90
98
84 92
88

80 86 96 90
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
High vs. Low High vs. Low
Operating Leverage Tax Rate BRICs Sales Western Europe Sales
104 108 106 112
GSTHOPHI/ GSTHHTAX/ GSTHBRIC GSTHWEUR
103
GSTHOPLO GSTHLTAX 104
104 110

102
102
100 108
100
101
96 98 106
100
92 96 104
99
94
88 102
98
92

97 84 100
90

96 80 88 98
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 13

March 3, 2017 United States

US Portfolio Strategy Baskets Relative performance vs. S&P 500 (continued)

Fundamentals Shareholder Return

Revenue Growth ROE Growth Capex and R&D Total Cash Return
110 106 104 106
Bloomberg <ticker> GSTHGROE GSTHCAPX GSTHCASH
GSTHREVG 105
108 104
100
104

106 103 102

96
102
104 100
101
92
102 100 98

99
88
100 96
98

98 97 84 94
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Strong vs. Weak
High Quality Balance Sheet Buybacks Dividend Growth
106 108 102 106
GSTHQUAL GSTHSBAL/ GSTHREPO GSTHDIVG
106 GSTHWBAL 101
104 104
104 100

102 102 102

99
100
98
100 100
98
97
96
98 98
96
94

96 95 96
92

90 94
94 94
88 93

92 86 92 92
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 14

March 3, 2017 United States

US Portfolio Strategy Baskets Relative performance vs. S&P 500 (continued)

Hedge Fund Ownership Mutual Funds

Hedge Fund VIP Short Positions Overweight Positions Underweight Positions
108 104 106
Bloomberg <ticker> GSTHVISP GSTHMFOW GSTHMFUW
GSTHHVIP 102
102 104
104

100
100 102
100
98
100
98
96 96
98
96 94
92
96
92

88 94
90 94

84 92 88 92
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
High Concentration Low Concentration High Sharpe Ratio Earnings Held Overseas
125 114 116 104
GSTHHFHI GSTHHFSL GSTHSHRP GSTHSEAS
112 114 103
120
110 112
102

108 110
115 101
106 108
100
110 104 106
99
102 104
105 98
100 102

97
98 100
100
96 98 96

95 94 96 95
Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 15

March 3, 2017 United States

S&P 500 Earnings, Sales and Revisions

GS Top-Down EPS vs. Consensus Bottom-Up Earnings & Sales Revisions (Consensus)
EPS REVISIONS SALES REVISIONS
Operating EPS Adjusted EPS
1 month 3 month 1 month 3 month
(GS Top-Down) (Consensus Bottom-Up)
17E 18E 17E 18E 17E 18E 17E 18E
Contribution EPS growth Contribution EPS growth
2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E Energy 0.6 % 1.6 % 1.8 % (1.6)% (1.3)% (1.9)% (1.3)% (2.0)%
Financials $24 $26 6% 8% $24 $27 13 % 12 % Information Technology 0.3 0.4 (0.6) (0.6) 0.1 0.2 0.1 0.5
Consumer Discretionary 15 15 4 1 15 16 4 13 Industrials 0.2 0.3 (0.4) 0.7 0.3 0.3 0.7 1.2
Consumer Staples 10 10 1 5 11 12 6 8 Utilities 0.0 0.3 (0.2) 0.2 NM NM NM NM

Telecom Services 4 4 112 5 4 4 1 (1) Financials (0.4) (0.3) 1.3 3.0 NM NM NM NM

Industrials 12 12 1 (1) 13 15 6 12 Consumer Staples (0.4) (0.7) (1.2) (1.8) (0.4) (0.6) (0.9) (1.1)

Utilities 4 4 2 4 4 4 2 6 S&P 500 (0.5) (0.6) (0.8) (0.7) (0.3) (0.4) (0.3) (0.4)

Information Technology 23 24 8 4 28 31 8 12 Telecom Services (0.6) (4.3) (3.5) (7.4) (0.3) (0.2) (1.1) (0.8)

Health Care 16 17 3 4 20 22 3 10 S&P 500 ex. Energy (0.6) (0.7) (0.9) (0.7) (0.1) (0.2) (0.2) (0.2)

