EFTA01474964

Deutsche Bank Markets Research North America United States Periodical US Equity Insights Window for 2015 liftoff slams shut: Cut S&P 2015 end target to 2050 Any single jobs report is doubtful, but we heed this one and cut our S&P target A pivotal September jobs report. We expected a further decline in mfg jobs, but we were surprised by the sizable downshift in private jobs growth. We're skeptical of this report, but investors and especially the Fed will heed this data point. Eyes will turn to the non-mfg ISM on Monday for confirmation, but we now think the Fed is unlikely to hike in 2015. This reduces upside for stocks. It means rates, currency, commodity and PE uncertainty continues. It also means spartan interest rate conditions for Banks in 2016. The report's other concerning details included even lower workforce participation. Rates will be low in 2016, but where overnight rates will be in 2017 is now more uncertain. Will 2015 be an up year? That's now a coin toss, but still 5%+ upside from here We hate to do this as we know it seems equivocal, but we cut our 2015 S&P target despite our fundamental longer-term S&P EPS and 10yr real interest rate views (cost of equity base) still being intact. But we acknowledge that our timing on Fed hikes has been wrong and this and other uncertainties will linger longer. We stick with our 2016 end target of 2300, which assumes $125+ of S&P EPS in 2016. We make no changes to our sector strategy. But if any new strategy tweaks it would be to Borrow & Buy more Utility & Telecom stocks. 3Q S&P EPS will be weak, weakest sales/EPS growth yet of the profit recession The DB Profit Indicator is a diffusion style index based on six macro indicators. It dropped to 49.2 in July and then 46.7 in August dragged down by Mfg. ISM, Exports and Oil prices. At —47 it suggests flat to slightly down y/y 3Q EPS. Btm-up 3Q EPS is now $29.04, or -4.4% y/y on -3.4% y/y sales. EPS growth likely slows at Financials to flat ex litigation given soft capital markets conditions. Health Care EPS should be up high single-digit. Btm-up Tech EPS growth is now merely 2.8% y/y, on FX headwinds and still very sluggish corp IT spending. But final Tech EPS growth should be mid single digit on good growth at consumer exposed Tech. Btm-up 3Q EPS will fall a bit more before turning up on typical "fishhook" beats. We think 3Q EPS will finalize around $29.75, down 2% y/y, with sales down —4%, and margins up slightly. Margin improvement is on a non-GAAP basis, GAAP margins and EPS are poor. We prefer a LIFO strategy for playing a market rebound 3Q results will once again highlight a divergence between a sharp profit recession at Energy, Industrials, Materials, but decent EPS growth elsewhere. 30 won't be great for Banks ex. litigation. But Health Care, most of Consumer Discretionary and consumer exposed Tech will be good. Because of this EFTA01474964 ongoing divergence in EPS growth and also shareholder distribution coverage, we advocate a LIFO strategy, meaning that stocks last into the correction will likely be first out, as opposed to a FIFO or YTD momentum reversal strategy. Buybacks plateau, small contraction possible in 2016, but dividends will rise See our buyback funding coverage analysis inside. More reasons to stick with Healthcare, select Tech & Consumer and Banks. Industrial buybacks will fall. The future is all about firsts: Forget past cycles and precedents. This is all new We see a better chance of landing men on Mars before a full normalization of nominal and real interest rates, especially 10yr yields, to historical norms. Growth will be slow, but we do expect S&P EPS growth next year and likely through 2018. We doubt 10yr Tsy yields exceed 3% for the rest of this cycle. This supports an 18 or higher trailing S&P PE provided up EPS in year ahead. Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Date 2 October 2015 David Bianco Strate ist Winnie Nip Strate ist S&P 500 Key Forecasts Price Next 5%+ move Ju Wang Up 2014 Year-end Target 2058.90 EPS Target P/E Current P/E DPS 17.4x 16.5x EFTA01474965 $38.75 Related recent research Debt ceiling showdowns: A new twist to the election cycle? Fed delays: Less S&P upside for 2015 Stocks will leave hike decision to Fed but dollar likely climbs either way First back to school assignment: Stress test 2016 S&P EPS estimates US Equity Strategy Baskets High Foreign Cash (Repatriation Beneficiaries) Big-Cap Reasonable PE Tech Challenged Industrial Capital Goods US Domestic Strength 2015E 2050 $118 $119.50 17.2x 16.3x $42 2016E 2300 $128 18.0x 15.2x $45 Date 28 Sep 2015 18 Sep 2015 11 Sep 2015 4 Sep 2015 Bloomberg Ticker DBUSHIFC DBUSBRTE DBUSCICG DBUSDMST EFTA01474966 2 October 2015 US Equity Insights 3Q S&P EPS will be weak, weakest sales/EPS growth yet of the profit recession The DB Profit Indicator is a diffusion style index based on six macro indicators. It dropped to 49.2 in July and then 46.7 in August dragged down by Mfg. ISM, Exports and Oil prices. At —47 it suggests flat to slightly down y/y 3Q EPS. Btm-up 3Q EPS is now $29.04, or -4.4% y/y on -3.4% y/y sales. EPS growth likely slows at Financials to flat ex litigation given soft capital markets conditions. Health Care EPS should be up high single-digit. Btm-up Tech EPS growth is now merely 2.8% y/y, on FX headwinds and still very sluggish corp IT spending. But final Tech EPS growth should be mid single digit on good growth at consumer exposed Tech. Btm-up 3Q EPS will fall a bit more before turning up on typical "fishhook" beats. We think 3Q EPS will finalize around $29.75, down 2% y/y, with sales down —4%, and margins up slightly. Margin improvement is on a non-GAAP basis, GAAP margins and EPS are poor. Figure 1: Fishhooks: S&P 500 quarterly btm-up EPS revisions 22 23 24 25 26 27 28 29 30 31 32 33 4014 S&P 500 quarterly btm-up EPS revisions 3Q14 4Q13 3Q13 4Q12 4011 3011 2011 2Q12 3Q12 1012 1013 2Q13 1Q14 2014 2015 3015 4015 1015 EFTA01474967 22 23 24 25 26 27 28 29 30 31 32 33 Figure 2: Change in quarterly EPS before and during reporting (1Q11 — now) -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% Avg (1Q11-1Q15): 3.3% Avg: -3.9% EPS beat during reporting EPS cut prior to reporting Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank Figure 3: Change in btm-up 3015 EPS since 6/30/2015 (current 3Q EPS is blended: actual for reported and consensus for the rest) -16% -11% -6% -1% 4% 3.5% Figure 4: Change in btm-up 2015 EPS since 6/30/2015 -3.6% -3.2% -3.7% -3.0% -3.9% -6.0% -1.9% -1.9% -4.2% -1.1% -6.0% -3.2% EFTA01474968 -2.6% -14.2% -13.0% -10% -8% -6% -4% -2% 0% 2% 4% Change in btm-up 2015 EPS since 6/30/2015 0.2% -1.0%-1.1% -0.6%-0.9% -2.1% -0.6% -1.1% -0.7% 2.5% 0.8% -1.6% -1.2% -3.9% -0.8% -8.2% Source: IBES, Deutsche Bank Source: IBES, Deutsche Bank Page 2 Deutsche Bank Securities Inc. S&P ex. Fin ex. En ex. Tech En, Fin. Ex. En, Fin Ex. En, Fin, HC Disc. Staples Energy Financials Health Care Industrials Tech Materials Telecom Utilities Jan-11 Apr-11 Jul-11 Oct-11 EFTA01474969 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 S&P ex. Fin ex. En ex. Tech En, Fin. Ex. En, Fin Ex. En, Fin, HC Disc. Staples Energy Financials Health Care Industrials Tech Materials Telecom Utilities 1011 2011 3Q11 4011 1012 2012 3012 4012 1013 2013 3013 4Q13 1Q14 2014 3Q14 4014 1015 2015 EFTA01474970 3Q15 EFTA01474971 2 October 2015 US Equity Insights 3Q results will once again highlight a divergence between a sharp profit recession at Energy, Industrials, Materials, but decent EPS growth elsewhere. 3Q won't be great for Banks ex. litigation. But Health Care, most of Consumer Discretionary and consumer exposed Tech will be good. Because of this ongoing divergence in EPS growth and also shareholder distribution coverage, we advocate a LIFO strategy, meaning that stocks last into the correction will likely be first out, as opposed to a FIFO or YTD momentum reversal strategy. Figure 5: S&P 500 quarterly EPS & Sales growth and Net Margins by sector (3015 is blended with actual for reported and consensus for the rest) 2011 EPS growth (y/y) S&P 500 S&P 500 ex. Financials S&P 500 ex. Energy S&P 500 ex. Tech S&P ex. Energy & Financials S&P ex. Energy, Financials, Healthcare Consumer Discretionary Multiline & Specialty Retail Cons. Disc. ex. Auto & Home Builders Consumer Staples Energy Energy Equipment & Services Oil, Gas & Consumable Fuels Financials Financials ex. BAC, C & 3PM Health Care Industrials Industrials ex. Defense Information Technology Tech ex. AAPL & GOOG Materials Telecommunication Services Utilities 1011 2011 19.2% 8.0% 9.9% 15.2% 16.7% 7.6% 36.6% -3.6% 42.6% 6.3% 10.8% EFTA01474972 10.6% 38.7% 45.3% 23.9% 17.1% 56.5% -6.0% -5.5% 19.4% 21.9% 11.3% 41.6% 19.0% 44.5% -23.9% 3.5% 8.6% 16.2% 17.1% 23.3% 11.8% 60.3% -3.8% 8.5% 3Q11 18.4% 12.3% 17.5% 21.1% 15.9% 17.1% 18.4% 20.4% 19.8% 11.9% 19.0% 13.1% 13.2% 18.1% 15.7% 13.1% 8.5% 20.7% 18.6% 19.9% 10.3% 62.7% 26.8% 68.3% 6.6% 0.9% 12.5% 17.5% EFTA01474973 19.0% 11.5% 5.2% 23.6% 3.7% 1.4% 2011 Sales growth (y/y) S&P 500 S&P 500 ex. Financials S&P 500 ex. Energy S&P 500 ex. Tech S&P ex. Energy & Financials S&P ex. Energy, Financials, Healthcare Consumer Discretionary Multiline & Specialty Retail Cons. Disc. ex. Auto & Home Builders Consumer Staples Energy Energy Equipment & Services Oil, Gas & Consumable Fuels Financials Financials ex. BAC, C & 3PM Health Care Industrials Industrials ex. Defense Information Technology Tech ex. AAPL & GOOG Materials Telecommunication Services Utilities 1011 2011 15.1% 9.2% 10.8% 10.2% 3.8% 11.0% 8.1% 24.7% 30.8% 24.2% -1.4% 3.9% 5.3% 12.6% 15.5% 14.7% 8.9% 29.1% EFTA01474974 2.5% -2.7% 12.7% 11.1% 12.0% 9.7% 5.1% 10.4% 10.2% 34.8% 34.4% 34.8% 0.0% 6.6% 6.9% 10.2% 12.8% 14.9% 8.3% 33.6% 7.8% 8.3% 2011 Net margins S&P 500 S&P 500 ex. Financials S&P 500 ex. Energy S&P 500 ex. Tech S&P ex. Energy & Financials S&P ex. Energy, Financials, Healthcare Consumer Discretionary Multiline & Specialty Retail Cons. Disc. ex. Auto & Home Builders Consumer Staples Energy Energy Equipment & Services Oil, Gas & Consumable Fuels Financials Financials ex. BAC, C & 3PM Health Care Industrials Industrials ex. Defense Information Technology Tech ex. AAPL & GOOG Materials Telecommunication Services Utilities Source: IBES, Deutsche Bank 1011 9.7% 9.3% EFTA01474975 9.9% 8.6% 9.4% 9.2% 6.5% 4.9% 6.6% 6.4% 8.6% 11.7% 7.8% 12.2% 11.7% 10.7% 6.9% 7.0% 19.1% 18.0% 10.1% 8.1% 9.0% 2011 9.5% 9.6% 9.6% 8.5% 9.7% 9.6% 7.1% 5.6% 7.3% 7.1% 8.9% 11.6% 8.0% 8.7% 10.9% 10.3% 8.0% 8.1% 18.7% 17.2% 10.0% 8.5% 9.9% 3011 9.8% 9.6% 10.0% 8.9% 9.7% EFTA01474976 9.5% 6.7% 4.6% 7.2% 6.9% 9.1% 11.8% 8.4% 11.4% 10.E 10.5% 8.2% 8.4% 18.7% 17.4% 8.1% 8.2% 12.2% 4011 9.3% 9.0% 9.7% 8.0% 9.3% 9.3% 6.2% 6.0% 7.3% 6.5% 7.5% 11.9% 8.2% 11.5% 12.0% 9.7% 8.1% 8.2% 20.E 18.6% 6.2% 6.2% 7.6% 1012 9.8% 9.2% 10.E 8.7% 9.5% 9.4% 6.3% 5.2% EFTA01474977 6.7% 6.2% 7.9% 12.0% 8.0% 13.8% 14.0% 10.3% 7.6% 7.7% 19.8% 17.3% 9.3% 8.5% 9.0% 3011 10.2% 12.9% 12.1% 12.3% 7.8% 9.8% 9.8% 13.7% 9.1% 12.3% 10.5% 10.9% 11.5% 4.8% 12.3% 12.8% 29.7% 26.6% 30.0% 2.0% 1.9% 8.1% 11.1% 13.6% 10.2% 6.2% 16.5% 6.0% 2.8% 4011 8.9% 10.4% 7.1% 8.6% 8.6% 9.2% 8.9% EFTA01474978 5.2% 10.1% 9.9% 19.3% 26.3% 18.7% -0.9% 0.3% 5.4% 8.3% 7.9% 11.7% 2.7% 6.0% 10.2% 6.3% 1Q12 6.7% 7.3% 6.2% 6.2% 6.9% 7.1% 7.1% 6.1% 8.7% 8.3% 9.1% 25.7% 7.7% 2.7% 5.1% 5.6% 6.6% 7.6% 10.8% 4.0% 4.6% 8.0% -3.3% 4Q11 9.9% 11.6% 9.4% 7.5% 11.3% 11.3% 13.5% 14.9% 17.4% 6.4% EFTA01474979 13.2% 26.1% 11.2% 0.9% 0.6% 11.2% 18.6% 19.5% 18.5% 3.6% -16.9% -19.2% -1.3% 1012 10.5% 9.3% 11.8% 8.8% 10.7% 12.0% 11.3% 20.5% 18.9% 7.6% 2.7% 30.9% -0.3% 16.0% 25.1% 5.4% 19.3% 19.8% 17.5% 3.7% -3.0% 9.9% -6.8% 2012 2012 12.7% 8.2% 5.9% 5.5% -0.1% 9.3% 8.5% 3.8% 3012 -0.2% 6.1% 3.2% EFTA01474980 2.4% 2.4% 8.1% 4Q12 8.3% 3.3% 7.3% 2.2% 5.9% 6.4% 8.8% 4.5% 5.0% 13.7% 10.1% 13.2% 11.3% 11.1% 1.4% 9.9% -14.3% -11.9% 13.3% 15.7% 8.6% -4.9% -17.7% -14.5% 16.5% 54.9% 23.3% 15.4% 16.8% 42.5% 13.3% 7.8% 16.8% 18.2% 8.7% 5.8% 2.2% 5.6% 6.2% 3.5% 0.5% -7.9% 1.9% -3.9% -2.9% 2.4% 2.7% -13.2% -21.9% 13.8% 13.2% 12.9% -8.5% 3.7% 9.0% 2012 2Q12 3Q12 1.2% 2.7% 1.0% 2.8% EFTA01474981 2.3% 4Q12 2.2% 1.3% 5.2% 2.1% 3.9% 1.7% 4.0% 3.2% 3.5% 6.6% 5.0% 4.6% 3.9% 1.6% 1.7% 3.5% 4.1% -5.9% 2.6% 2.7% 3.4% 3.8% -5.4% -6.9% 2.3% 8.6% 5.3% 1.5% 2.1% 4.6% -0.5% -5.9% 2.3% 0.8% 3.9% 3.4% 3.7% 3.4% -1.6% 17.5% 11.3% 16.5% -7.9% 3.2% 3.3% 8.1% 5.1% 6.0% 6.7% 3.1% -2.6% 2.7% -2.4% EFTA01474982 2012 2Q12 3Q12 9.3% 8.9% 9.5% 9.4% 10.2% 10.2% 8.9% 9.7% 9.6% 6.8% 5.7% 7.3% 6.9% 7.9% 6.9% 4.7% 7.5% 6.6% 8.3% 7.5% 4Q12 9.8% 9.9% 9.4% 9.4% 9.1% 9.6% 8.2% 9.2% 9.3% 6.6% 6.3% 7.6% 6.8% 8.4% 12.0% 12.0% 11.4% 7.7% 7.8% 13.0% 13.6% 11.3% 12.3% 13.4% 10.9% 10.0% 10.0% 8.7% 8.9% 8.4% 8.6% 6.7% 8.9% 9.1% 7.5% 7.7% 18.6% 18.2% 19.6% EFTA01474983 17.0% 17.1% 18.1% 8.8% 9.3% 9.6% 12.0% 6.9% 6.1% 8.5% 1013 10.0% 9.3% 10.3% 9.0% 9.4% 9.3% 6.3% 5.3% 7.0% 6.4% 8.5% 11.2% 7.9% 15.0% 14.7% 9.8% 7.9% 8.0% 18.7% 17.4% 9.3% 8.9% 9.3% -3.4% 17.8% 23.6% 8.5% 1.9% 2.7% 7.0% 3.1% 3.8% 2.1% 5.1% 1013 1.7% 1.4% 3.4% 1.4% 3.3% 2.6% 3.8% EFTA01474984 1.8% 3.6% 2.6% -7.1% 4.7% -8.3% 3.7% 4.3% 7.1% 0.3% 0.7% 4.3% 1.6% 0.3% 0.6% 5.6% 1Q13 5.1% 3.1% 5.5% 6.4% 3.2% 3.3% 8.1% 8.8% 11.6% 3.5% 2.3% -1.9% 2.9% 14.0% 11.3% 2.7% 5.7% 5.4% 0.0% 5.0% 0.1% 10.4% 1.9% 2013 2Q13 3Q13 7.2% 7.7% 5.0% 4Q13 7.5% 13.3% 10.2% 6.0% EFTA01474985 -7.4% -0.9% 8.8% 8.8% 8.6% 9.2% 7.1% -6.3% 5.1% 4.2% -8.5% 24.7% 9.7% 1Q14 10.0% 10.6% 10.2% 10.8% 6.5% 5.9% 4.5% 7.7% 7.0% 2Q14 13.5% 8.2% 7.7% 12.7% 11.5% 7.6% 7.7% 7.4% 2014 3Q14 9.5% 4Q14 9.1% 3.4% 1Q15 -0.3% 14.4% 12.9% 15.7% 0.0% 1.0% 9.7% 7.7% 9.3% 10.8% 10.6% 11.1% 10.9% 9.3% 8.0% -1.5% EFTA01474986 6.5% 2015 2Q15 6.3% 5.8% 10.4% 5.2% 9.3% 10.8% 6.7% 2.8% 1.7% 1.3% 8.3% 8.3% 3.0% 2.4% 14.3% 21.6% 17.3% 13.8% 17.1% 13.5% 2.4% -7.6% 1.0% 7.3% 0.6% 14.4% 11.0% 10.3% 14.6% 4.0% 0.0% -9.1% -10.4% -12.2% -2.4% 30.6% 27.4% 11.1% 22.1% 5.8% 2.3% 1.8% -2.2% 2.7% -3.4% 5.4% -2.8% 2013 2Q13 3Q13 4.2% 3.9% 3.6% 4.6% 3.6% 4Q13 3.6% 2.8% 1.8% 4.5% 3.7% 1Q14 3.8% 3.8% 3.2% 4.5% 3.6% EFTA01474987 2Q14 5.2% 5.3% 4.5% 5.8% 4.6% 20.5% 22.0% 10.9% 11.9% 12.8% 9.0% 8.9% 2.1% 17.5% 9.7% -0.1% 7.3% 17.0% 11.6% 7.7% 0.9% -1.7% 9.4% 0.3% 7.4% 6.0% 12.3% 11.4% 22.6% 17.2% 11.2% 6.2% 4.0% 3Q15 -4.4% -7.0% 3.2% -6.0% 2.1% 1.2% 9.9% 12.0% 5.3% -2.3% 18.6% 10.9% -24.3% -57.6% -56.1% -64.5% 10.7% 16.5% 15.8% 20.9% 16.7% 22.2% -22.3% -44.9% -60.0% 18.2% -6.5% 6.7% -33.5% -63.7% -58.3% -65.5% -3.4% 3.9% 16.2% 17.3% 7.1% EFTA01474988 1.9% 10.9% 18.2% 15.8% 22.5% 18.4% 13.3% 3.0% 1.2% 8.1% 6.1% -1.2% 14.6% 14.9% 14.0% 10.3% 15.6% 15.7% 12.7% 11.8% 17.0% 10.5% 18.2% 10.4% 15.5% 7.8% 23.6% 15.7% -4.9% 22.4% 10.4% 20.0% 4.0% 0.4% 3.6% 1.8% 2014 3Q14 4.1% 5.8% 3.9% 5.7% 4.4% 4Q14 1.7% 4.7% 0.5% 5.8% 4.1% 1Q15 -4.2% 2.2% -4.3% 2.0% 0.5% 0.8% 4.0% 1.8% 1.8% 9.1% 3.4% 7.3% 9.4% 2.5% 2.1% 0.8% 2.4% EFTA01474989 -0.1% -1.0% 7.9% -0.2% 8.2% 9.7% 4.2% 2015 2Q15 -4.4% 1.1% -4.5% 1.2% -0.4% 2.1% 3.9% 2.6% 0.6% 7.4% -1.0% 6.2% -3.6% -3.7% 2.8% -4.9% -15.1% 11.4% -2.3% 3Q15 2.9% 3.7% 2.2% 3.3% 4.9% 4.3% 1.4% -3.2% -3.7% -3.4% 2.6% 3.8% 3.0% 3.7% 3.3% -4.4% 2.4% -3.9% 2.1% 0.8% 6.7% 5.1% 5.6% 2.8% -2.2% 9.3% -3.4% 4.4% 3.3% 5.6% 1.0% EFTA01474990 1.4% 1.5% 0.8% 2.0% 2.2% 8.8% 2013 2013 3013 9.5% 9.0% 9.9% 9.9% 4013 9.3% 8.7% 9.6% 9.8% 1014 9.4% 9.0% 9.6% 9.5% 2014 9.7% 9.4% 5.9% 4.4% 5.0% 2.5% 2.3% 8.9% 1.6% 0.3% -0.9% 9.2% 1.6% 2.2% 4.2% 4.1% 6.1% 2.6% 2.5% 4.0% 1.3% 3.9% 3.3% -0.8% -0.4% -0.8% -6.1% EFTA01474991 -8.0% 8.8% 2.5% 3.5% 5.5% 4.8% 3.5% 2.1% 2.7% 4.5% 3.2% 5.3% 1.4% 0.6% 7.2% -0.2% -0.1% 1.0% 8.9% 1.6% 2.3% 3.7% 3.1% 1.5% 3.7% 16.8% 4.7% 5.8% 5.9% 3.3% 2.3% 3.2% 2.2% 2.5% 4.3% 4.1% 5.1% 5.3% 2.8% 3.7% 5.5% 4.6% 1.4% 5.0% 4.2% 5.3% 3.9% 1.5% -3.5% -18.0% -34.8% -31.7% -36.9% 7.0% -10.3% -24.8% -32.8% EFTA01474992 -4.7% -20.9% -37.8% -32.5% -37.4% 6.2% 6.7% -1.1% -0.2% 11.8% 11.7% 13.6% 3.7% 4.6% 8.5% 8.6% 3.2% 3.1% 3.1% 4.5% 5.3% 7.9% 6.9% 2.4% 3.0% 4.7% 2014 3Q14 9.8% 9.5% 4Q14 9.8% 8.9% 1Q15 9.6% 9.4% 3.9% 3.9% 8.2% 2.5% -1.7% 5.2% 9.1% 3.0% 4.0% 9.1% -2.3% -2.4% 5.5% 0.2% -9.2% 2.5% -2.5% 0.7% 0.9% 8.1% -3.5% EFTA01474993 -4.1% 2.5% -3.3% -9.5% 2.4% -4.6% 2015 2Q15 9.9% 9.8% 10.6% 10.4% 10.4% 10.4% 10.7% 10.8% 10.8% 11.1% 11.4% 9.2% 9.6% 9.5% 10.0% 10.1% 10.2% 10.2% 10.5% 10.0% 10.2% 10.4% 10.0% 10.4% 7.1% 6.0% 7.8% 6.9% 7.3% 7.8% 4.9% 7.9% 6.9% 7.3% 7.5% 6.6% 5.6% 7.4% 6.9% 7.6% 7.2% 6.4% 4.9% 7.4% 6.4% 8.3% 7.2% 7.1% 5.8% 7.9% 7.1% 8.3% 7.4% 7.1% 5.0% 8.0% 7.0% 8.2% 7.6% EFTA01474994 7.2% 6.2% 7.9% 6.7% 6.9% 7.3% 6.7% 5.3% 7.4% 6.5% 5.4% 6.7% 7.5% 6.0% 8.0% 7.0% 5.2% 11.0% 11.0% 11.4% 11.6% 12.0% 12.2% 12.6% 12.3% 11.6% 7.8% 5.9% 16.1% 13.5% 15.0% 15.0% 14.6% 14.7% 14.4% 16.6% 16.7% 15.0% 14.9% 14.5% 15.6% 15.2% 15.4% 14.9% 15.7% 15.1% 9.9% 8.8% 8.9% 9.8% 9.0% 9.2% 7.1% 9.0% 9.0% 8.7% 8.9% 12.1% 7.9% 7.1% 7.9% 9.9% 7.9% 7.8% 9.0% 10.3% 10.1% 9.7% 9.9% 9.8% 10.0% 8.9% 8.9% 8.2% 9.7% 9.5% EFTA01474995 9.7% 10.2% 10.5% 10.4% 9.9% 11.9% 8.0% 8.3% 8.0% 10.8% 11.0% 8.7% 8.7% 9.7% 9.9% 17.7% 18.7% 20.2% 19.0% 18.5% 18.6% 21.2% 19.3% 18.9% 17.0% 18.1% 19.2% 17.7% 17.7% 17.8% 19.8% 17.6% 17.7% 8.5% 9.1% 9.0% 9.7% 10.4% 11.0% 11.1% 10.4% 9.7% 4.1% 6.2% 7.9% -5.4% -6.1% 1.4% -3.9% -8.9% 15.0% 3.1% 3Q15 10.1% 10.0% 10.0% 10.1% 10.4% 10.5% 10.4% 10.6% 10.8% 10.5% 9.2% 9.6% 11.1% 9.4% 10.2% 10.3% 7.8% 5.3% 8.4% 6.6% 4.5% 7.7% 4.1% 16.5% 15.7% 9.9% 10.1% EFTA01474996 10.3% 18.9% 17.5% 7.6% 10.0% 11.3% Deutsche Bank Securities Inc. Page 3 EFTA01474997 2 October 2015 US Equity Insights Figure 6: % of S&P Reported by Week 0% 5% 10% 15% 20% 25% 30% 35% S&P 500 EPS (earnings weight) to be reported each week 31.8% 25.3% 18.6% 12.9% 3.3% 1.1% 2.1% 3.3% 1.6% Source: IBES, Deutsche Bank Figure 7: Summary stats for firms with August-quarter end that have reported results (AA has September-quarter end) 3Q15 EPS Ticker Company Name FDX-US FedEx Corp ORCL-US Oracle Corp LEN-US Lennar Corp AZO-US Autozone Inc KMX-US Carmax Inc CCL-US Carnival Corp GIS-US General Mills Inc ACN-US Accenture PLC CTAS-US Cintas Corp Sector Industrials Information Technology ADBE-US Adobe Systems Inc Information Technology RHT-US Red Hat Inc Information Technology Industry Air Freight & Logistics Software Software Software Consumer Discretionary Household Durables Consumer Discretionary Consumer Discretionary Specialty Retail Specialty Retail EFTA01474998 Consumer Discretionary Hotels, Restaurants & Leisure DRI-US Darden Restaurants IncConsumer Discretionary Hotels, Restaurants & Leisure CAG-US ConAgra Foods Inc Consumer Staples Consumer Staples Food Products Food Products BBBY-US Bed Bath & Beyond IncConsumer Discretionary NKE-US Nike Inc Consumer Discretionary Information Technology Industrials COST-US Costco Wholesale CorpConsumer Staples PAYX-US Paychex Inc Information Technology MU-US Micron Technology IncInformation Technology MKC-US McCormick & Company IncConsumer Staples Weighted Average Source: IBES, Deutsche Bank MU and ORCL management guidance and color suggest that corporate IT spending remains very sluggish Specialty Retail Textiles, Apparel & Luxury Goods IT Services Commercial Services & Supplies Food & Staples Retailing IT Services Reporting Date 9/16/2015 9/16/2015 9/17/2015 9/21/2015 9/21/2015 9/22/2015 9/22/2015 9/22/2015 9/22/2015 9/22/2015 9/22/2015 9/24/2015 9/24/2015 9/24/2015 9/24/2015 9/29/2015 9/30/2015 Semiconductors & Semiconductor Equipment10/1/2015 Food Products 10/1/2015 Surprise (%) EFTA01474999 Y/Y 3Q15 Sales Surprise (%) Y/Y 3Q15 Est. Change (since 9/1/2015) EPS Sales -1.3% 15.2% -0.5% 5.1% 0.2% -0.3% 1.7% -14.5% -1.0% -1.7% 0.3% -0.1% 8.4% 92.9% 0.2% 21.1% -0.2% -0.1% 6.6% 14.6% 1.9% 13.1% 0.2% 0.0% 20.4% 23.1% 2.9% 23.7% -0.4% -0.4% 0.4% 13.0% 1.0% 7.9% -0.1% -0.1% 7.0% 28.1% -2.6% 7.9% -0.7% -0.7% 7.5% 10.8% 1.4% -1.3% 0.0% 0.1% 20.1% 112.5% 0.8% 5.7% 1.6% 0.0% 13.5% 15.4% -24.1% -24.5% 0.2% -0.2% 14.5% 29.5% -1.0% -1.4% 0.1% 0.0% 0.0% 3.4% -1.1% 1.7% 0.0% 0.0% 13.0% 22.9% 2.4% 5.4% 0.4% 0.1% 2.9% 6.5% 2.9% 1.4% 0.1% 0.1% 2.9% 19.2% 2.4% 8.8% 0.1% 0.0% 4.2% 9.5% -2.0% 0.7% 0.0% -0.8% 2.0% 10.6% 0.8% 8.4% 0.0% 0.0% 2.7% -54.9% 0.1% -14.8% -9.4% -1.1% -1.8% -10.5% 