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CAPITAL MARKETS OUTLOOK
Third Quarter 2019
● Are Not FDIC Insured ● May Lose Value ● Are Not Bank Guaranteed
The information herein reflects prevailing market conditions and our judgments, which are subject to change, as of the date of this document. In preparing this document, we have relied upon and
assumed, without independent verification, the accuracy and completeness of all information available from public sources. Opinions and estimates may be changed without notice and involve a number
of assumptions that may not prove valid. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice.
Investment Products Offered:
1|CMO 3Q19
Returns in US Dollars
Past performance does not guarantee future results.
Global corporates and Japan and euro-area government bonds in hedged USD terms. All other non-US returns in unhedged USD terms. An investor cannot invest directly in an
index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect the fees and expenses associated with the active
management of a portfolio.
*Europe, Australasia and the Far East
†Returns reflect Morningstar US open-end fund category averages.
As of June 30, 2019
Source: Bloomberg Barclays, Morningstar Direct, S&P and AB
5.2
4.4
7.7
7.4
4.0
5.2
5.1
8.7
11.3
9.9
10.6
14.0
17.0
18.5
2Q 2019 Returns Recap: S&P 500 Hits an All-Time High
Equities
Government
Bonds
Credit
Alternatives†
Jan–Jun 2019 Returns
(Percent)
1.1
1.6
1.7
4.3
1.8
3.0
2.1
3.8
4.1
2.5
0.6
3.7
2.1
4.3
2Q:2019 Returns
(Percent)
Japan
US High Yield
US
Euro Area
Emerging-Market Debt
Long/Short Equity
Multialternative
Nontraditional Bond
Global Corporate
EAFE*
US Large-Cap
Emerging Markets
US Small-Cap
Municipals
2|CMO 3Q19
Summary
Returns for the second quarter and first half of 2019 remain strong
But those returns are still not being generated primarily by growth, but by valuations
Valuations have been driven predominantly by policy
Reflecting policy volatility, valuation/broad equity price levels have been volatile over the past
18 months
Focus has become centered on trade policy, its potential impact on growth/markets and central
banks’ response to it
Growth, monetary policy and market performance will largely be driven by the above (against an
“ex-trade policy” backdrop of solid but moderating growth on the back of strong but moderating
labor gains)
Portfolio construction, in our opinion, needs to continue to balance participation in potentially solid
if below-average future market returns against meaningful tail risks in the market
Current analysis does not guarantee future results.
As of June 30, 2019
Source: AB
3|CMO 3Q19
Historical analysis and current forecasts do not guarantee future results.
Left display through June 30, 2019; right display as of May 31, 2019
Source: Bloomberg, Cornerstone Macro, FactSet, MSCI, S&P and AB
Returns Still Not Driven by Growth (Economic or Earnings)…
…as Has 12-Month YoY Forecast Earnings Growth
–30
–20
–10
0
10
20
30
40
15 16 17 18 19
Pe
rcen
t
S&P 500 MSCI Japan
MSCI Europe ex-UK MSCI UK
MSCI EM
Global Economic Growth Has Receded…
49
50
51
52
53
54
55
15 16 17 18 19
Ind
ex
Global PMI
4|CMO 3Q19
Historical analysis and current forecasts do not guarantee future results.
All data for the S&P 500. Earnings estimates are represented by Bloomberg consensus blended forward 12-month estimates.
*CAPE: cyclically adjusted price/earnings ratio
Through June 30, 2019
Source: Bloomberg, Cornerstone Macro, Robert Shiller, S&P and AB
…More by Changes in Valuations, Which Have Been Volatile
Valuations Remain Elevated: Shiller CAPE*
27
28
29
30
31
32
33
34
2017 2018 2019
Ind
ex
S&P 500: Year-to-Date 2019
A Mirror Image of 2018 Thus Far
–5
0
5
10
15
20
Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19
Pe
rcen
t
EPS
Price Return
P/E
5|CMO 3Q19
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
3,200
3,300
3,400
Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19
S&
P 5
00
Valuations/Price Levels Dominated by Policy Decisions and Expectations
Historical analysis and current forecasts do not guarantee future results.