Materials 3 3 6 (1) 4 4 10 12 Real Estate (0.7) (0.4) (1.7) (1.5) NM NM NM NM

Real Estate 2 3 5 7 3 4 2 7 Consumer Discretionary (1.0) (1.3) (1.7) (2.0) (0.1) (0.4) (0.3) (0.8)
Materials (1.9) (0.5) (2.8) 0.9 (0.2) (0.1) 0.3 0.7
S&P 500 ex-Energy 112 117 6 4 126 139 7 11
Health Care (2.2) (2.3) (2.6) (3.2) (0.4) (0.4) (0.2) (0.4)
Energy 4 5 NM 31 5 7 321 39
S&P 500 EPS $116 $122 10 % 5% $131 $147 10 % 12 %

Earnings Growth (consensus bottom-up) Sales Growth (consensus bottom-up)

2017E Earnings Per Share Growth Annual 2017E Sales Per Share Growth Annual
1QE 2QE 3QE 4QE 2017E 2018E 1QE 2QE 3QE 4QE 2017E 2018E
Energy NM 477 % 218 % 139 % 321 % 39 % Energy 49 % 38 % 43 % 36 % 39 % 6%
Financials 16 9 7 18 13 12 Information Technology 8 8 7 6 7 6
Materials 11 8 7 17 10 12 S&P 500 7 7 7 6 7 5
S&P 500 9 9 9 13 10 12 Industrials 4 4 3 4 5 4
Information Technology 12 8 7 7 8 12 Consumer Discretionary 4 5 4 4 4 5
S&P 500 ex. Energy 6 5 6 10 7 11 S&P 500 ex. Energy 4 4 4 4 4 5
Industrials (2) 4 7 14 6 12 Health Care 4 4 4 3 4 5
Consumer Staples 4 6 6 8 6 8 Consumer Staples 3 4 4 3 3 3
Consumer Discretionary (5) 1 7 12 4 13 Telecom Services 1 1 1 1 1 1
Health Care 1 2 4 6 3 10 Materials (4) (3) (2) 2 (2) 4
Real Estate 4 3 4 (0) 2 7
Utilities 2 1 (1) 8 2 6
Telecom Services (2) 6 1 0 1 (1)
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 16

March 3, 2017 United States

Valuation: Absolute and Relative

S&P 500 NTM P/E S&P 500 Cost of Equity = ERP + 10-yr UST
30 10.0
25
P/E
NTM P/E (x)

20 Cost of
18.2 8.0 Equity
15
10
7.1%
10-yr rolling avg 6.0
5
ERP
0
1/76 1/81 1/86 1/91 1/96 1/01 1/06 1/11 1/16 1/21 4.6%
4.0
10 Year
UST
S&P 500 LTM P/B 2.0 2.5%
6
5
P/B 0.0
LTM P/B (x)

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17
3 3.1
2
10-yr rolling avg
1
We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash flows.
0
1/76 1/81 1/86 1/91 1/96 1/01 1/06 1/11 1/16 1/21 We solve for the cost of equity that implies the market is at fair value and then deduct the 10-year US treasury.