0.3% 1.6% 0.2% 0.0% 5.1% 1.3% -1.2% 1.0% -0.9% -0.1% Page 4 Deutsche Bank Securities Inc. Pre-season W1 (10/5-10/9) # 19 #5 W2 (10/12-10/16) #37 W3 (10/19-10/23) W4 (10/26-10/30) W5 (11/2-11/6) W6 (11/9-11/13) W7(11/16-11/20) After 11/23 #118 #174 #93 #15 #25 #14 EFTA01475000 2 October 2015 US Equity Insights Figure 8: Oil and USD since 2012 2012 avg. WTI Oil ($/bbl) Brent Oil Natural Gas Trade-weighted broad index (1/97 = 100) Trade-weighted major currency (3/73=100) EUR/USD GBP/USD USD/JPY Trade-weighted OITP (1/97=100) Source: EIA, WSJ, FRB, Deutsche Bank 94.3 111.8 2.74 73.50 1.29 1.58 79.79 2013 avg. 97.9 108.6 3.72 75.95 1.33 1.56 2014 avg. 93.70 99.62 4.30 78.34 1.33 1.65 1Q14 avg. 98.6 108.4 4.88 76.88 1.37 1.65 2Q14 avg. 103.1 109.4 4.58 EFTA01475001 76.38 1.37 1.68 3Q14 avg. 98.2 102.5 3.95 77.66 1.33 1.67 4Q14 avg. 74.88 78.24 3.79 82.44 1.25 1.59 1Q15 Y/Y avg. % chg 2Q15 Y/Y avg. % chg 3Q15 Y/Y q/q avg. % chg % chg 48.9 -50.4% 57.4 -44.4% 47.4 -51.8% -17.4% 53.7 -50.5% 61.2 -44.0% 50.6 -50.6% -17.3% 2.88 -40.9% 2.75 -40.1% 2.74 -30.6% -0.1% 99.85 101.02 104 07 102.88 102.40 103.12 107.87 114.20 11.0% 114.85 12.2% 118.74 15.2% 3.4% 89.12 15.9% 90.01 17.8% 91.67 18.0% 1.8% 1.13 -17.4% 1.11 -19.4% 1.11 -16.3% 0.6% -8.3% 1.53 1.52 128.32 127.77 131.52 130.73 130.31 130.28 134.77 140.47 -9.1% 1.55 -7.2% 1.4% 97.50 105.71 102.87 102.13 103.77 114.09 119.18 15.9% 121.33 18.8% 122.27 17.8% 0.8% 7.5% 140.82 8.1% 147.25 13.0% 4.6% Figure 9: DB Profit Indicator dropped sharply in 3Q to 46.7, back to Feb/- March levels; it has exceeded 50 since Feb '14 2Q15 DB Profit Indicator (qtrly avg.) DB Profit Indicator (monthly) Mfg. ISM EFTA01475002 ISM New Orders Index ISM Production Index Industrial Production (seq. 3mo % chg, a.r.) Capacity Utilization (%) Exports (seq. 3mo % chg, a.r.) Capital Goods exports (seq. 3mo % chg, a.r.) Mfg ISM Export Orders Index - 3mo avg. Initial claims (month avg., 000's) Unemployment Rate (%) Change in non-farm payroll (000's) Loan growth (seq. 3mo % chg, a.r.)** C&I loan growth (seq. 3mo % chg, a.r.) CRE loan growth (seq. 3mo % chg, a.r.) 52.5 Aug 46.7 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Home Equity & Other Residential loan growth (seq. 3mo % chg, a.r.) Consumer loan growth (seq. 3mo % chg, a.r.) Other loan growth (seq. 3mo % chg, a.r.) Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Aug-15 Oil price (% chg from prior quarter avg. price) WTI spot month end, $/bbl Brent spot month end, $/bbl Source: Deutsche Bank, ISM, Federal Reserve, Census, DOL, BLS, EIA, WSJ, CME Aug-15 Aug-15 Aug-15 1Q15 47.9 Jul 49.2 Current Month 51.1 51.7 EFTA01475003 53.6 0.5% 77.6 -4.6% -7.1% 48.0 274 5.1 173 6.6% 9.3% 8.8% 1.0% 5.5% 9.7% 4Q14 51.1 Jun 53.3 Prior Month 52.7 56.5 56.0 -1.1% 78.0 Chg. -1.6 -4.8 -2.4 1.6% -0.4 1.1% -5.7% -3.9% -3.1% 49.2 275 5.3 245 -1.2 -1 -0.2 -72 6.8% -0.1% 10.2% -0.9% 8.2% 1.2% -0.2% 5.1% 10.2% -0.5% -22.6% -19.5% 45.29 41.86 EFTA01475004 47.11 -1.82 54.30 -12.44 0.6% 0.4% Prior 3mo avg. 53.0 56.1 54.8 -2.1% 77.6 -1.2% 0.2% 49.7 274 5.4 250 7.3% 10.9% 8.1% 1.5% 4.5% 12.7% 55.59 58.75 Prior 6mo avg. 54.7 -1.1% Neutral 77.9 -11.2% Negative -6.0% 49.5 283 Positive 5.4 220 7.7% Neutral 11.6% 7.9% 1.3% 3.7% 16.1% Negative 53.57 58.82 Current Signal 52.5 Negative 54.4 Tactical Signal EFTA01475005 Negative Figure 10: Federal Reserve Surveys still read negatively, but capex outlook has somewhat improved Federal Reserve Manufacturing Surveys Prior Current Outlook Index Empire State Mfg Survey (NY) Philly Fed Business Outlook Survey Texas Mfg Outlook Survey (Dallas) Richmond Mfg Survey Kansas City Fed Mfg Survey Future 6mo Capital Expenditures Index Empire State Mfg Survey (NY) Philly Fed Business Outlook Survey Richmond Mfg Survey Kansas City Fed Mfg Survey Sep-15 3mo avg -4.3 -14.7 -6.0 -9.5 -5.0 -8.0 11.3 27.2 33.0 -1.0 9.7 -9.1 6.7 -8.3 16.7 11.4 28.7 4.0 Level: % of firms reporting increase less % of firm reporting decrease Source: Federal Reserve, Deutsche Bank Global Euro Area Germany France Italy Spain UK Australia Canada Japan China India Brazil Russia EFTA01475006 US ISM Chicago ISM Milwaukee Figure 11: Global Mfg PMI (Red = <50 and lower than last month and prior 3 months) Global Manufacturing PMI m/m Sep-15 50.6 52.1 52.3 50.6 52.7 51.7 51.5 52.1 48.6 51.0 49.8 51.2 47.0 49.1 50.2 48.7 39.4 -0.3 -1.0 2.3 -1.1 -1.6 -0.1 0.4 -0.8 -0.7 0.1 -1.1 1.2 1.2 -0.9 -5.7 -8.2 Prior chg. 3mo avg. -0.1 50.9 52.4 52.3 49.5 54.4 53.8 51.7 EFTA01475007 48.7 50.5 51.0 50.0 52.1 46.5 48.3 52.4 50.1 47.1 Chg. -0.3 -0.4 0.0 1.1 -1.7 -2.1 -0.2 3.4 -1.9 0.0 -0.2 -0.9 0.5 0.78 -2.2 -1.4 -7.7 Source: Markit, JP Morgan, Comp des Dirigeants et Acheteurs France, Associazione Ital Acquisti e Supply Mgmt, CIPS, Australian Industry Group-PricewaterhouseCoopers, Royal Bank of Canada, Nikkei, China Federation of Logistics & Purchasing, HSBC, ISM, Deutsche Borse, Marquette Univ. Center for Supply Chain Mgmt, Creighton University College of Business, Deutsche Bank Deutsche Bank Securities Inc. Page 5 EFTA01475008 2 October 2015 US Equity Insights Any single jobs report is doubtful, but we heed this one and cut our S&P target A pivotal September jobs report We expected a further decline in mfg jobs, but we're very surprised by the sizable downshift in private jobs growth. We're skeptical of this report, but investors and especially the Fed will heed this data point. Eyes will turn to the non-mfg ISM on Monday for confirmation, but we now think the Fed is unlikely to hike in 2015. This reduces upside for stocks (although it may also reduce downside). It means rates, currency, commodity and PE uncertainty continues. And if the Fed does hike in 2015 the typical initial adverse market reaction could be worse than usual. It also means Spartan interest rate conditions for Banks in 2016. The report's only other new data to ring true to us was lower workforce participation. Rates will be low in 2016, but where rates will be in 2017 is now more uncertain. We see a better chance of landing men on Mars before a full normalization of nominal and real interest rates, especially 10yr yields, to historical norms. Growth will be slow, but we do expect S&P EPS growth next year and likely through 2018. We doubt 10yr Tsy yields exceed 3% for the rest of this cycle. This supports an 18 or higher trailing S&P PE provided up EPS in year ahead. (On a related note, please see DB research note on Sept 30 2015 "US Aerospace/Defense - How Space Got to be Cool Again") Figure 12: Labor participation 58% 60% 62% 64% 66% 68% Recession Full-time employed (% of employed, rhs) Source: BLS, Deutsche Bank 78% 80% 82% 84% 86% 88% Participation rate (% of 16 yrs+ pop, lhs) Figure 13: Wage growth 0% 2% 4% 6% 8% 10% 0% EFTA01475009 1% 2% 3% 4% 5% Recession Fed Funds Target (lhs) Avg. hourly earnings (Production and non-supervisory, y/y, rhs) Source: BLS, Deutsche Bank Figure 14: Productivity vs Unit Labor Cost Rolling 2 yr average, y/y -2% 0% 2% 4% 6% 8% 10% 12% Recession Source: BLS, Deutsche Bank Unit labor costs (lhs) ULC y/y was 1.7% in 2Q 2015 -2% 0% 2% 4% 6% 8% 10% 12% Productivity (Output/hour, rhs) Figure 15: Fed still hasn't started hiking Rolling 2 yr average , y/y -2% 0% 2% 4% 6% 8% 10% Recession Avg. Hourly Earnings (lhs) Source: BLS, FRB, Deutsche Bank Unit labor costs (lhs) Fed Funds Rate (rhs) 0% 2% 4% 6% EFTA01475010 8% 10% 12% Page 6 Deutsche Bank Securities Inc. 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 1983 1985 1987 1989 1991 1993 1995 1997 EFTA01475011 1999 2001 2003 2005 2007 2009 2011 2013 2015 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 EFTA01475012 2 October 2015 US Equity Insights Buybacks plateau, small contraction possible in 2016, but dividends will rise 3Q buybacks announcements are significantly lower than the strong announcements in the first half of this year, but total buyback announcements are still strong at $600bn on a trailing 4-qtr basis. S&P is using up its domestic FCF for payouts and part of buybacks are funded by domestic debt issuance. For 2016, we assume 62% of profits are domestically generated with US dollar strengthening more. We also assume that capex is equal or below D&A for the US portion (as a lot of capex is Energy or foreign). $125-$128 of 2016E EPS should be —$1100bn net income. Domestic profits are 62% of that or $680bn, and domestic FCF (FCF = pro-forma earnings — capex + D&A) is around the same amount. So domestic profits or rough domestic FCF of $680bn less dividends of $390bn is $300bn (domestic surplus FCF). We think buybacks will be no higher than 450bn or contract slightly in 2016. And —$150bn net buybacks will be funded with domestic debt issuance. There are other drains on domestic surplus FCF, such as cash paid for domestic acquisitions, and also the strong possibility of mandatory pension deficit reduction contributions this year (especially at Industrials). We think working capital will not grow much and perhaps even shrink slightly, and cash taxes could be a small boost to FCF. All of the strains on maintaining buybacks (even dividends) will be at Energy, Industrials, and Materials. But we think Healthcare, most of big cap Tech, and even Banks should be in a very good position to maintain buybacks or even boost them a bit as surplus FCF at these sectors is healthy and these companies still very much have access to bank lines of credit and debt capital markets and very low borrowing rates despite slightly wider credit spreads. Figure 16: S&P 500 buybacks: announcements, gross buybacks and net buybacks (4-qtr sum) 100 200 300 400 500 600 700 -100 0 Recession Announcements Source: Compustat, Deutsche Bank Gross Buybacks S&P 500 (4qtr sum, $bn) 100 EFTA01475013 200 300 400 500 600 700 -100 0 Net Buybacks Figure 17: Buybacks % of market cap: announcements, gross buybacks, net buybacks (4-qtr sum) -1% 0% 1% 2% 3% 4% 5% 6% S&P 500 (4qtr sum % avg mkt cap) -1% 0% 1% 2% 3% 4% 5% 6% Recession Announcements Source: Compustat, Deutsche Bank Gross Buybacks Net Buybacks Deutsche Bank Securities Inc. Page 7 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 EFTA01475014 2010 2011 2012 2013 2014 2015 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EFTA01475015 2 October 2015 US Equity Insights Figure 18: S&P 500 buybacks: announcements, gross buybacks and net buybacks (quarterly) 120 160 200 240 40 80 -80 -40 0 S&P 500 (quarterly, $bn) 120 160 200 240 40 80 -80 -40 0 Figure 19: Buybacks % of market cap: announcements, gross buybacks, net buybacks (quarterly) -4% -2% 0% 2% 4% 6% S&P 500 (quarterly % avg mkt cap, ar) -4% -2% 0% 2% 4% 6% Recession Recession Series5 Source: Compustat, Deutsche Bank Announcements Gross Buybacks Net Buybacks Source: Compustat, Deutsche Bank Announcements Gross Buybacks Net Buybacks EFTA01475016 Figure 20: S&P 500 net buybacks vs. surplus FCF 100 200 300 400 500 600 700 -100 0 Net Buybacks (4qtr sum, $bn) Source: IBES, Compustat, Deutsche Bank Surplus FCF (4qtr sum, $bn) S&P 500 Figure 21: S&P 500 ex Financials at 15.1% net debt / mkt cap 10% 20% 30% 40% 50% 60% Recession Source: Compustat, Deutsche Bank Net Debt / Mkt Cap (S&P 500 ex. Financials) 10% 20% 30% 40% 50% 60% Figure 22: S&P 500 ex Financials at $3.91tr total debt and $1.54tr cash 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 0 Recession Source: Compustat, Deutsche Bank Total Debt Cash S&P 500 ex Financials 500 1,000 1,500 2,000 EFTA01475017 2,500 3,000 3,500 4,000 0 Page 8 Deutsche Bank Securities Inc. 