As of June 30, 2019
Source: Bloomberg, S&P and AB
Average
hourly
wages rise
2.9%
US tariffs
on solar
cells &
washing
machines
US tariffs on steel &
aluminum
Trump hints at
China tariffs in
response to “unfair
trade practices”
Powell says the Fed is
“a long way” from
neutral rate
Fed expects two rate
hikes in 2019
Fed signals
four rate
hikes for
2018
US
announces
25% tariffs
on $50 bil.
of Chinese
goods
The Fed pivots, with
Powell saying the Fed will
be “patient” with future
rate hikes and there is
“no preset path for policy”
Optimism grows for a
US-China trade deal
Powell hints
at rate cuts,
saying the
Fed will “act
as
appropriate
to sustain
the
expansion”
US raises
tariff rate
to 25%
on $200
bil. of
Chinese
goods
Potential
tariffs on
Mexico
Trump
announces
10% tariffs
on $200 bil.
of Chinese
goods
Monetary Fiscal Trade Other (i.e., Brexit, US Govt. Shutdown)
6|CMO 3Q19
Policy Tug-of-War: Trade Vs. Central Banks’ Response
Historical analysis and current forecasts do not guarantee future results.
As of June 30, 2019
Source: Thomson Reuters, the Wall Street Journal and AB
Central Banks
Pivot
The Bank of Japan expects to
hold its rate at –0.1% until 2020
European Central
Bank President Draghi
hints that “additional
stimulus will be
required” if inflation
doesn’t meet its target
People’s Bank of China
has cut reserve
requirements for banks
multiple times since 2018
and injected large
amounts of liquidity into
the financial system
Reserve Bank of Australia
recently cut rates, citing
concerns the US-China trade
war is creating “uncertainty”
that is affecting investment
and global exports
Bank of Canada pauses
on raising rates, as it
monitors ongoing trade
headwinds and a
slowing economy
Fed Chair Powell opens
the door for rate cuts,
saying the Fed will “act
as appropriate to
sustain the expansion”
Central Banks’
Response
Trade Policy
Potential Impact
on Growth
7|CMO 3Q19
US Numbers Reflect a Change in Fed Policy + Trade Worries
Historical analysis and current forecasts do not guarantee future results.
Real growth aggregates represent 48 country forecasts, not all of which are shown. Long rates are 10-year yields.
As of July 1, 2019
Source: AB
AB Global Economic Forecast: July 2019 (Percent)
Real Growth Inflation Official Rates Long Rates
19F 20F 19F 20F 19F 20F 19F 20F
Global 2.6 2.6 2.8 2.6 2.8 2.5 2.5 2.6
Industrial Countries 1.6 1.4 1.7 1.8 1.0 0.8 1.2 1.3
Emerging Countries 4.4 4.6 4.6 3.9 6.4 5.6 5.1 5.0
US 2.0 1.8 2.3 2.5 1.9 1.4 2.4 2.5
Euro Area 1.2 1.0 1.2 1.2 0.0 0.0 –0.3 –0.3
UK 1.2 1.2 1.8 1.7 0.8 0.8 0.9 0.8
Japan 0.6 0.5 0.8 1.2 –0.1 –0.1 –0.1 0.0
China 6.2 6.0 2.5 2.4 4.4 4.1 3.1 3.0
8|CMO 3Q19
Industry-Level Comments from ISMISM Business Surveys (Six-Month Moving Average)
Current analysis does not guarantee future results.
Through June 30, 2019
Source: Institute for Supply Management, Thomson Reuters and AB
Manufacturing Surveys Reflect Trade Fears
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Head of ISM Institute:
Respondents expressed concern about US-China trade turbulence,
potential Mexico trade actions and the global economy.“ ”Computer & Electronic Products:
China tariffs and pending Mexico tariffs are wreaking havoc with supply
chains and costs. The situation is crazy, driving a huge amount of work
[and] costs, as well as potential supply disruptions.
“”
Chemical Products:
Tariffs are causing an increase in cost of goods, meaning US
consumers are paying more for products.“ ”Food, Beverage & Tobacco Products:
Global demand remains very strong. [We] shifted shipments to China
from our US plants to our Canadian and European plants because of
tariffs.
“”
Nonmanufacturing
Manufacturing
9|CMO 3Q19
Current analysis does not guarantee future results.