Current aggregate valuation metrics - absolute Current relative valuation vs. 10-year average (Z-score)
EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median
Sales EBITDA Book Yield Ratio P/E Sales EBITDA Book Yield P/E Ratio Z-Score
S&P 500 2.2x 11.7x 3.1x 4.1 % 1.5x 18.2x S&P 500 2.3 1.6 1.7 1.3 2.0 1.4 1.7
Telecommunication Services 2.4 7.1 2.9 5.1 2.5 14.0 Real Estate NM NM 0.1 NM (0.8) (0.9) (0.8)
Financials NM NM 1.4 NM 1.6 14.8 Utilities NM (1.4) (0.7) (0.1) (0.7) (0.8) (0.7)
Health Care 2.0 12.1 3.9 5.4 1.5 16.4 Telecommunication Services (1.1) (0.7) 0.2 1.5 (1.1) (0.5) (0.6)
Utilities NM 9.8 2.0 (1.2) 2.7 18.0 Health Care (1.2) (0.4) (0.4) (0.0) (0.9) (0.8) (0.6)
Information Technology 3.8 12.4 4.8 5.5 1.4 18.2 Consumer Discretionary (0.3) (1.4) 0.8 0.4 (0.5) (0.4) (0.4)
Real Estate NM NM 3.0 NM 2.2 18.2 Financials NM NM (0.2) NM (0.3) 0.4 (0.2)
Materials 2.4 12.0 4.1 3.7 1.8 18.8 Information Technology 1.0 (0.3) (0.2) (0.1) (0.1) 1.1 (0.1)
Industrials 2.1 11.7 4.6 3.6 2.0 18.8 Materials 1.4 (0.1) 1.0 (0.3) (0.4) 0.1 (0.0)
Consumer Discretionary 1.9 10.6 5.0 3.6 1.2 19.7 Consumer Staples (0.6) (0.4) 1.2 (1.1) 0.9 1.4 0.2
Consumer Staples 1.7 13.2 5.5 4.5 2.5 20.9 Energy 2.4 0.9 (1.2) (0.0) 0.7 0.2 0.5
Energy 2.4 15.6 2.0 0.5 1.3 31.6 Industrials (1.6) (0.9) 2.6 1.6 (0.1) 1.9 0.8

Source: FactSet, I/B/E/S, FirstCall, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 17

March 3, 2017 United States

Valuation: Sector baskets

Valuation of Cyclicals vs. Defensives Global vs. Domestic

1.5x 1.5x
Relative forward P/E Relative forward P/E
1.4x 1.4x
Cyclicals vs. Defensives Global vs. Domestic
Cyclicals more Global more
1.3x expensive expensive
1.3x
1.2x
1.2x
1.1x
1.1x
75th %ile
1.0x
1.0x
0.9x
0.9x
0.8x 25th %ile
0.8x
0.7x

0.6x 0.7x
1980 1985 1990 1995 2000 2005 2010 2015 2020 1980 1985 1990 1995 2000 2005 2010 2015 2020

Cyclicals vs. S&P 500 Defensives vs. S&P 500

1.2x 1.4x
Relative forward P/E Relative forward P/E
Cyclicals vs. S&P 500 Defensives vs. S&P 500
Cyclicals more 1.3x Defensives more
1.1x expensive expensive

1.2x

1.0x 1.1x

1.0x
0.9x

0.9x

0.8x 0.8x
1980 1985 1990 1995 2000 2005 2010 2015 2020 1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Compustat, FactSet, I/B/E/S, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 18

March 3, 2017 United States

Valuation: Factors

Relative forward P/E

Z-Score History Momentum
140
LONG / SHORT PAIRS Current 10-year 35-year
135
Momentum Factor
Momentum (leaders vs. laggards) 1.0x (1.5) (1.1) LESS <GSMEFMOM>
Size (small vs. large) 0.9 (0.7) 0.1 EXPENSIVE 130 (leaders vs. laggards)
Dividend yield (high vs. low) 0.8 (0.6) 0.4 125
Valuation (low vs. high) 0.5 (0.5) 0.2
120
Volatility (low vs. high) 1.2 0.5 1.2
Growth (high vs. low) 1.3 0.7 0.4 115
Balance sheet (strong vs. weak) 1.4 1.6 0.7
110
Returns (high vs. low) 1.1 1.8 1.1 MORE
Margins (high vs. low) 1.2 1.8 1.1 EXPENSIVE 105

100

Absolute forward P/E 95

Z-Score History
90
INDIVIDUAL LEGS Current 10-year 35-year

Dec-14

Feb-15

Apr-15

Oct-15
Jun-15

Aug-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17
High Momentum 17.5x 0.3 0.5 LESS
Low Margins 17.4 0.8 0.8 EXPENSIVE
Low Returns
Weak Balance Sheet
18.1
16.7
0.9
0.9
0.8
0.8
Growth vs. Value
Low Valuation 13.0 1.0 1.4 120
High Volatility 17.2 1.0 1.0 Growth Factor
115
Low Dividend Yield 20.2 1.4 1.4 <GSMEFGRO>
High Dividend Yield 16.8 1.4 1.5 (high vs. low)
110
Low Growth 16.2 1.5 1.4
High Growth 20.8 1.5 1.3 105
Small Size 18.1 1.5 1.8
100
High Valuation 25.5 1.6 1.0
Low Momentum 17.7 1.9 1.8 95
Low Volatility 20.2 1.9 2.0
High Returns 20.8 2.1 1.9 90
Value Factor
Strong Balance Sheet 23.2 2.1 1.4
85
<GSMEFVAL>
Large Size 19.2 2.2 1.1 MORE (low vs. high)
High Margins 21.6 2.3 1.7 EXPENSIVE
80
Dec-14