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 EFTA01475018 2005 2007 2009 2011 2013 2015 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1995 1996 1997 1998 EFTA01475019 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EFTA01475020 2 October 2015 US Equity Insights Companies repurchase shares at market prices, but issue them at lower prices through employee stock option programs. Thus, cash flow statement reported net dollars spent on share repurchases as a percent of market cap overstates likely share count shrink. Just as option expense shouldn't be excluded from EPS, it should not be neglected in buyback activity measures. Buyback yield estimates should reflect the continuous issuance of stock to employees at option exercise prices that are well below the market price at which shares are repurchased. This is why we estimate buyback yield as: (net dollars spent on buybacks less option expense) / market cap. On this basis, the S&P buyback yield is 1.5%, its dividend yield is 2.0% and its total yield is 3.6% with a total payout ratio of 62% (as of the end of 2Q 2015). Figure 23: Total yield: dividend + buyback yield S&P 500 Figure 24: Total payout: dividend + buyback payout -2% -1% 0% 1% 2% 3% 4% 5% 6% Recession Dividend Yield Source: IBES, Compustat, Deutsche Bank Buyback Yield Total Yield -2% -1% 0% 1% 2% 3% 4% 5% 6% -40% -20% 0% 20% 40% 60% 80% 100% S&P 500 -40% EFTA01475021 -20% 0% 20% 40% 60% 80% 100% Recession Dividend Payout Source: IBES, Compustat, Deutsche Bank Buyback Payout Total Payout Deutsche Bank Securities Inc. Page 9 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EFTA01475022 2012 2013 2014 EFTA01475023 US Equity Insights 2 October 2015 Page 10 Deutsche Bank Securities Inc. Strategy Flashcard Strategy Flashcard S&P 500 to reach 2300 by 2016 end on a long expansionary cycle of moderate growth 2015 end target: 2050 2014A EPS PE on yearend S&P targets DPS EPS/DPS growth Market strategy and tactics: Lower S&P returns than history likely, but still decent and few alternatives - stay involved, buy on dips Consider lesson of 2014: Interest rates stayed very low despite better growth and tighter labor market Next 5%+ move is likely: Up Thematic and sector strategy: Tilt toward: 1) Secular Growth Sectors - industries with strong sales growth in the middle of economic cycles 2) Sales Growth near 5% - industries not dependent on margin expansion to drive 5%+ EPS growth 3) High ROE or long competitive advantage - ability to defend ROE/margins amidst low interest rates 4) Dividend Growth - stocks with ability to significantly raise dividend payout ratios 5) Debt Capacity - companies that can issue cheap debt for acquisitions and share buybacks Tilt away from: 1) Consumer companies w/tired brands or facing tough competition (seek unique products/experiences) 2) Smaller cap cyclical plays which are still expensive, prefer big-cap banks and select retailers 3) Commodity and industrial capital goods producers, prefer Transports Risk of near-term correction: Moderate "S&P PE stands on the shoulders of bonds 17.4 $39 2015E $118 $119.50 17.2 $42 2016 end target: 2300 2016E $128 18.0 EFTA01475024 $45 6%/8% 1%/8% 7%/7% Quarterly EPS 1Q14A 2Q14A 3Q14A 4014A $28.00 $29.75 $30.00 $30.25 Div Yld: 2% 1Q15A 2Q15E 3Q15E 4Q15E $28.65 $30.20 — $29.75 $31.00 Reasons to still buy stocks: 1) —2.5% US GDP likely in 2015 2) S&P EPS will rise despite $/oil 3) PEs justifiable and been higher 4) Bond yields are nil after inflation Dare to ask: Why not 2500+ S&P cycle-high? 2500+ = —18x 2018E EPS of -$145 S&P 500 avg. trailing 4qtr PE: 1960-2014 1985-2014 1995-2014 2005-2014 16.0 17.6 18.6 15.9 Sectors/Industries: Health Care, Tech Health Care, Tech, Consumer Disc. Tech, Health Care, some Consumer Big Banks, Mega-cap Tech Tech, Health Care, some Consumer Staples Be selective and valuation mindful Energy, Industrial Capital Goods Risks - US tax on foreign profits, whether repatriated or not, threatens large multinationals and would cause margin contraction - EM economy weakness that causes a steep decline in commodity prices, especially oil, and threatens US exports and investment spending EFTA01475025 - A surge in long-term interest rates or any global economic shock would threaten our constructive view on the S&P for 2015 EFTA01475026 US Equity Insights 2 October 2015 Deutsche Bank Securities Inc. Page 11 Seven Signs Figure 25: The Seven Signs: cross asset class market signals Current Change vs "The Seven Signs" Cross Asset Class Market Signals Interest Rates and Inflation 10yr Treasury yield 10yr TIPS yield 10yr Treasury - TIPS spread 5yr Treasury yield 30yr Treasury yield Fed Fund Rate 2015 End (Futures) Fed Fund Rate 2016 End (Futures) Duration US Treasury yield curve slope (10-2yr) US Treasury yield curve slope (10-5yr) Credit Corporate IG credit spreads (bps) Financial Industrial Financial spreads over Industrial Corporate HY credit spreads (bps) TED spreads (bps) Muni spreads (bps) Sovereign spreads (bps) Germany France Italy Spain Currency US Dollar index USD/EUR JPY/USD CHF/USD USD/Gold (real $) Commodities CRB Brent Oil WTI Oil Natural gas Copper Uncertainty VIX 1M Implied Vol 1M Realized Vol 1M Vol Premium (Implied - Realized) Correlation (S&P 500) 1M Implied Correlation EFTA01475027 1M Realized Correlation 1M Correl Premium (Implied - Realized) LTM PE / 3m Avg. VIX (mkt emotion) Offered Equity Risk Premium LTM PE PE on 2015E EPS PE on normalized 2015E EPS Implied real return offered by S&P 500 Implied ERP offered by S&P 500 Source: FRB, Bloomberg Finance LP, I/B/E/S, Deutsche Bank 21.7 22.4 -0.7 50.2 64.1 -13.9 0.83 16.1 16.0 15.6 6.2% 5.6% Prices as of 9/30/2015 A signal's risk aversion is based on its current level expressed as a percentile of all the observations in its long-term history. Monthly observations from 1960 for Interest Rates & Inflation, Duration, LTM PE and Implied ERP; 20 yr history for the rest. 2.7 -3.2 5.9 2.8 -6.2 9.0 -0.04 -1.0% 1.0% 1.4% 20.8 28.3 -7.5 51.8 72.0 -20.2 0.91 16.3 6.1% 5.5% 3.3 12.3 -9.0 8.0 EFTA01475028 35.4 -27.4 -0.27 -4.0% 4.2% 3.1% 13.6 9.4 4.2 40.3 33.8 6.5 1.29 17.0 5.9% 5.4% 15.0 13.7 1.3 40.6 37.0 3.6 0.95 15.2 6.7% 6.2% 18.6 16.9 1.6 37.0 32.2 2.7 0.98 18.5 6.5% 3.6% 74% 82% 22% 85% 96% 4% 31% 46% 53% 83% 403.13 48.37 45.09 2.52 5176.5 EFTA01475029 -0.6% 1.3% 1.4% -1.8% 2.1% 405.66 48.39 45.47 2.64 5228.0 -0.6% 0.5% 6.3% -4.1% 2.2% 473.42 94.67 91.16 4.12 6720.0 482.61 98.14 87.21 3.57 7478.2 346.53 56.26 54.41 4.48 4518.8 64% 48% 47% 21% 57% 92.10 1.1177 119.88 0.9733 469.9 1.5% -0.1% -0.3% -0.7% -1.4% 91.66 1.1234 120.11 0.9730 473.0 -0.3% EFTA01475030 0.4% -2.0% 0.6% 0.0% 81.09 1.2631 109.65 0.9551 509.9 76.95 1.3012 95.05 0.9251 618.7 86.53 1.2203 108.08 1.2367 348.9 67% 28% 79% 23% 70% 160.4 184.4 -24.0 670.0 34.5 41.32 -145.1 -105.3 -31.4 -14.8 8.4 12.6 -4.2 47.1 2.5 8.7 10.3 12.2 9.8 3.7 153.0 173.2 -20.2 610.2 32.1 34.4 -149.9 EFTA01475031 -110.7 -34.4 -13.0 1.6 2.7 -1.1 15.7 5.1 0.1 -2.2 2.9 -6.2 -0.1 121.9 116.8 5.1 462.1 22.0 -1.3 -154.3 -120.6 -15.7 -35.3 184.6 140.9 43.7 526.4 25.5 21.6 -73.2 -13.5 174.1 185.3 175.0 156.0 19.1 609.5 43.7 2.3 -46.1 -23.5 69.9 57.0 65% 79% 31% 69% 55% 80% 5% 10% EFTA01475032 26% 36% 1.41% 0.68% -0.04% -0.02% 1.46% 0.68% -0.01% 0.05% 1.92% 0.73% 1.94% 1.04% 1.24% 0.61% 66% 79% Level 2.04% 0.61% 1.43% 1.36% 2.85% 0.20% 0.66% -0.02% -0.09% -0.09% -0.09% 0.00% -0.05% 2.16% 0.64% 1.52% 1.48% 2.95% 0.25% 0.76% Change vs 1 Wk Ago 4 Week Avg. 4 Wks Ago -0.11% 0.01% 0.08% -0.07% -0.04% 0.10% -0.05% -0.16% Level lyr Ago EFTA01475033 2.49% 0.52% 1.97% 1.76% 3.20% 0.77% 1.85% 0.21% 2.14% 1.32% 3.35% 0.25% 0.26% 4.21% 1.77% 2.44% 3.60% 4.81% 2.70% 2.70% 5yr Avg. 20yr Avg. Rel to Hist. Rel to Hist. 2.35% 3% 11% 2% 4% 2% 97% 89% 2% 96% 98% PCTL Risk Aver. Risk Aversion Incremental Level High High High Low High High High High Normal 35% Normal 21% Normal Normal 65% Normal High 79% 31% Normal 69% Normal EFTA01475034 55% Normal 80% 5% 10% 26% 72% 21% 77% 70% High Low Low Low 36% Normal Normal 67% Normal High Low High High Normal 36% Normal 52% Normal 53% Normal 79% High 43% Normal Normal 74% 82% 22% 85% 96% 4% 69% High High Low High High Low High Normal 54% Normal Normal Normal 53% Normal 83% Normal Down Down Up EFTA01475035 Up Down Up Up Flat Up Down Up Up Up Down Up Up Up Down Up Down Down Flat Down Down Up Down Up Up Up Down Down Up Down Up Up Up Down Up Up Down Up Up Up Up Up Up Up Not Safe No No Neutral No Not Safe No EFTA01475036 No Yes No No Yes Yes Neutral Neutral Neutral Neutral Neutral Yes below 18 below 18 below 3 below 40 below 40 below 10 0.8 - 1.2 below 18 below 17 below 