*Each dot indicates the value of an individual participant’s judgment of the midpoint of the appropriate target range for the fed funds rate or the appropriate target level for the fed
funds rate at the end of the specified calendar year. Projections are from the December 19, 2018, meeting, the March 20, 2019, meeting, and the June 19, 2019, meeting.
The circled dots represent the median of the dot plots from each meeting.
As of June 30, 2019
Source: US Federal Reserve and AB
“Patience” Waning: Fed Turns Proactive Instead of Reactive
Fed Dot Plot*
Percent 2019 2020
3.750
3.625 ●●
3.500
3.375 ●●● ●
3.250
3.125 ●●●●●● ●●●● ●● ●
3.000
2.875 ●●●●● ●● ●●●●●● ●●●
2.750
2.625 ●●●● ●●●● ● ● ●●●● ●●
2.500
2.375 ●● ●●●●●●●●●●● ●●●●●●●● ● ●●●●●●● ●●●●●
2.250
2.125 ● ●●
2.000
1.875 ●●●●●●● ●●●●●●●
1.750
● Dec 2018 ● Mar 2019 ● Jun 2019
16
17
18
Jan
19
Growth Rising/
Policy Stable
Growth Weak/
Policy Easing
Growth Slowing/
Policy Stable
Growth Stable/
Policy Tightening
Mar
19Jun
19
10|CMO 3Q19
Current analysis does not guarantee future results.
Through June 30, 2019
Source: Bloomberg, Institute for Supply Management, IHS Markit, S&P, STOXX and AB
ISM Suggests Equities Fairly Valued; Bond Yields Too Low?
ISM New Orders and 10-Year US Treasury Yield
–2.0
–1.5
–1.0
–0.5
0.0
0.5
1.0
1.5
2.0
40
45
50
55
60
65
70
75
09 11 13 15 17 19
ISM New Orders (Three-Month Average) (Left Scale)
10-Year Treasury (YoY Percent Change)
Base Effect
S&P and ISM (Rate of Change in S&P)
–60
–40
–20
0
20
40
60
35
40
45
50
55
60
65
70
09 11 13 15 17 19
ISM Manufacturing (Left Scale)
S&P 500 (YoY Percent Change)
Base Effect
11|CMO 3Q19
Regardless of the Slope, When a Curve Inverts, the Market Is Concerned
The Front End of the Curve Is Inverted
US Treasury Curves
Past performance and historical and current analyses do not guarantee future results.
Through June 30, 2019
Source: Bloomberg Barclays and US Federal Reserve Board
–6
–3
0
3
6
9
12
–2
–1
0
1
2
3
4
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Pe
rcen
tC
urv
e S
lop
e (
Pe
rcen
t)
Fed Funds Target Rate—Upper Band Effective Fed Funds/10-Yr. Slope (Left Scale)
3-Mo./10-Yr. Slope (Left Scale) 2-Yr./10-Yr. Slope (Left Scale)
12|CMO 3Q19
Past performance and current analysis do not guarantee future results.
US High Yield is represented by Bloomberg Barclays US High-Yield; global credit barbell is a hypothetical risk-weighted portfolio made up of 65% Bloomberg Barclays US Treasury
and 35% Bloomberg Barclays Global High-Yield and leveraged 30%; Bloomberg Barclays Global High-Yield has an inception date of January 1, 1990; prior to that, global credit
barbell is composed of Bloomberg Barclays US High-Yield, for the 35% in high-yield exposure.
As of June 30, 2019
Source: Bloomberg Barclays, Federal Reserve Bank of St. Louis, S&P and AB
Forward 12-Month Returns from
First Rate Cut (Percent)
Historically, the Fed Has Reacted Three Ways
Forward 12-Month Returns from
First Rate Cut (Percent)
Forward 12-Month Returns from
First Rate Cut (Percent)
When Curves Invert, It Matters What the Fed Does
Fed Cuts Rates Preemptively Fed Pauses Before Easing Fed Continues Tightening Cycle
89
27
12 11
23
Global CreditBarbell
US HY S&P 500
1986 1995–96
3
–1
16
43
28
Global CreditBarbell
US HY S&P 500
1989 1998
7
–1
–16
8
–11
–22
Global CreditBarbell
US HY S&P 500
2000–01 2007–08 (GFC)
13|CMO 3Q19
Currently, a Global Credit Barbell Generates ~72% of the Income of the High Yield Index
Yield to Worst of Global Credit Barbell and Bloomberg
Barclays US Corporate High-Yield
Late-Cycle Income with the Downside Protection of Treasuries
10
20
30
40
50
60
70
80
90
100
110
120
2
4
6
8
10
12
14
16
18
20
22
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18P
erc
ent o
f Hig
h Y
ield
YT
W
Perc
ent
Past performance and current analysis do not guarantee future results.