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Apr-17
Feb-15

Feb-16

Feb-17
Source: Compustat, FactSet, I/B/E/S, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 19

March 3, 2017 United States

Fund Flows, Fund Performance, and Short Interest

Domestic equity fund flows Mutual Fund Performance

12 35
Domestic equity fund flows Distribution of % outperf
Average YTD Mutual Fund Style YTD
9 (4wk avg) Large-Cap Core return Large-Cap Core 32%
30

% of Large-Cap Core Mutual Funds

ETFs
Mutual Fund 6.3% Large-Cap Growth 56
6
25
YTD returns Large-Cap Value 52

Net
Total 44%
flows
$ Billions

3
20

0
15
(3)
10
(6) Mutual
funds 5
(9)
Mar-15

Mar-16

Mar-17
Dec-14

Jun-15

Jun-16
Sep-15

Dec-15

Sep-16

Dec-16

Jun-17
0
2 2 3 3 4 5 5 6 6 7 8 8 9 9 10 11 11 12 12 13 14
YTD total return (%)

Weekly fund flows Short Interest

3.0%
Lipper Mutual Fund Flows Lipper ETF Fund Flows
Total Total Total
Short interest % of market cap
Total 4-Wk Avg Flows Lipper 4-Wk Avg Flows S&P 500 median
2.8%
($ billions) Assets Flows YTD Assets Flows YTD

Short interest % of cap

All Equity 4,084 (0.4) (14.5) 1,707 6.4 48.3
Int'l Equity 881 0.6 3.4 334 1.5 15.8 2.6%

Real Estate 69 (0.1) (0.9) 27 (0.1) 0.1

Equity Income 189 (0.1) (1.9) 64 0.1 1.8 2.4%
Global 410 (0.3) (3.1) 14 (0.1) 0.1
U.S. Equity 2,794 (0.7) (14.8) 1,360 4.9 32.5 2.3%
2.2%
All Bonds 2,401 3.1 17.5 452 2.2 19.0
All Taxable Bond 2,019 2.8 16.2 354 2.0 15.3
2.0%
Municipal Bond 349 0.2 0.8 23 (0.0) 0.3
Mar-15

Mar-16

Mar-17
Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Gov't Treasury 34 0.1 0.5 75 0.2 3.3
Money Market 2,552 (0.8) (43.9) NA NA NA
Source: FactSet, Lipper, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 20

March 3, 2017 United States

Correlation, Breadth and Dispersion

Sector and Stock Correlation S&P 500 3-month Return Dispersion

0.9 35pp
Average sector correlation S&P 500 3-month return dispersion
0.8 33pp

+/- 1 standard deviation (pp)

31pp
Average 3-Month Correlation

0.7
30-year average: 29 pp
29pp
0.6
27pp
0.5
25pp
0.4
23pp
0.33
0.3
21pp 21pp
0.2 19pp
0.15
0.1 17pp
Average stock correlation
0.0 15pp
Mar-15

Mar-16

Mar-17

Mar-15

Mar-16

Mar-17
Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Goldman Sachs Breadth Index (GSBI) Return Dispersion
100 +/- 1 Standard Deviation
30-yr avg = 35
90 = 28 GS Breadth Index 1-Month Returns 3-Month Returns
Goldman Sachs Breadth Index

Current 30-Year Historical Current 30-Year Historical

80
Mar 2 Average %ile Mar 2 Average %ile
70 S&P 500 11 pp 17 pp 7% 21 pp 29 pp 12 %
60
Utilities 4 pp 10 pp 3% 17 pp 18 pp 64 %
50
Current Telecom Services 16 13 77 20 23 51
40 34 Real Estate 9 9 66 12 15 46
30
Consumer Discretionary 12 17 13 26 29 42
20 Energy 12 14 48 20 24 38
10 <5 = Narrow breadth
Industrials 9 14 11 19 24 27
0 Health Care 8 15 4 19 25 23
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020