17 above 5.5% above 4% $70 - $100 $70 - $100 Risk Aversion Flat Strategic Safety Caution Caution Caution Yes Caution Yes Yes Yes Neutral Yes Caution Neutral Yes Yes Yes No Yes No Yes Yes Yes EFTA01475037 Yes Neutral Caution $1.20 - $1.40 Safe Criteria 2 - 4% 0.5% - 2% bet. 1 - 3% 1.5% - 3% 2.5% - 4.5% below 2.5% below 2.5% above 100bps above 60bps below 200 below 200 below 50 below 600 below 50 below 25 below 0 bps below 100 bps below 100 bps below 100 bps EFTA01475038 US Equity Insights 2 October 2015 Page 12 Deutsche Bank Securities Inc. Figure 26: Advised S&P 500 Sector and Industry Allocation (2014/15 PE based on DB US Equity Strategy top down sector and industry EPS estimates) Market Advised Weight (%) Weight (%) Sector 2015 2016 PE PE IT Services 20.1% 20.5% Information Technology 15.6 14.6 Semiconductors Software Communications Equipment Electronic Equipment Biotechnology Health Care Equipment & Supplies 14.8% 16.2% Health Care Overweight 16.5% 17.2% Financials 15.7 14.4 Health Care Technology Life Sciences Tools & Services Pharmaceuticals Banks Capital Markets 12.6 12.0 Consumer Finance Electric Utilities Gas Utilities 3.1% 2.2% 3.4% 2.6% Utilities 16.0 15.5 Independent Power Producers Multi-Utilities Telecom 12.0 12.0 Telecommunication Services Overweight Technology Hardware, Storage & Peripherals Internet Software & Services EFTA01475039 2015 2016 PE PE 11.5 10.9 25.4 21.7 17.2 16.2 15.1 14.3 18.4 17.4 11.9 11.4 14.7 13.8 14.2 12.5 17.1 16.0 26.1 26.1 17.5 16.8 16.0 15.1 11.0 10.4 Diversified Financial Services 12.7 11.5 Insurance 10.6 10.2 REITs Real Estate Mgmt. & Development Thrifts & Mortgage Finance 15.4 15.0 18.2 18.2 10.8 9.9 17.3 16.6 12.0 12.0 Auto Components Automobiles Distributors Equalweight 13.3% 13.2% Consumer Discretionary 19.4 17.7 Household Durables Leisure Products Multiline Retail Specialty Retail Internet & Catalog Retail Media Food & Staples Retailing 10.0% 9.0% Consumer Staples 19.2 18.8 Airlines Underweight 10.1% 9.0% EFTA01475040 Industrials 15.5 15.0 7.1 6.6 Building Products Air Freight & Logistics Commercial Services & Supplies Industrial Conglomerates Professional Services Road & Rail Chemicals 2.8% 2.6% Materials 14.5 14.5 20.7 17.9 18.2 19.7 19.8 14.5 14.0 11.9 7.7 18.2 14.1 17.1 15.5 19.4 66.4 18.0 18.3 10.4 Diversified Consumer Services 7.4 Hotels, Restaurants & Leisure 15.9 Textiles, Apparel & Luxury Goods 12.5 17.1 13.7 17.1 53.1 17.0 17.7 Beverages Food Products Household Products Personal Products Tobacco 19.3 Aerospace & Defense 16.3 Construction & Engineering 17.0 Electrical Equipment 19.2 Machinery EFTA01475041 18.9 Trading Companies & Distributors 13.7 14.4 Construction Materials Containers & Packaging Metals & Mining Paper & Forest Products 7.0% 6.3% Energy 26.0 Aggregate PE of DB Industry allocations S&P 500 Index Source: Deutsche Bank Markets Research Prices as of 9/30/2015 19.5 Overweight 14.2 1920.03 13.4 Equalweight 2015 & 2016 DB Strategy EPS Bottom-up Cons. EPS 16.8 15.9 Energy Equipment & Services Oil, Gas & Consumable Fuels Underweight 120.0 128.0 2015 & 2016 DB Strategy PE 119.0 130.8 Bottom-up Cons. PE 21.7 21.5 17.8 17.1 19.2 18.6 26.0 22.8 18.8 19.0 16.3 15.8 11.3 11.0 13.7 13.7 14.6 15.1 14.8 13.4 39.2 32.7 15.7 14.6 16.7 13.9 10.2 10.2 19.5 19.5 27.9 19.5 19.6 17.7 16.0 15.0 16.1 14.7 19.3 16.1 23.4 21.5 EFTA01475042 24.1 21.7 19.4 10.9 18.0 14.8 24.3 18.4 10.6 17.3 14.8 10.6 Equalweight 2015 2016 PE PE Underweight 2015 2016 PE PE Health Care Providers & Services 15.7 14.1 EFTA01475043 2 October 2015 US Equity Insights Figure 27: Sector and Industry ETFs Note: Please see DB note "Equity ETPs capture $4.1bn during last week" published on May 27 2015. Click here for complete report Source: Deutsche Bank Deutsche Bank Securities Inc. Page 13 EFTA01475044 US Equity Insights 2 October 2015 Page 14 Deutsche Bank Securities Inc. Figure 28: S&P 500 Annual EPS Outlook and PE (based on current constituents in the index unless specified) EPS Y/Y 2005A S&P 500 EPS (historical index) S&P 500 EPS (current constituents) Sector ($ bn) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities S&P 500 ($ bn) S&P ex. Financials ($bn) S&P ex. Energy ($bn) S&P ex. Tech ($bn) Energy & Financials ($bn) S&P ex. Energy and Financials ($bn) Key Macro Forecast Global GDP growth (real, DB est.) US GDP growth (real, DB est.) US Bus. FI (Equip + IPP, DB est.) US Unemployment Rate (year-end, DB est.) US 10yr Treasury Yield (year-end, Our est.) Bank Litigation (post-tax, $bn) Loan Loss Provisioning (% of loans, Our est.) US$/Euro (average/year-end, Our est.) Avg Oil Price (WTI/Brent, $/bbl) Avg Natural Gas Price (Henry Hub $/mmbtu) $76.28 $79.46 51.8 94.6 134.7 69.1 64.2 84.1 17.0 12.9 21.3 605.7 EFTA01475045 471.0 511.1 521.5 229.2 376.5 2006A $88.18 $91.20 55.3 57.2 2007A 2008A 2009A 2010A $85.12 $65.47 $60.80 $85.28 $93.86 $71.81 $64.40 $88.39 2007 - 14 shown below is agg. net income, 2014 y/y is EPS growth: 56.0 54.0 61.3 115.2 174.6 73.4 71.7 98.2 20.8 16.3 23.3 706.0 531.4 590.8 607.9 289.8 416.2 120.1 144.9 82.3 84.4 121.7 24.5 23.3 25.8 742.2 597.3 622.1 620.5 264.9 477.2 42.4 67.0 143.2 EFTA01475046 -21.0 87.3 77.5 121.8 20.9 23.9 26.8 589.8 610.7 446.6 468.0 122.2 467.5 50.1 69.1 60.8 56.5 89.0 53.5 104.8 13.1 19.5 26.5 543.0 486.4 482.1 438.2 117.4 425.6 76.3 73.8 95.3 129.3 102.1 73.7 150.7 24.7 20.7 28.1 774.7 645.4 679.4 624.1 224.7 550.1 2011A 2012A 2013A 2014A $97.82 $103.75 $110.39 $118.82 7.6% $99.58 $105.04 $111.40 $118.33 6.2% $119.01 0.6% $130.79 9.9% $120 EFTA01475047 86.5 78.2 130.2 133.1 110.2 88.0 174.4 31.5 20.0 29.4 881.5 748.3 751.3 707.0 263.3 618.2 92.1 78.9 123.4 163.5 113.1 94.9 184.7 29.1 21.5 29.7 930.8 767.3 807.4 746.1 286.9 643.9 101.3 83.5 115.2 190.1 118.7 102.7 191.3 30.5 22.7 30.3 986.2 796.1 871.0 794.9 305.3 680.9 106.5 85.4 113.6 EFTA01475048 190.9 137.6 113.4 207.8 33.1 28.3 33.1 1049.7 858.8 936.1 841.9 304.5 745.2 4.7% 5.2% 5.3% 2.7% -0.4% 5.2% 3.9% 3.2% 2.8% 3.4% 3.4% 2.7% 1.8% -0.3% -2.8% 2.5% 1.9% 2.8% 1.9% 2.6% 8.4% 7.1% 3.8% -3.1% -14.1% 9.4% 9.2% 5.9% 4.1% -5.5% 4.9% 4.4% 5.0% 7.3% 9.9% 9.5% 8.6% 7.8% 7.0% 5.7% 4.4% 4.7% 3.9% 2.5% 3.8% 3.3% 1.9% 1.8% 3.0% 2.2% 8.9 5.7 8.67 66/65 6.74 72/72 6.96 100/97 8.88 61/61 3.95 79/79 4.40 95/111 3.99 8.4 94/111 2.75 14.3 98/108 3.73 23.3 0.8% 0.7% 1.3% 3.0% 4.2% 2.6% 1.2% 0.8% 0.4% 0.4% 1.25/1.18 1.26/1.32 1.37/1.46 1.47/1.40 1.39/1.32 1.33/1.29 1.39/1.30 1.28/1.32 1.33/1.38 1.33/1.21 56/54 93/99 4.26 Consumer Discretionary Consumer Staples Energy Financials Health Care EFTA01475049 Industrials Information Technology Materials Telecommunication Services Utilities S&P 500 S&P ex. Financials S&P ex. Energy S&P ex. Tech Energy & Financials S&P ex. Energy & Financials Trailing Pro-forma PE (year-end prices) 2005 17.5 16.1 10.2 15.0 17.8 18.4 19.8 16.9 13.2 15.1 15.9 14.6 17.0 15.3 13.0 17.7 2006 20.8 16.8 10.4 13.8 17.6 18.2 18.7 15.3 15.7 16.6 15.7 14.3 16.8 15.3 12.5 18.0 2007 19.0 17.6 12.8 14.8 EFTA01475050 16.3 17.0 17.9 16.5 16.6 17.3 16.1 15.8 16.8 15.8 13.9 17.4 Bottom-up 2008 15.6 14.1 7.0 NA 11.2 10.6 10.3 10.8 11.1 11.6 12.9 13.8 14.7 13.5 17.4 11.7 Prices as of 9/30/2015 2009 18.6 15.0 17.9 26.1 12.5 18.2 18.9 26.3 13.6 12.7 17.6 18.4 17.5 17.2 21.8 16.4 2010 16.5 15.4 EFTA01475051 13.4 14.4 11.3 16.6 14.4 17.8 14.4 12.3 14.4 14.9 14.6 14.4 14.0 14.6 2011 14.7 15.8 10.5 12.2 11.5 13.5 12.5 12.4 16.1 13.7 12.8 13.6 13.1 12.8 11.4 13.4 2012 16.5 16.5 11.4 12.6 13.3 14.1 13.4 15.6 16.4 14.0 13.8 14.4 14.1 13.9 12.1 14.5 2013 20.9 18.8 EFTA01475052 14.7 14.3 17.7 18.0 16.4 18.3 15.9 15.5 16.8 17.4 17.1 16.9 14.5 17.9 2014 21.0 20.2 13.2 16.1 18.4 17.4 17.6 17.3 14.2 17.8 17.4 18.0 17.9 17.4 15.0 18.4 2015 19.4 19.6 24.8 12.7 16.1 15.4 15.6 14.8 12.0 16.0 16.1 17.0 15.7 16.2 14.9 16.5 2016 16.8 18.1 EFTA01475053 23.0 11.6 14.6 14.2 14.3 12.8 11.5 15.3 14.7 15.4 14.3 14.8 13.6 15.0 Note: 2005-2013 PE based on year end prices, 2014/2015 PE based on current prices and FC and DB US Equity Strategy EPS estimates for 2014 and 2015. Dividend yield and payout is based on indicated dividend. Source: Company reports, First Call, Deutsche Bank Markets Research 5.1% 118.4 2.3% 85.4 -1.4% 47.2 0.4% 221.0 16.0% 152.2 10.4% 113.5 8.6% 221.7 8.7% 32.4 24.9% 31.0 9.2% 33.0 6.4% 1055.8 7.9% 834.8 7.5% 1008.6 5.9% 834.0 -0.3% 268.2 9.4% 787.6 -0.1% 92.5 -58.5% 50.9 15.8% 241.9 10.6% 168.2 0.1% 123.5 6.7% 242.7 -2.1% 37.3 9.5% 32.4 -0.3% 34.4 0.6% 1160.3 -2.8% 918.4 7.7% 1109.4 -0.9% 917.6 -11.9% 292.8 5.7% 867.5 15.3% 118.5 8.4% 87.0 EFTA01475054 8.0% 45.0 9.4% 223.0 10.5% 156.0 8.8% 113.0 9.5% 222.0 15.1% 33.0 4.3% 31.0 4.4% 33.0 9.9% 1061.5 10.0% 838.5 10.0% 1016.5 10.0% 839.5 9.2% 268.0 10.1% 793.5 3.2% 2.6% -4% 4.7% 2.5% 4 0.6% -$1.10 -$50 -2.50 1.4% $128 All 2015/16 estimates are aggregate earnings representative of EPS 11.2% 136.5 11.3% 130.0 1.9% 89.0 -60.4% 60.0 16.8% 235.0 13.3% 170.0 -0.3% 117.0 6.9% 237.0 -0.3% 33.0 9.4% 31.0 -0.2% 34.1 6.7% $123 9.7% 118.5 2.3% 87.0 33.3% 85.0 5.4% 223.0 8.9% 152.9 3.5% 111.7 6.8% 222.0 0.0% 33.0 0.0% 31.0 3.3% 33.0 1.4% 1136.1 6.7% 1097.1 -2.4% 901.1 7.5% 874.1 EFTA01475055 8.6% 1076.1 5.9% 1012.1 -0.3% 899.1 -12.0% 295.0 6.5% 841.1 7.1% 875.1 10.1% 308.0 6.0% 789.1 3.6% 3.0% -5% 4.5% 3.0% 1 0.6% $1.00-1.05 -$55 -3.00 DB US Equity Strategy 2015 19.4 19.2 26.0 12.6 15.7 15.5 15.6 14.5 12.0 16.0 16.0 16.9 15.6 16.1 14.9 16.4 2016 17.7 18.8 19.5 12.0 14.4 15.0 14.6 14.5 12.0 15.5 15.0 15.7 14.7 15.1 13.5 EFTA01475056 15.5 103% 100% 100% 189% 100% 98% 99% 100% 100% 100% 100% 103% 104% 100% 104% 115% 99% 2015E Y/Y Bottom-up 2016E Y/Y 2015E DB US Equity Strategy Y/Y 2016E Normalized 2015 Y/Y ($) % of 2015 -3.5% 0.8% $1.10-1.15 -$65 - 3.50 Indicated Dividend Yield 1.6% 2.8% 3.8% 2.2% 1.7% 2.5% 1.8% 2.5% 5.5% 3.9% 2.3% 2.3% 2.2% 2.4% EFTA01475057 2.6% 2.2% Payout (2015) 30.8% 54.4% 96.2% 27.2% 28.1% 38.5% 28.0% 36.0% 65.9% 61.8% 36.7% 39.3% 34.1% 39.0% EFTA01475058 US Equity Insights 2 October 2015 Deutsche Bank Securities Inc. Page 15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 EFTA01475059 