Global credit barbell is a hypothetical risk-weighted portfolio made up of 65% Bloomberg Barclays US Treasury and 35% Bloomberg Barclays Global High-Yield and leveraged
30%. Any benchmark or index cited herein is used for comparison purposes only. An investor cannot invest directly in an index. The unmanaged index performance does not reflect
any fees and expenses associated with the active management of an AB portfolio.
As of June 30, 2019
Source: Bloomberg Barclays and AB
Downside Risk Statistics
Feb 1990–Jun 2019 (Percent)
–2.8
–12.1
–0.7
–5.0
–33.3
–2.0
Average Drawdown Max Drawdown Down-Capture Return
Global Credit Barbell (Leveraged)
Bloomberg Barclays US Corporate High-Yield
US High Yield YTW(Left Scale)
Global Credit Barbell YTW(Left Scale)
Global Credit Barbell YTW as a Percent of
US HY Index
14|CMO 3Q19
BBBs Are Becoming Less Shareholder-Friendly, Reflecting Efforts to Delever and Maintain
Investment-Grade Rating
Fears About BBB Downgrades to High Yield Have Been Exaggerated
YTD, Rising Stars Outpacing Fallen
Angels
USD Billions
BBB Issuers Cut Shareholder Payouts
Earnings Payout Ratio ex Utilities &
Commodities (Percent)
Past performance and historical and current analyses do not guarantee future results.
Left and right displays as of June 30, 2019; middle display through March 31, 2019
Source: Bloomberg Barclays and J.P. Morgan
4.7
31.9
Fallen Angels(Downgrades
to HY)
Rising Stars(Upgrades
to IG)
20
25
30
35
40
45
50
55
60
10 13 16 19
BBBs Are Priced for Significantly
Negative Outcome
BB OAS – BBB OAS
0
100
200
300
400
500
600
98 00 02 04 06 08 10 12 14 16 18
Average
A-Rated
BBB-Rated
15|CMO 3Q19
Bonds and Loans Are Converging
Weighted-Average Rating
High Yield and Loan Amounts Outstanding
US HY Market Shrinking and Credit Quality Improving, While Loan Market Growing and Credit
Quality and Covenants Deteriorating
Late-Cycle Demand for Floating-Rate Product Drives Lower-Quality Supply
Past performance and historical and current analyses do not guarantee future results.
Through June 30, 2019
Source: Bloomberg Barclays, BofA Securities and J.P. Morgan
0
200
400
600
800
1,000
1,200
1,400
2004 2008 2012 2016
US
D B
illio
ns
Loans High Yield 99 01 03 05 07 09 11 13 15 17 19
BB2
BB3
B1
B2
B3
Loans
US HY
16|CMO 3Q19
Municipal Redemptions YTD vs. Average Summer 2019 Projected Gross Issuance and Reinvestable
Cash
Municipal Market Redemptions Historically Increase in Summer
Current analysis does not guarantee future results.
As of May 31, 2019
Source: Bloomberg, Bloomberg Barclays, Citigroup and AB
Demand Should Support Municipal Bond Prices
0
10
20
30
40
50
US
D B
illio
ns
2019 Average (2010–2018)
91.4
–47.7
–45.5
–100
–80
–60
–40
–20
0
20
40
60
80
100
US
D B
illio
ns
Gross Issuance Net Issuance Coupon Payments
Net Investable Cash: $93.2 Billion
17|CMO 3Q19
Historical analysis and current forecasts do not guarantee future results.