Consumer Staples 10 12 31 15 21 7

2 2 Materials 14 15 48 16 26 4
R = SPX return
w = individual constituent weights Financials 6 13 3 12 23 3
2 2 r = individual constituent returns
Information Technology 10 20 2 18 36 2

Source: FactSet, Lipper, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 21

March 3, 2017 United States

Economics

GDP Core PCE and CPI Employment

5.0 % 2.4 325
Consensus
Goldman Sachs Core CPI US Labor Market
GDP Growth (qoq annualized %)

4.0 % Economics

Initial Jobless Claims (thousands)

2.2
3.5 300

Year over Year change (%)

Initial Jobless
3.0 % Claims
2.3 2.3 2.3 2.3 2.3 2.0 2.0
1.8 275
1.9 2.0
2.0 %
1.4 1.8

0.8 250
1.0 %
1.6

0.0 % 225
1.4 4-Week Moving
Core PCE Average
(1.0)%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1.2 200

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Mar-15

Mar-16

Mar-17
2016 2017 2018

Current Activity (CAI) Economic Surprise (MAP) Financial Conditions (FCI)

4.5 8.0 2.0 102.2
US-MAP Positive
China CAI Data Surprises Financial Conditions Tighter
Surprise Index Index
4.0 7.0 1.5 101.8

3.5
6.0 1.0
US-MAP Surprise Index

101.4
3.0
5.0 0.5
China CAI

101.0
US CAI

2.5
4.0 0.0
2.0
100.6
3.0 (0.5)
1.5
100.2
2.0 (1.0)
1.0
US CAI 99.8
0.5 1.0 (1.5)
Negative
0.0 0.0 Data Surprises Looser
(2.0) 99.4
Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Mar-15

Mar-16

Mar-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Dec-14

Jun-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17
Mar-15

Mar-16

Mar-17

Mar-15

Mar-16

Mar-17
Our Current Activity Indicator (CAI) measures the growth signal in major high-frequency activity indicators for the US economy, expressed in GDP-equivalent units.

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 22

March 3, 2017 United States

Goldman Sachs Global Macro Forecasts

Goldman Sachs Global Macro Forecasts

Change
Goldman Sachs US Economics Forecasts
units Current 3m 6m 12m to Target % Annual Change
Equities 2016 2017E 2018E
TOPIX level 1565 1600 1500 1660 6% Real GDP 1.6% 2.2% 2.2%
MXAPJ level 466 465 470 475 2 Consumer Spending 2.7 2.4 2.0
STOXX Europe 600 level 376 375 375 380 1 Total Fixed Investment 0.7 3.7 4.1
S&P 500 level 2382 2400 2350 2300 (3) Business Fixed Investment (0.5) 3.3 3.4
Ten Year Rates Residential Investment 4.9 5.1 6.1
Euro Area (Germany) % 0.3 0.6 0.7 1.0 68 bp Federal Government Spending 0.6 0.6 1.4
US % 2.5 2.8 2.9 3.1 61
State and Local Government 1.0 1.4 2.5
Net Exports (Bil.) (562) (636) (694)
Japan % 0.1 0.1 0.1 0.3 19
Inflation
Currencies Headline CPI 0.9 2.7 2.2
US Dollar / Yen $/ 114 118 120 125 9% Core CPI 2.2 2.2 2.3
Euro / US Dollar EUR/$ 1.05 1.08 1.04 1.00 (5) Core PCE 1.7 1.8 2.0
Sterling / US Dollar /$ 1.23 1.20 1.18 1.14 (7) Unemployment Rate 4.9 4.5 4.3
Energy Fed Funds Rate 0.5 1.4 2.4
10-year Treasury Rate 2.4 3.0 3.5
NYMEX Nat. Gas $/mmBtu 2.80 3.30 3.00 3.00 7%
Brent Crude Oil $/bbl 55 59 57 58 5
WTI Crude Oil $/bbl 53 58 55 55 5 Real GDP
Metals 2015 2016E 2017E 2018E 2019E
COMEX Gold $/troy oz 1233 1200 1200 1250 1% China 6.9 % 6.7 % 6.5 % 6.3 % 6.1 %
LME Copper $/mt 5994 6200 5600 5500 (8) World 3.4 3.1 3.6 3.7 3.7
Russia (3.7) (0.2) 2.6 3.0 2.7
EPS Forecast EPS Growth NTM P/E
Australia 2.4 2.4 2.6 2.8 3.0
Div
Spain 3.2 3.2 2.4 2.3 2.3
2016 2017 2018 2017 2018 Current YE 2017 Yield
USA 2.6 1.6 2.2 2.2 1.7
TOPIX 91 103 112 12 % 9% 16.8 x 14.8 x 2.1 % UK 2.2 2.1 1.4 1.4 1.9
Euro Area 1.9 1.6 1.4 1.4 1.5
MXAPJ $ 30 $ 32 $ 34 6 7 15.4 13.9 3.0 France 1.2 1.3 1.4 1.5 1.7
Germany 1.5 1.7 1.4 1.4 1.3
STOXX
21 24 25 12 5 17.4 15.3 3.5 Japan 1.2 1.0 1.2 1.1 1.3
Europe 600
Brazil (3.8) (3.4) 1.1 2.6 2.7
S&P 500 $ 105 $ 116 $ 122 10 5 22.3 18.9 2.1 Italy 0.6 0.8 0.8 0.8 0.9
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 23