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 EFTA01475060 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 EFTA01475061 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 Figure 29: EPS revisions — The % below shows the change in 2015 consensus estimate since May end Cons. Disc. ($bn) — up 0.3% Cons. Staples ($bn) — down 4.0% 110 130 150 30 EFTA01475062 50 70 90 2010 2011 2008 2009 100 2016 2015 2014 2012 2013 60 70 80 90 2013 2012 2011 2009 2010 2008 2015 2016 2014 100 120 140 160 180 200 40 60 80 2008 2012 2011 2009 2010 2016 2015 Energy ($bn) — down 7.4% Financials ($bn) — down 0.5% 2013 2014 100 150 200 250 300 2008 50 0 EFTA01475063 2009 2016 2014 2015 2011 2012 2010 2013 Healthcare ($bn) — up 1.3% Industrials ($bn) — down 2.6% 100 110 120 130 140 150 160 170 180 80 90 2016 2015 2014 2012 2013 2011 2008 2009 2010 40 60 80 100 120 140 160 2016 2015 2013 2014 2012 2008 2011 2010 2009 50 Technology ($bn) — down 1.0% 100 150 200 250 300 2016 EFTA01475064 2013 2012 2011 2008 2009 2010 2015 2014 Materials ($bn) — down 1.0% 10 15 20 25 30 35 40 45 5 2016 2013 2012 2011 2008 2010 2009 2015 2014 Telecom ($bn) — up 2.4% Utilities ($bn) — down 1.5% 17 19 21 23 25 27 29 31 33 35 2015 2016 2014 2011 2008 2009 2010 2012 2013 24 26 28 30 EFTA01475065 32 34 36 2016 2015 2014 2008 2009 2011 2012 2013 2010 S&P ex. Fin ($bn) — down 1.2% 400 500 600 700 800 900 1000 1100 20152016 2014 2008 2009 2013 2012 2011 2010 S&P 500 EPS ($/sh) — down 1.7% $40 $60 $80 $100 $120 $140 $160 2015 2009 2008 2012 2013 2014 2011 2010 2016 Source: I/B/E/S and Deutsche Bank Markets Research EFTA01475066 US Equity Insights 2 October 2015 Page 16 Deutsche Bank Securities Inc. 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 EFTA01475067 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 EFTA01475068 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 EFTA01475069 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 01-08 07-08 01-09 07-09 01-10 07-10 01-11 07-11 01-12 07-12 01-13 07-13 01-14 07-14 01-15 07-15 Figure 30: Sales revisions — The % below shows the change in 2015 consensus estimate since May end Cons. Disc. ($bn) — down 0.1% Cons. Staples ($bn) — down 1.4% 925 1025 1125 1225 EFTA01475070 1325 1425 1525 1625 1725 2016 2015 2014 2013 2012 2009 2008 2010 2011 900 1000 1100 1200 1300 1400 1500 2016 2015 2014 2013 2012 2008 20092010 2011 800 1000 1200 1400 1600 1800 2000 2008 Energy ($bn) — down 1.9% Financials ($bn) — down 0.3% 2012 2013 2014 2011 2016 2015 2009 2010 900 1000 1100 1200 1300 EFTA01475071 1400 2016 2015 2011 2009 2010 2008 2012 2014 2013 Healthcare ($bn) — up 1.6% Industrials ($bn) — down 2.0% 800 900 1000 1100 1200 1300 1400 1500 1600 1700 2016 2015 2014 2013 2012 2011 2009 2010 2008 800 850 900 950 1000 1050 1100 1150 1200 1250 1300 2013 2012 2011 2008 2010 2009 2016 2014 2015 Technology ($bn) — down 0.6% EFTA01475072 600 700 800 900 1000 1100 1200 1300 1400 2016 2015 2013 2014 2011 2012 2009 2008 2010 Materials ($bn) — up 0.3% 240 260 280 300 320 340 360 380 400 420 2013 2012 2008 2010 2011 2009 2014 2015 2016 Telecom ($bn) — up 6.5% Utilities ($bn) — down 1.0% 220 240 260 280 300 320 340 360 2016 2014 2015 2013 2012 EFTA01475073 2008 2009 2010 2011 280 290 300 310 320 330 340 350 2016 2011 2009 2008 2013 2014 2012 2010 2015 S&P ex. Fin ($bn) — down 0.3% 5500 6000 6500 7000 7500 8000 8500 9000 9500 10000 2016 2014 2015 2013 2012 2011 2008 2009 2010 S&P 500 ($bn) — down 0.3% 7000 7500 8000 8500 9000 9500 10000 10500 11000 2016 2014 2015 EFTA01475074 2013 2009 2010 2008 2011 2012 Source: I/B/E/S and Deutsche Bank Markets Research Cons. Disc. 2010/11 jumped in Nov 2010 after GM was added to S&P. Cons. Staples 2013 jumped in Oct 2012 due to KRFT IPO. Health Care 2012/13 jumped after ESRX's acquisition of Medco. Telecom 2011/12 jumped due to CTL's Qwest and Savvis acquisition. EFTA01475075 US Equity Insights 2 October 2015 Deutsche Bank Securities Inc. Page 17 Figure 31: What to buy now (large caps)? DB Buy-rated S&P 500 stocks in our OW industries with market cap > $10bn, PE on 2015 EPS < 22, 2015 EPS growth > 0% DB Ticker Company Name BAC 3PM KEY MTB PNC STI USB KEYCORP M&T Bank Corp PNC Financial Services Group Inc SunTrust Banks Inc U.S. BANCORP WFC Wells Fargo & Co AMP Ameriprise Financial Inc BK AXP ABT Bank of New York Mellon Corp TROW T. Rowe Price Group Inc American Express Co MDT SYK ABBOTT LABORATORIES Medtronic Inc Stryker Corp AGN Allergan plc ENDP Endo International PLC MYL Mylan Inc PRGO Perrigo Company PLC AAL DAL LUV UAL APH ADS Southwest Airlines Co United Continental Holdings Inc CSCO Cisco Systems Inc Amphenol Corp GOOG Google Inc ACN EFTA01475076 Accenture PLC Alliance Data Systems Corp AEP EXC NEE PEG American Airlines Group Inc Delta Air Lines Inc Bank of America Corp JPMorgan Chase & Co GICS Sector Financials Financials Financials Financials Financials Financials Financials Financials Financials Financials Financials Financials Health Care Health Care Health Care Health Care Health Care Health Care Health Care Industrials Industrials Industrials Industrials GICS Industry Banks Banks Banks Banks Banks Banks Banks Banks Capital Markets Capital Markets Capital Markets Consumer Finance DB Rating Buy Buy EFTA01475077 Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Health Care Equipment & Supplies Buy Health Care Equipment & Supplies Buy Health Care Equipment & Supplies Buy Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Airlines Airlines Airlines Airlines Information Technology Communications Equipment Information Technology Information Technology Information Technology Information Technology CTSH Cognizant Technology Solutions Corp Information Technology AMAT Applied Materials Inc LRCX Lam Research Corp American Electric Power Company IncUtilities Exelon Corp NextEra Energy Inc Source: Deutsche Bank, Compustat, Thomson Reuters Utilities Utilities Public Service Enterprise Group Inc Utilities IT Services IT Services IT Services Electric Utilities Electric Utilities Electric Utilities Multi-Utilities Electronic Equipment, Instruments & Components Internet Software & Services Buy Buy Buy Buy Buy Buy EFTA01475078 Buy Buy Buy Buy Buy Buy Buy Buy Information Technology Semiconductors & Semiconductor EquipmentBuy Information Technology Semiconductors & Semiconductor EquipmentBuy Buy Buy Buy Buy Prices as of 9/30/2015 *Net Buyback Yield is calculated as (trailing 12-month buyback expenditures less option exercise proceeds and less stock option expense) / Market Cap Note: The list has the following changes from our previous US Equity Insights report based on the screening rules: additions (ENDP, PRGO), deletion (IVZ). DB's Ross Sandler reiterated a good outlook and Buy ratings on GOOG, AMZN, FB, TWTR this week. Please refer to his notes: "Half-Way Home", "Looking At Another Solid Print From AMZN", "Strong 3Q & Investing Aggressively" and "The 'Moment' May Be Just Around" (October 2). Price Target 20 75 17 150 105 50 47 60 150 46 82 90 53 90 112 343 88 66 185 50 50 52 72 35 60 EFTA01475079 840 107 341 69 23 100 63 42 115 46 Price 13.01 Mkt Cap ($m) 121.95 89.20 38.24 41.01 109.13 39.15 69.50 74.13 40.22 66.94 94.10 40.26 157.27 38.83 44.87 38.04 53.05 15.58 163,490 60.97 226,534 10,940 16,248 45,813 19,657 73,361 51.35 263,598 19,449 43,320 17,807 74,225 59,946 94,627 35,434 271.81 106,994 69.28 15,685 19,790 23,021 EFTA01475080 26,087 35,690 25,082 20,040 26.25 132,859 50.96 15,754 608.42 429,929 98.26 258.98 62.61 14.69 65.33 56.86 29.70 97.55 42.16 61,609 15,910 38,163 17,637 10,355 27,893 25,590 45,450 21,328 P/E on 2015 EPS 11.0 10.6 11.9 15.6 12.1 11.3 13.0 12.3 11.6 14.0 14.7 13.4 18.7 15.6 18.5 14.8 15.1 9.6 20.6 4.7 10.4 10.9 EFTA01475081 4.8 15.0 20.8 21.0 20.4 17.2 20.3 12.4 12.9 16.0 12.4 17.3 14.5 2015 EPS 2016 EPS Growth Growth 298% 8% 6% 6% 1% 5% 3% 2% 13% 12% 13% 23% 3% 7% 7% 6% 10% 16% 4% 1% 9% 12% 8% 31% 7% 18% 22% 44% 32% 74% 119% 18% 9% EFTA01475082 15% 7% 19% 19% 11% 14% 4% 0% 7% 5% 18% 12% 5% 8% 12% 2% 10% 22% 28% 13% 8% -33% 7o 4% 1% -5% 11% 18% 8% 13% 12% 18% 26% 7% 6% 8% -2% Dividend Payout Ratio 34% 30% 24% 38% 26% 22% 31% 33% 26% 27% 39% EFTA01475083 18% 44% 29% 26% 0% 0% 0% 8% 7% 7% 10% 0% 48% 20% 0% 38% 0% 0% 37% 4% 59% 52% 55% 54% 2015 DPS Growth Div Yield 67% 9% 16% 0% 7% 31% 5% 9% 15% 3% 132% 12% 9% 9% 10% Net Buyback Yield Total Yield 1.3% -2.2% -0.9% 2.9% -3.3% -0.4% 2.3% 3.5% 5.8% 2.3% -3.1% -0.9% EFTA01475084 2.3% 0.5% 2.7% 2.5% 0.9% 3.4% 2.5% 1.6% 4.0% 2.9% 0.3% 3.2% 2.5% 7.0% 9.5% 1.7% 1.9% 3.6% 3.0% 0.5% 3.5% 1.6% 4.4% 5.9% 2.4% 3.1% 5.5% 10% 100% 20% 19% 11% 18% 10% % 300% 6% % 6% 5% 2.3% 1.3% 3.6% 1.5% 0.2% 1.7% 0.0% 0.3% 0.3% 0.0% -0.5% -0.5% 0.0% 2.0% 2.0% 0.3% -0.1% 0.2% 1.0% 0.1% 1.1% 1.2% 1.4% 2.6% 0.8% 2.3% 3.1% 0.0% 0.5% 0.5% 3.2% 4.6% 7.8% 1.1% 1.8% 2.9% 0.0% -0.5% -0.5% 2.2% 2.2% 4.4% 0.0% 0.9% 0.9% 0.0% -0.2% -0.2% 2.7% -0.7% 2.0% 1.8% 2.6% 4.4% 3.7% -0.9% 2.8% 4.2% -0.6% 3.5% 3.2% -1.5% 1.7% 3.7% -0.5% 3.3% EFTA01475085 US Equity Insights 2 October 2015 Page 18 Deutsche Bank Securities Inc. Figure 32: What to buy now (mid and small caps)? DB Buy-rated non-S&P 500 stocks in our OW industries with market cap > $800m, PE on 2015 EPS < 25, 2015 EPS growth > 8%, net debt/market cap < 30%, price upside > 5% DB DB Price Ticker LEA LOPE LOCK FL FLO JAZZ HAWK GPN Company Name Lear Corp Grand Canyon Education Inc LifeLock Inc Foot Locker Inc Flowers Foods Inc Jazz Pharmaceuticals PLC PRGO Perrigo Company PLC IACI WNS WNS (Holdings) Ltd NXPI SPWR SunPower Corp MSTR NUAN SNCR VRNT IAC/INTERACTIVECORP Blackhawk Network Holdings Inc Global Payments Inc NXP Semiconductors NV ONNN ON Semiconductor Corp POWI Power Integrations Inc MicroStrategy Inc Nuance Communications Inc Synchronoss Technologies Inc Verint Systems Inc GICS Sector GICS Industry Consumer Discretionary Auto Components Consumer Discretionary Consumer Discretionary EFTA01475086 Consumer Discretionary Specialty Retail Consumer Staples Health Care Health Care Information Technology Information Technology Information Technology Information Technology Food Products