Fiscal 2019 figure is estimated as of time of data collection, and predated April 2019 tax collections. Fiscal 2020 figure is based on governors’ recommended budgets
As of May 31, 2019
Source: Moody’s Investors Service, NASBO, US Bureau of Labor Statistics and US Federal Reserve
Rating Agencies Responding to Fiscal Discipline
Favorable Municipal Credit Conditions Persist
State and Local Government Tax
Receipts
States Continue to Bolster Rainy-
Day Funds
Upgrades Continue to Outpace
Downgrades
1,200
1,300
1,400
1,500
1,600
1,700
1,800
07 09 11 13 15 17 19
US
D B
illio
ns
0
1
2
3
4
5
6
7
8
00 02 04 06 08 10 12 14 16 18
Pe
rcen
t o
f G
en
era
l F
un
d S
pe
nd
ing
0
50
100
150
200
250
300
350
14 15 16 17 18
To
tal N
um
be
r
Upgrades Downgrades
18|CMO 3Q19
Yield Curve Is Flatter than Normal
AAA Yield Curve Slope: 2s/10s
0.0
0.8
1.6
2.4
3.2
99 03 07 11 15 19
Pe
rcen
tWith a Flat Yield Curve, Supplement Yield with Credit
Historical analysis does not guarantee future results.
2s/10s slope can be calculated by subtracting the yield of a two-year AAA muni from the yield of a 10-year AAA muni
Through May 31, 2019
Source: Municipal Market Data, US Department of the Treasury and AB
Average Spread
Muni Credit Spreads in Line with Historical Average
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000 2003 2006 2009 2012 2015 2018
Sp
rea
d (
Pe
rcen
t)
0.67% in Additional
Yield from BBB
Municipals
Average Spread
19|CMO 3Q19
Returns for One-Year US Treasury vs. Intermediate Muni Bonds
Past performance does not guarantee future results.
As of June 20, 2019
Source: Bloomberg and AB
Range of Outcomes Is Compelling
Intermediate Municipal Bonds Outperform T-Bills
1.89
1.12
3.46
2.73
1.281.12
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
One-Year T-Bill
One-YearT-Bill After Tax
1.75% 2.00% 2.50% 2.56%
Pe
rce
nt
10-Year US Treasury Yield
One Year from Now
One-Year
US Treasury Return
Intermediate Municipal
Bond Return
Breakeven
with One-Year
T-Bill
20|CMO 3Q19
Past performance and current forecasts do not guarantee future results.
Volatility is annualized using daily data.
As of June 30, 2019
Source: Morningstar, MSCI and AB
Volatility That Reasserted Itself in Late 2018 Persists in 2019
Global Stocks: Growth of US$10,000 (MSCI ACWI)
10,000
10,500
11,000
11,500
12,000
12,500
13,000
13,500
2017 2018 2019
2017 Return: 24%
2017 Volatility: 5%
–9%
–17%
YTD 2019 Return: 16%
YTD 2019 Volatility: 9%
–6%
Since 2018’s Fourth Quarter, Volatility Has Risen Materially
Global Stocks (MSCI ACWI): Number of Days with Returns +/–1%
3
14
5
2
42
2017 1Q2018
2Q2018
3Q2018
Oct 2018–Jun 2019
2018 Return: –9%
2018 Volatility: 11%
21|CMO 3Q19
S&P 500 Price to Earnings
Slightly Above the Long-Term Average…
S&P 500 Price to Sales
…and Even More Expensive on Top-Line Results
Historical analysis and current forecasts do not guarantee future results.
All data for the S&P 500. Earnings estimates are represented by Bloomberg consensus blended forward 12-month estimates.
Through June 30, 2019
Source: Bloomberg, S&P and AB
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
00 02 04 06 08 10 12 14 16 18P
/S R
atio (
×)
10
12
14
16
18
20
22
24
26
00 02 04 06 08 10 12 14 16 18
P/E
Ratio (
×)
Average
Average
Valuations Remain a Mixed Picture…
22|CMO 3Q19
Global Asset Class Flows: Jan–Jun 2019
Likely to Remain Supportive, but Would Moderate in a Downturn
Historical analysis and current forecasts do not guarantee future results.
Left display as of June 26, 2019; right display as of April 5, 2019
Source: BofA Securities, Emerging Portfolio Fund Research Global, Goldman Sachs, S&P, S&P Compustat and AB
Equities Bonds
$138 Bil.
Outflows
$223 Bil.