March 3, 2017 United States

Goldman Sachs Macro Forecasts

EURO YEN OIL
$1.25 130 $80

Brent
$1.20 EUR/USD 125 125 $70 crude
GS
forecast
120 120 ($/bbl) $58
$1.15 $60
118
115
$1.10 114 $50 Futures
$1.08
110 market
$1.05 $40
$56
$1.04
105
$1.05
$1.00
$1.00 100 $30

USD/JPY
$0.95 95 $20
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18
Investment Grade (IG) spread High-Yield (HY) spread Global Equity Market performance
Price Return (%) US Dollar Local
210 bp 1000 bp
Market 1-Wk 1-Mo 3-Mo YTD Currency
190 bp
Investment Grade High-yield
900 bp Brazil (Bovespa) (4)% 2% 21 % 14 % 9%
(IG) spread (HY) spread China (MSCI China) (2) 4 7 10 11
170 bp USD 800 bp
USD
Korea (KOSPI) (1) 2 10 10 4
150 bp Mexico (Bolsa) (1) 4 10 7 4
700 bp
130 bp Australia (ASX 200) (2) 1 8 7 2
600 bp U.S. (S&P 500) 1 4 9 6 6
110 bp 111 bp Japan (TOPIX) (1) 2 5 5 3
500 bp
90 bp Germany (Dax) 0 1 13 5 5
89 bp 430 bp Europe (DJ Stoxx 600) 0 1 9 4 4
70 bp 400 bp
Spain (IBEX 35) 2 1 11 4 4
355 bp
50 bp 300 bp UK (FTSE 100) (1) 1 6 3 3
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

France (CAC 40) 1 1 8 2 2

Average (1)% 2% 10 % 6% 5%
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 24

March 3, 2017 United States

Equity Basket Disclosure

The ability to trade the basket(s) discussed in this research will depend upon market conditions, including liquidity and borrow
constraints at the time of trade.

Goldman Sachs Global Investment Research 25

March 3, 2017 United States

Disclosure Appendix
Reg AC
We, David J. Kostin, Ben Snider, Brett Sanchez, Arjun Menon, Ryan Hammond and Cole Hunter, CFA, hereby certify that all of the views expressed in this report accurately reflect our personal views
about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or
views expressed in this report.

Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

Disclosures
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 54% 14% 64% 60% 51%
As of January 1, 2017, Goldman Sachs Global Investment Research had investment ratings on 2,902 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment
Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups
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investment banking services within the previous twelve months.

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The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their
households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes
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Goldman Sachs Global Investment Research 26

March 3, 2017 United States

with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these
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Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a
stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review
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coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the
potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all
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investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12
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Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic
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Goldman Sachs Global Investment Research 27

March 3, 2017 United States

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Goldman Sachs Global Investment Research 28