Pharmaceuticals Pharmaceuticals Internet Software & Services IT Services IT Services IT Services Information Technology Semiconductors & Semiconductor Equipment Information Technology Semiconductors & Semiconductor Equipment Information Technology Semiconductors & Semiconductor Equipment Information Technology Semiconductors & Semiconductor Equipment Information Technology Software Information Technology Software Information Technology Software Information Technology Software Source: Deutsche Bank, Compustat, Thomson Reuters Prices as of 9/30/2015 Note: The list has the following changes from our previous US Equity Insights report based on the screening rules: addition (MSTR). For screening purpose, our over-weight industries for mid and small caps are all industries in Consumer Discretionary, Consumer Staples, Health Care, and Tech. Diversified Consumer Services Diversified Consumer Services Rating Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy EFTA01475087 Buy Target 119.0 50.0 15.0 80.0 27.0 183.0 185.0 90.0 50.0 122.0 31.0 125.0 16.0 48.0 43.0 240.0 25.0 65.0 66.0 Price Upside 9% 32% 71% 11% 38% 18% 38% 18% 6% 11% 44% 70% 14% 115% 22% 53% 98% 53% DB Analyst Rod Lache Adrienne Colby Nandan Amladi Paul Trussell 9% Eric Katzman, CFA Gregg Gilbert Gregg Gilbert Ross Sandler Bryan Keane EFTA01475088 Bryan Keane Bryan Keane Ross Seymore Ross Seymore Vish Shah Karl Keirstead Nandan Amladi Nandan Amladi Nandan Amladi Price 108.78 37.99 8.76 71.97 24.74 132.81 157.27 65.27 42.39 114.73 27.95 87.07 9.40 42.17 20.04 196.47 16.37 32.80 43.15 Mkt Cap ($m) 8,344 1,791 835 10,031 5,197 8,146 23,021 5,361 2,314 7,451 1,456 21,920 3,881 1,227 2,734 2,233 5,071 1,439 2,681 Net Debt / EFTA01475089 Mkt Cap 2% -8% -26% -8% 16% 11% 11% 0% -2% 20% -6% 13% 8% -17% 4% -16% 29% -5% 17% P/E on 2015 EPS 11.0 14.0 14.8 20.1 24.1 15.4 20.6 19.0 18.7 22.8 16.1 16.4 9.9 22.4 12.1 24.9 13.4 14.7 12.9 2015 EPS Growth 22% 14% 28% 24% 14% 16% 22% 35% EFTA01475090 28% 22% 26% 26% 27% 207% 26% 1754% 9% 25% 18% 2016 EPS Growth Div Yield 9% 7% 42% 18% 37% 8% 38% 14% 13% 1% 12% 27% 28% 11% 8% 6% 12% 3% 0.9% 0.0% 0.0% 1.4% 2.3% 0.0% 0.3% 2.1% 0.0% 0.1% 0.0% 0.0% 0.0% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% Net EFTA01475091 Buyback Yield 1.2% Total Yield 2.1% -0.7% -0.7% -4.3% -4.3% 2.1% 3.5% -0.3% 2.1% 0.0% 0.0% -0.1% 0.2% 0.9% 3.0% -1.0% -1.0% 5.1% 5.2% -0.6% -0.6% 3.1% 1.4% 3.1% 1.4% -1.3% -0.2% 0.0% 0.0% -0.3% -0.3% -2.2% -2.2% -3.1% -3.1% -12.5% -12.5% EFTA01475092 2 October 2015 US Equity Insights Figure 33: S&P 500 sector performance (total returns) 12 Month YTD S&P 500 Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Note: -0.6% 13.2% 7.1% -5.3% 4.1% -1.0% -7.1% Since 3 Month 1 Month 1 Week -7.1% -2.5% -0.9% -3.6% -0.6% -0.9% -1.4% -29.7% -21.3% -16.3% -6.7% -0.5% -0.3% 5.2% -3.6% 2.1% -2.1% -11.5% -5.7% -4.6% -9.8% -3.0% -7.3% -1.8% -0.2% -4.3% -1.0% -0.9% -18.0% -16.5% -17.3% -7.4% -1.0% -7.9% 6.6% -3.9% -5.9% Two biggest outperforming (underperforming) sectors are highlighted in green (red) All sectors within 5% of their 5 year high are highlighted in yellow Source: Deutsche Bank, Thomson Reuters Prices as of 9/30/2015 -7.3% -3.6% 0.0% 4.8% EFTA01475093 2.9% 3.2% 8/25/2015 Mkt Trough 0.5% 0.3% -7.9% -3.0% 0.1% 3.0% 4.9% 4.1% 4.6% 2.3% -2.0% 2.9% 6.1% -1.2% 1.3% 4.0% Current Price vs. 5yr High 2015 PE 90.1% 15.9 92.6% 18.9 13.1% 93.1% 19.2 61.2% 26.0 9.9% 6.9% 88.7% 12.6 16.5% 85.9% 15.6 14.7% 86.7% 15.4 10.1% 90.7% 15.6 20.4% 76.8% 14.5 83.6% 12.0 87.4% 16.0 2.8% 2.4% 3.1% Sector Wt. by Mkt Cap Figure 34: S&P 500 sector 12m vs. 3m performance -20% -15% -10% -5% 0% 5% Utilities Lagging but gaining Cons. Staples Tech ex. AAPL EFTA01475094 Tech Telecom Industrials Lagging and slipping Energy -35% -25% Source: Deutsche Bank, Thomson Reuters Materials -15% Prices as of 9/30/2015 -5% 12 Month Total Return Figure 35: S&P 500 sector ytd vs. mtd performance -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% Lagging but gaining Utilities Leading and gaining Cons. Staples Tech ex. AAPL Tech Industrials Lagging and slipping Health Care Energy -25% -20% Source: Deutsche Bank, Thomson Reuters Materials -15% Prices as of 9/30/2015 -10% YTD Total Return -5% 0% EFTA01475095 5% S&P 500 Financials Telecom Leading but slipping Cons. Disc. 5% 15% 25% S&P 500 Financials Health Care Leading but slipping Cons. Disc. Leading and gaining Deutsche Bank Securities Inc. Page 19 MTD Total Return 3 Month Total Return EFTA01475096 2 October 2015 US Equity Insights Figure 36: Russell 2000 sector ytd vs. mtd performance (price returns) 12 Since 3 Month Russell 2000 Consumer Discretionary Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Information Technology Utilities Note: YTD 1 -0.1% -8.6% -12.4% -5.1% -3.5% 4.3% -8.5% -12.7% -4.9% -2.8% 8.1% -4.9% -4.5% -1.7% -3.7% -58.9% -37.0% -31.1% -17.2% -5.0% 5.1% -4.7% -6.7% -0.4% -1.0% 15.4% -1.7% -16.8% -12.0% -11.8% -14.6% -19.5% -20.2% -9.7% -3.1% -9.1% -16.3% -15.8% -6.3% -2.2% 6.7% -5.1% -11.1% -3.0% -1.3% 4.7% -8.5% -2.8% 0.8% 1.5% 8/25/2015 Month Month 1 Week Mkt Trough Current Price vs. 5yr High -0.3% 84.9% -0.1% 85.4% 2.3% 92.3% 0.1% 32.2% 3.4% 91.4% -7.5% 78.0% -3.6% 74.9% -1.7% 79.6% 1.9% 84.4% 3.2% 88.4% Two biggest outperforming (underperforming) sectors are highlighted in green (red) All sectors within 5% of their 5 year high are highlighed in yellow Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP Prices as of 9/30/2015 2015 PE EFTA01475097 (ex. Neg EPS) 17.4 17.8 15.8% 3.5% 2.7% 18.9 NA 16.1 26.2% 22.4 15.9% 5.3% 16.2 15.2 11.5% 19.7 14.5% 4.6% 18.4 Sector Weight Figure 37: Russell 2000 sector 12m vs. 3m performance -35% -30% -25% -20% -15% -10% -5% 0% Utilities Lagging but gaining Cons. Staples Financial Svcs Tech Russell 2000 Materials & Proc Producer Dur Lagging and slipping Energy -60% -40% Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP -20% 0% 12 Month Price Return Prices as of 9/30/2015 Figure 38: Russell 2000 sector ytd vs. mtd performance Lagging -18% -16% -14% EFTA01475098 -12% -10% -8% -6% -4% -2% 0% 2% but gaining Utilities 20% Cons. Disc. Health Care Leading but slipping Leading and gaining Leading and gaining Financial Svcs Russell 2000 Cons. Disc. Cons. Staples Tech Producer Dur Materials & Proc Lagging and slipping -40% Energy -35% -30% -25% Source: Deutsche Bank, Thomson Reuters, Bloomberg Finance LP -20% -15% YTD Price Return Prices as of 9/30/2015 -10% Health Care Leading but slipping -5% 0% Page 20 Deutsche Bank Securities Inc. MID Price Return 3 Month Price Return EFTA01475099 2 October 2015 US Equity Insights Figure 39: YTD total returns of thematic plays -24% -21% -18% -15% -12% -9% -6% -3% 0% 3% Source: S&P, Deutsche Bank, Thomson Reuters, Bloomberg Finance LP Prices as of 9/30/2015 Figure 40: YTD total returns of thematic plays and underlying sectors and baskets Cyclicals YTD Total Returns Consumer Discretionary Energy Financials Industrials Materials Defensives Utilities Telecommunication Services Consumer Staples Health Care Information Technology Domestic Cyclicals Consumer Discretionary Financials DBUSDMST (US Domestic Strength) * Global Cyclicals Energy Industrials Value DBUSCICG (Challenged Cap Goods) * Information Technology Energy Materials Financials Cyclical Growth Consumer Discretionary Industrials Secular Growth Health Care Information Technology S&P 500 ex. Secular Growth * Returns of stock baskets are price returns EFTA01475100 ** Equal-weighted total return Source: S&P, Deutsche Bank, Thomson Reuters, Bloomberg Finance LP Prices as of 9/30/2015 -7.9% 4.1% -21.3% -7.1% -9.8% -16.5% -2.3% -5.9% -3.9% -1.0% -2.1% -3.0% -2.4% 4.1% -7.1% -2.8% -9.4% -21.3% -9.8% -17.3% -16.5% -3.0% -11.8% -21.3% -7.1% -2.3% 4.1% -9.8% -2.6% -2.1% -3.0% -6.7% Credit vs. Commodity Play Financials Energy Capex Industrials Energy Equipment & Services Information Technology DBUSBRTE (Reasonable PE Tech) * Consumer Consumer Discretionary Consumer Staples Dividend Growth Financials Information Technology Dividend Yield (Bond Substitutes) Utilities EFTA01475101 Telecommunication Services REITs Consumer Staples Share Buybacks Consumer Discretionary Information Technology Industrials Health Care Repatriation Holiday Beneficiaries Strong Dollar No foreign sales (139 Cos) ** Small Cap vs. Large Cap Russell 2000 S&P 500 DBUSHIFC (High Foreign Cash) * High foreign sales (139 Cos) ** -7.1% -21.3% -5.9% -9.8% -19.1% -3.0% -17.1% 1.8% 4.1% -1.0% -4.8% -7.1% -3.0% -2.7% -5.9% -3.9% -3.6% -1.0% -2.5% 4.1% -3.0% -9.8% -2.1% -6.2% -9.9% -4.0% -7.7% -5.3% Deutsche Bank Securities Inc. Page 21 EFTA01475102 2 October 2015 US Equity Insights Figure 41: Historical sector performance Beta > 1 Beta = 1 US Value Credit Plays Financials 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 EFTA01475103 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Financials 2.4% 48.7% -14.4% 14.6% 2.6% -5.6% 1.4% 2.0% 50.2% -10.8% 6.4% 10.1% 32.3% -5.9% -35.1% 19.3% 35.5% -8.9% 5.9% 18.2% 14.7% 11.4% 20.4% 14.8% 8.8% 41.7% 8.2% -16.1% 18.0% 32.5% -20.8% 49.1% 23.3% 10.6% -3.5% 54.1% 35.2% EFTA01475104 48.2% 11.4% 4.1% 25.7% -9.0% -14.6% 31.0% 10.9% 6.5% 19.2% -18.6% -55.3% 17.2% 12.1% -17.1% 28.8% 35.6% 15.2% -7.1% Global Value Commodity Plays Global Growth Capex Plays Energy Materials Industrials Energy Materials Industrials -4.4% 25.4% -6.4% 31.6% 11.9% -10.5% 22.1% 26.7% 1.5% -7.1% -16.9% 17.9% 22.0% -24.1% -15.3% 17.5% 4.8% 22.2% 8.1% -23.7% -22.3% 27.0% 36.5% -3.4% -27.7% 9.2% 46.8% 62.2% -20.2% -6.8% 30.3% EFTA01475105 25.0% 10.6% 18.8% 39.7% 15.9% 3.7% 31.0% 25.9% 25.3% 0.6% 18.7% 20.8% 22.5% 12.8% 23.6% 6.6% 11.0% 0.7% 14.1% 5.7% 41.1% 19.0% 3.8% 50.4% 23.5% 2.3% 1.9% 33.0% 19.8% -16.9% 22.3% 22.3% 19.3% 46.5% 19.3% 22.4% 2.9% -10.7% 6.9% 2.3% 25.5% 10.3% 13.5% 5.8% 20.0% 15.8% 8.4% -6.2% 25.3% 15.7% -15.7% -10.4% -11.1% 25.6% EFTA01475106 31.5% 31.4% 24.2% 34.4% -34.9% -45.7% 13.8% 20.5% 4.7% 4.6% 25.1% -7.8% -21.3% -16.5% 3.5% -5.5% 38.2% 13.2% 4.4% 18.6% 22.5% 48.6% 22.2% -9.8% 15.0% 25.6% 6.9% -10.2% 18.7% Tech Tech -15.9% -33.2% 25.6% 13.2% 