Inflows
…but Flows Aren’t Signaling Euphoria, and Capital Return Remains Strong
Buybacks and Dividends Are Forecasted to Grow
S&P 500 Annual Shareholder Return
806
940
0
200
400
600
800
1,000
1,200
1,400
1,600
09 10 11 12 13 14 15 16 17 18 19E
US
D B
illio
ns
Dividends Share Buybacks Buybacks (Estimated)
23|CMO 3Q19
Current forecasts do not guarantee future results.
As of June 30, 2019
Source: AB
Key Opportunities to Focus On in the Late-Cycle Environment
Key Factors
Profitability
High return on assets
Quality
Strong balance sheets
Strong Cash Flows
High FCF yields
Value
Value with a catalyst
Signs of success (positive
EPS and sales revisions)
Low leverage
High levels of profitability
High free-cash-flow yield
Growth
High levels of profitability (ROA)
Strong cash flows
Consistent EPS growth
Low leverage
Positive EPS revisions
Secular growth themes
Long/Short Equity
Market participation
Flexibility across styles/market cap
Downside protection
24|CMO 3Q19
Past performance does not guarantee future results.
Based on the Russell 1000 Growth universe, indexed to 100 on November 30, 1994. Returns shown are for the 20% of stocks in the universe with the highest ROA, lowest
earnings variability (earnings stability) and highest EPS growth over trailing years.
Through June 30, 2019
Source: Russell Investments and AB
In Uncertain Environments, Emphasize High Profitability and Stability
Companies with High Return on Assets and Earnings Stability Historically Outperform over the Long Term
Growth of $100
0
500
1,000
1,500
2,000
2,500
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
US
Dolla
rs
Russell 1000 Growth
High EPS Growth
High Earnings Stability
High ROA
25|CMO 3Q19
Historical analysis does not guarantee future results. AB defines credit-ratings classes based on Moody’s credit ratings. Issuers with ratings of A3 or above are classified as
high-rated issuers and those with ratings below A3 are classified as low-rated. The split by ratings is shown as a proportion of companies for which we can obtain credit ratings. AB
defines leverage as the ratio of net debt to equity at a company.
Future stock-return volatility is measured as the standard deviation of absolute monthly returns, over the next two years, annualized, with group averages reported. Volatility of past
cash-flow profitability is measured by cash flow/assets standard deviation over the past three years. Stocks are grouped according to their past cash-flow profitability and future
return volatility. Universe is US large-caps excluding financials. Returns from CRSP, financial data from S&P Compustat, for January 1, 1990, through December 31, 2018.
Left display as of January 31, 2019; right display as of December 31, 2018
Source: Center for Research in Security Prices (CRSP), FactSet, Moody’s Investors Service, MSCI, S&P Compustat and AB
The Number of Companies with High-Rated Debt Has
Plunged (Percent)
9491
5157
US Europe
1995 2019
Company Cash-Flow Profit Volatility Since 1990 Is Directly
Related to Future Stock-Return Volatility (Percent)
20
25
30
35
40
45
0.5 1.7 2.8 4.2 9.1
Vo
latilit
y o
f F
utu
re S
tock R
etu
rns
Volatility of Past Cash-Flow Profitability
Financial Strength Harder to Come by; Focus on Strong Cash Flows
26|CMO 3Q19
Remain Invested and Focus on Downside Protection
…but Beware of Drawdowns
Underwater Drawdown
Past performance does not guarantee future results.
Long/short managers represented by the HFRI Equity Hedge, which represents the performance of fundamental growth, fundamental value, energy/basic materials, equity-market
neutral, technology/healthcare, quantitative directional, short-bias and other hedge-fund managers. Index cited for comparison only, and should not be understood to mean that
there is a correlation between the index and the Fund. An index does not reflect fees and expenses associated with active management and an investor generally cannot invest in
an index.
Left display through June 30, 2019; right display from January 31, 2000, through June 30, 2019
Source: Hedge Fund Research, S&P and AB
In It to Win It: A Proof Statement…
S&P 500: Hypothetical Growth of $10,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
81 84 87 90 93 96 99 02 05 08 11 14 17
US
Dolla
rs
Fully Invested
Missed Three
Best Months
Missed 12 Best Months–60
–50
–40
–30
–20
–10
0
00 02 04 06 08 10 12 14 16 18
Pe
rcen
t
Long/Short
Managers
S&P 500
27|CMO 3Q19
APPENDIX
28|CMO 3Q19
Better Beta: Using High Yield to De-Risk Equities
Yield to Worst, Historically a Strong Predictor of Future Returns, Is Near Current Equity Expectations
Starting Yield to Worst and Five-Year Forward Annualized Return
Percent
Historical and current analyses and current forecasts do not guarantee future results.
US corporate high yield is represented by Bloomberg Barclays US Corporate High-Yield (USD Hedged). Any benchmark or index cited herein is used for comparison purposes
only. An investor cannot invest directly in an index. The unmanaged index performance does not reflect any fees and expenses associated with the active management of an AB
portfolio.
As of March 31, 2019
Source: Bloomberg Barclays and AB
14.3
6.7 7.3
22.0
9.3
6.1 6.4
13.2
6.87.7
21.2
9.3
6.1
Oct 02 Dec 04 May 07 Nov 08 Dec 09 Dec 12 Mar 19
YTW Five-Year Forward Return
?
If You
Invested
Before the
Taper
Tantrum
If You
Missed
the Post-
GFC
Rally
If You
Invested at
All-Time
Wides for
HY
Spreads
If You
Invested at
All-Time
Tights for
HY Spreads
Before 2008
Sell-Off
If You
Invested
at Peak
Spreads
During
Telecom
Bubble
If You
Invested
Near
All-Time
Tights
for HY
Spreads
Downside Risk Statistics
February 1990–March 2019 (Percent)
–9.1
–51.0
–3.6–5.0
–33.3
–1.0
AverageDrawdown
MaxDrawdown
Down-CaptureReturn
S&P 500
Bloomberg Barclays US Corporate High-Yield
29|CMO 3Q19
Russell 1000 Value vs. Russell 1000 Growth
Value Discount
–1.0
–0.8
–0.6
–0.4
–0.2
0.0
0.2
0.4
0.6
99 01 03 05 07 09 11 13 15 17 19
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Dis
co
un
t Pe
rcen
tile
Companies in Control of Their Own Destinies Through
Management Actions, Not Economic Cycles
Value Stocks at Provocative Lows; Focus on Strong Business Models
Valuation
Business
Strength
Signs of Success
Attractively valued: e.g., high free-cash-flow yield
Financially strong: ability to endure unexpected headwinds
Signs of success: e.g., improving sales and earnings
Value Discount*
(Left Scale)
Value Discount Percentile†
Historical analysis does not guarantee future results.
*Based on the equal-weighted average of price/forward earnings, price/sales and price/cash flow
†Historical percentile ranks based on data from January 1, 1999, through January 31, 2019
As of June 30, 2019
Source: CRSP, FactSet, Russell Investments, S&P Compustat and AB
30|CMO 3Q19
Growth Isn’t Always About the Economy
Historical analysis does not guarantee future results.
US GDP estimate from AB economists as of December 31, 2018. Theme growth uses a representative holding. Active safety revenues 2017–2025, Internet of Things connections
2018–2024, childcare revenues 2018–2022, private pension AUM 2017–2025, digital health data 2018–2025 and mobile data traffic 2017–2025
As of December 31, 2018
Source: Cisco Systems, Citigroup, Ericsson, IDC, OECD, Roland Berger, Statista and AB
A Thematic Approach Can Uncover Compelling Opportunities
Compounded Annual Growth Rates (Percent)
2
16 17 18
29
36
46
US GDP(2019E)
ActiveSafety Revenues
Internet of ThingsConnections
ChildcareRevenues
PrivatePension AUM
DigitalHealth Data
MobileData Traffic
31|CMO 3Q19
Historical analysis does not guarantee future results.
*Cyclicals include: energy, financials, industrials and materials. Noncyclicals include: communication services, consumer discretionary, consumer staples, healthcare, technology,
real estate and utilities.
†Universe consists of the top 1,000 companies by market cap each year through 2018 with annual rebalancing.