38.1% -20.8% 42.0% 16.8% -28.8% Consumer Growth Consumer Plays Con Disc Cons. Disc. 33.1% -10.1% 47.6% 31.3% 2.4% 31.9% 73.8% -0.1% 16.6% 17.2% -16.3% 23.0% EFTA01475107 27.8% 23.7% 30.3% 40.7% 39.1% 19.3% 13.4% 19.0% 24.1% 54.1% 40.3% -7.9% 15.9% -9.2% 7.7% 1.7% -1.3% 47.1% Staples 33.6% 36.3% 13.6% 14.4% 9.6% -29.5% 33.9% 10.3% -3.8% 16.2% 19.9% 11.5% 65.6% 29.0% -9.4% 0.2% 3.2% -4.5% 31.4% 16.4% 10.2% 14.6% 20.5% 20.2% -9.3% -21.9% -17.2% -9.8% -13.2% -14.5% -1.5% 31.3% 63.7% -9.9% -21.1% -2.2% 27.2% -5.0% EFTA01475108 27.5% 12.7% 21.0% 12.4% 18.4% -7.6% 29.5% 9.6% 18.6% -2.4% 39.1% 25.1% 27.0% 10.9% 21.5% -6.7% -0.1% 79.0% 30.0% 5.1% 24.4% 20.2% 4.1% 37.5% 12.4% 3.0% -12.2% 9.1% 2.9% 21.7% 19.9% 39.4% 43.9% 28.5% 78.1% 78.7% 13.3% 12.0% 47.2% 2.6% 1.0% 8.4% 61.7% 10.2% 2.4% 40.7% 9.8% -9.8% Source: Deutsche Bank, Haver Analytics, Thomson Reuters Prices as of 9/30/2015 14.8% 28.4% EFTA01475109 20.1% -3.0% 41.5% 19.7% 14.6% -8.3% 20.3% 12.4% 34.4% 41.1% 5.9% -40.9% -20.0% -5.7% -25.9% -26.3% -37.4% -23.8% 32.2% 18.0% 2.3% 16.3% -13.2% 41.3% 27.7% 6.1% 23.9% 43.1% 9.7% 4.1% 2.8% 37.4% 13.2% -6.4% 18.6% 38.2% 10.9% -5.4% 7.2% -0.3% 11.6% 14.4% 41.2% 14.7% 13.5% 44.6% 31.9% 13.8% 28.7% 49.4% 15.3% 41.7% 39.6% 25.9% 32.9% 15.8% Growth EFTA01475110 Health Care Staples Healthcare Utilities Cons. Utilities 7.3% 26.1% -7.0% -17.6% -18.6% 30.9% 30.5% 5.3% 20.9% 16.5% 30.4% 0.1% 25.1% 8.6% 19.8% 29.0% -2.7% 12.2% 15.6% 4.7% -4.6% -0.6% 5.5% 23.6% -11.3% -2.7% 19.8% 32.4% 5.0% -4.0% -9.2% 12.0% 16.0% 24.0% 2.4% 18.5% 9.5% 15.3% 43.5% 38.1% 11.0% 12.4% 44.9% 17.3% 53.7% 5.3% -16.2% -3.9% 9.8% -8.2% EFTA01475111 -7.9% -17.7% -26.9% -36.5% -42.3% -28.8% -18.2% -21.4% 25.4% 24.9% 42.9% 30.2% 8.1% -3.7% 13.0% 14.0% 11.0% 24.5% 19.2% 28.1% -2.5% 17.8% 45.8% 13.7% 13.7% -11.8% 58.0% 21.0% 43.7% 43.9% 25.2% -15.1% -10.7% 16.8% 37.1% 14.4% 14.2% 14.9% 14.1% 14.0% 10.8% 26.1% 16.0% -1.0% 15.1% 1.7% 6.5% 7.5% 7.2% 19.7% 2.9% 12.7% 17.9% 41.5% 25.3% -2.1% 32.7% 5.7% 24.7% 14.8% EFTA01475112 -9.2% 26.3% 24.3% 16.8% 21.0% 19.4% 15.7% 2.2% 7.5% Beta < 1 Low Beta Defensives Domestic (Bond Subst.) Telecom Telecom S&P 500 0.0% 0.0% 0.0% 22.4% 0.9% -8.0% 10yr Tsy TR 0.3% 26.6% -8.8% 22.5% 16.3% 12.3% -5.8% -10.0% -4.3% 10.0% -3.6% 5.9% -3.1% 23.9% 3.9% 4.1% 3.9% 1.6% 3.7% 0.7% 5.0% 23.7% -3.2% 10.8% 2.2% -8.3% -5.5% 3.5% 18.4% 14.3% 11.1% 19.0% 0.5% -14.7% -4.5% -26.5% EFTA01475113 21.6% 32.3% 1.9% 7.6% -5.6% 1.4% 34.0% 10.3% 13.4% 24.3% -66.3% 31.7% 35.7% 16.4% 7.8% 23.3% 61.8% -0.6% -13.9% 23.9% 6.6% 13.2% 16.2% 15.1% -4.8% 42.3% 1.1% 41.2% 52.4% 19.1% 57.2% -38.8% 7.1% 19.9% -5.6% 36.8% 11.9% 37.2% 2.3% 3.3% 3.9% 5.4% 23.9% 15.2% -7.2% 0.4% 18.6% 6.6% -0.9% 1.8% 32.5% -1.6% -4.9% 4.8% 21.5% 39.1% 22.6% 2.0% EFTA01475114 6.3% 14.6% 31.7% 29.6% 18.7% 21.3% 5.3% -2.8% 6.8% 16.6% 31.7% 17.7% -3.1% 7.6% 7.1% 0.0% 30.5% 18.8% 7.6% 10.1% 12.9% 1.3% -7.3% 37.6% 25.4% 23.0% -6.4% -11.9% -30.4% -12.2% -11.9% 33.4% 11.9% 28.6% 14.6% 21.0% -7.9% -9.1% 17.2% 5.4% -4.3% -18.8% -30.0% -34.1% -22.1% 15.4% 11.6% 8.2% 3.6% 28.7% 10.9% 4.9% 15.8% 11.9% 5.5% 19.9% 1.3% 13.2% 29.0% -5.9% 8.9% 19.0% 6.3% 18.3% 11.5% 3.0% -3.9% 0.2% 4.5% 3.0% 2.2% 5.5% 10.4% -39.9% -43.1% -33.5% -15.4% -22.8% -29.0% -30.5% -37.0% 20.5% EFTA01475115 20.9% 26.7% -0.6% 15.3% 26.5% -10.2% 15.1% 16.0% 7.9% 2.1% 16 1% 2.7% 32.4% -8.5% 13.7% 10.6% -5.3% 2.5% Page 22 Deutsche Bank Securities Inc. EFTA01475116 US Equity Insights 2 October 2015 Deutsche Bank Securities Inc. Page 23 Figure 42: List of DB US Equity Strategy research notes Research Title Date Debt ceiling showdowns: A new twist to the election cycle? Fed delays: Less S&P upside for 2015 Stocks will leave hike decision to the Fed, but dollar likely gains either way First back to school assignment: Stress test 2016 S&P EPS estimates Post correction: Better without the froth, but still real risks to monitor Further downside for global cyclicals Stretching to hit numbers? GAAP vs. non-GAAP S&P EPS spread widens Secular growth shines as acceleration hopes fade A chance to go away until Labor Day Another "fish hook" earnings season The Hulk vs. the Amazing Euro Hero: Has the Euro found bottom at $1.10? Got your 2H sector strategy ready? Consider Utilities over regional Banks Yellen keeps equities on bullish path Bullish if dollar and yields settle here Dear Fed, avoid 1994 by hiking in Sep 10 themes to watch this summer S&P hits record high on 18 trailing PE, PE will be sensitive to Treasury yields What if Fed relents on hikes for 2015? A little EPS upside, but more PE risk Ascent of S&P margins continues: 1096+ net margin survives Energy dip Jobs suggest: Fed hikes, stronger $, low inflation, flatter curve still ahead Midway 10 earnings season update: Barely clearing a low bar Meet & Maintain is new Beat & Raise: Results/guides support $118 S&P EPS What to expect for 10 and guidance? Burden on 2H for up 2015 S&P EPS The many measures of S&P EPS Banks are the last cheap stocks left: But what if the yield curve goes flat? 2015's S&P 500 tug-of-war intensifies: Dimmer EPS vs. brighter PE outlook The Hulk flexes, S&P EPS shrinks Is S&P ready for Fed hikes?: 10 FAQs Reaching for small caps, selectively: Prefer small Retailers vs. small Banks Tech Titans can overcome the Hulk Why should investors look through it? Repatriation holiday: Good step to a territorial system, but not a substitute Finding Domestic S&P 500 stocks: Both Domestic Cyclicals & Defensives 2015 S&P gains now PE expansion dependent S&P 500 Industrial Capital Goods: High risk, low reward - we prefer Tech Seven Signs: 2 Red, 4 Yellow, 1 Green The PE tug-of-war continues in 2015: Slow EPS growth vs. low bond yields 2015 S&P Outlook: Better time for consumers, but tougher for producers What's a profit recession? Happy Thanksgiving: US GDP vs. S&P US equity strategy 2015 Outlook * Chartbook publications EFTA01475117 Source: Deutsche Bank Research Title 28-Sep-15 Macro trends favor Retailers over Industrial Capital Goods, so do we 18-Sep-15 Dollar and oil snip S&P 4Q EPS 11-Sep-15 4-Sep-15 25-Aug-15 Post-bounce strategy into yearend 21-Aug-15 Better time for consumers ahead, tougher time for producers 14-Aug-15 Dollar Hulk? A somewhat stronger greenback ok, but beware the beast 6-Aug -15 Midterm elections matter, but no reason for correction 19-Jul-15 Catching a falling knife? 12-Jul-15 PE expansion is rare as the Fed hikes 2-Jul-15 S&P EPS growth after the super-cycle 26-Jun-15 The Seven Signs: Interest Rates, Oil Prices & the Dollar * 21-Jun-15 2Q EPS finishes with S&P at its top 12-Jun-15 Good reasons to return to the top 5-Jun-15 Dog days of August: Heat from interest rate and geopolitical anxiety 29-May-15 Lo and behold: Participation rate ticks up, mitigating interest rate risk 22-May-15 The pressure release valve gets stuck: Treasury yields climb as stocks sell off 15-May-15 The Seven Signs: Has the climb in yields begun? * 10-May-15 2Q growth better, as expected, but leaves market PE driven 1-May-15 Thematic sector strategy update: OW Secular Growth sectors & Financials 26-Apr-15 The hunt for sales growth 17-Apr-15 Help wanted: A participation spurt with reliable productivity needed 12-Apr-15 2Q EPS: A moment of truth for EPS acceleration 2-Apr-15 The Golden Ratio: Real GDP / Inflation 27-Mar-15 Summer Flip-book * 22-Mar-15 S&P 500 Valuation: Sum of Sectors 13-Mar-15 S&P Valuation Chartbook - Snapshot at another record high * 9-Mar-15 Chasing in the summer: Is it worth it? Standing on the shoulders of bonds 27-Feb-15 18-Feb-15 GDP is a deceptive denominator: Several popular charts improved 6-Feb-15 Bank those Energy gains 30-Jan-15 3-Feb-15 Yields are key to S&P PE & Styles: Watch Participation & Productivity Signature Charts * 25-Jan-15 No sweat yet for yields, but more heat to come 18-Jan-15 Can yields stay cool this summer as growth heats up? 13-Jan-15 More rotation and reset? Watch yields 11-Jan-15 April showers: Aunt Yellen to give less and Uncle Sam to take more 15-Dec-14 10 EPS Preview: Cold from banks to retailers, but rest of year to warm-up 5-Dec-14 The small cap growth correction 26-Nov-14 S&P 500 sources and uses of cash: How to deploy $1 trillion? EFTA01475118 2015 S&P Outlook: Better time for consumers, but tougher for producers Slow growth, but strong payouts: Definitive dividend vs blurry buybacks Trick or treat? Skip the dark houses Date 21-Nov-14 14-Nov -14 7-Nov-14 31-Oct-14 26-Oct-14 19-Oct-14 10-Oct-14 9-Oct-14 26-Sep-14 19-Sep-14 12-Sep-14 11-Sep-14 24-Aug-14 15-Aug-14 8-Aug-14 1-Aug-14 1-Aug-14 31-Jul-14 25-Jul-14 18-Jul-14 13-Jul-14 2-Jul-14 30-Jun-14 20-Jun-14 18-Jun-14 13-Jun-14 13-Jun-14 6-Jun-14 30-May-14 22-May-14 16-May-14 11-May-14 9-May-14 2-May-14 25-Apr-14 17-Apr-14 13-Apr-14 4-Apr-14 30-Mar-14 23-Mar-14 15-Dec-14 EFTA01475119 2 October 2015 US Equity Insights Appendix 1 Important Disclosures Additional information available upon request *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/- ger/disclosure/DisclosureDirectory.eqsr Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. David Bianco/Ju Wang/Winnie Nip Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period 100 200 300 400 500 EFTA01475120 600 0 Buy Companies Covered Hold Sell Cos. w/ Banking Relationship North American Universe 51 % 57 % 43 % 2 %41 % 47 % Page 24 Deutsche Bank Securities Inc. 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EFTA01475129 David Folkerts-Landau Group Chief Economist Member of the Group Executive Committee Raj Hindocha Global Chief Operating Officer Research Michael Spencer Regional Head Asia Pacific Research International locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kin dom Deutsche Bank AG Grote Gallusstra@e 10-14 60272 Frankfurt am Main Germany Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 3aar ..11 Marcel Cassard Global Head FICC Research & Global Macro Economics Ralf Hoffmann Regional Head Deutsche Bank Research, Germany Steve Pollard EFTA01475130 Global Head Equity Research Andreas Neubauer Regional Head Equity Research, Germany GRCM2015PROD034727 EFTA01475131