Left display as of June 30, 2019; right display as of December 31, 2018
Source: Bloomberg, CSRP, FactSet, MSCI, S&P Compustat and AB
Non-US Indices
Higher Cyclical Content (Percent)*
30
47 46
70
53 54
S&P 500 MSCI EAFE MSCI EM
Cyclicals Noncyclicals
Key to Successful Growth Investing: Beating the Fade
Companies Persisting with ≥10% YoY Earnings Growth Rates:
Top 1,000 Global Companies (1979–2018)†
379
64
13
1.2
2.3
2.8
0
100
200
300
400
0.0
0.5
1.0
1.5
2.0
2.5
3.0
OneYear
ThreeYears
FiveYears
Num
be
r of C
om
pa
nie
s
Exce
ss R
etu
rns (
Pe
rcen
t)
Annualized
Excess Returns
vs. MSCI World
(Left Scale)
International Equities More Cyclical: Seek Persistent Growth in This Cycle
32|CMO 3Q19
Valuation Percentile† Relative to Russell 2000
Historical Percentiles (Jan 1990–Jun 2019)
Past performance does not guarantee future results. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio.
The unmanaged index does not reflect the fees and expenses associated with the active management of a portfolio. Real estate sector adjusted for mortgage REITs post–GICS
sector reconstitution to make it comparable with historical data. Financials consists of financials; resources consists of energy and materials; cyclicals consists of technology,
consumer discretionary and industrials; staples/telecom consists of staples and telecom; utilities/REITs consists of utilities and real estate investment trusts; healthcare consists of
healthcare. *Valuation composite is one-third price/forward earnings, one-third price/book and one-third price/sales. †Valuation percentiles are based on 50% weighting on price to
book and 50% weighting on price to FY1 relative to benchmark and relative to their own history.
As of June 30, 2019. Source: Bloomberg, FactSet, Jefferies, Morningstar Direct, Russell Investments, S&P, Thomson Reuters I/B/E/S and AB
Smaller-Cap Stocks Remain Attractively Valued, but Be Selective
15 16
44
51
71 73
Resou
rces
Fin
ancia
ls
Cons.
Sta
ple
s/
Com
m.
Serv
ices
Cyclic
als
Health
ca
re
Utilit
ies/R
EIT
s
Expensive
Cheap
Smaller-Cap Stocks Are Attractive vs. Large-Caps
Relative Valuations (Russell 2000 vs. Russell 1000)*
0.80
0.90
1.00
1.10
1.20
09 10 11 12 13 14 15 16 17 18 19
Ra
tio
(×
)
Large-Caps
Are Cheap
Small-Caps
Are Cheap
Average
33|CMO 3Q19
Aggregate Household Paycheck
Workers x Hours x Wages
US Labor Market Remains Strong
Historical analysis and current forecasts do not guarantee future results.
Left display through June 30, 2019; right display through April 30, 2019
Source: Federal Reserve Bank of St. Louis, Thomson Reuters and AB
Number of US Job Openings Exceeds Unemployed
0
3
6
9
12
15
18
01 03 05 07 09 11 13 15 17 19
Mill
ion
s
US Unemployment
Job Openings
–6
–4
–2
0
2
4
6
8
10
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Yo
Y P
erc
en
t C
ha
nge
Household Paycheck Proxy
34|CMO 3Q19
Impact from Trade
Past performance does not guarantee future results.
As of June 30, 2019
Source: Bloomberg, World Bank and AB
Trump Administration Is Prepared to
Impose Tariffs on All Chinese
Imports
Total Value of Imposed/Threatened
Tariffs (USD Billions)
0 200 400 600
ThreatenedTariffs
Tariffs onMay 2019
Tariffs onSep 2018
Tariffs onJun 2018
25% Tariffs 10% Tariffs
$50 Bil.
$200 Bil.
$250 Bil.
$550 Bil.
Trade as a Percent of GDP Impact on Real GDP Growth
0
50
100
150
200
250
300
350
400
Ho
ng K
on
g
Sin
gapo
re
Euro
Are
a
Germ
any
South
Kore
a
Me
xic
o
Ca
nad
a
Ch
ina
US
YoY % Chg.
3Q
2017
1Q
2019 Chg.
US 2.3 3.2 0.9
China 6.7 6.4 –0.3
Canada 3.2 1.5 –1.7
Mexico 1.6 1.2 –0.4
S. Korea 3.9 1.7 –2.2
Germany 2.6 0.7 –1.9
Euro Area 2.8 1.2 –1.6
Singapore 4.6 1.2 –3.4
Hong Kong 3.6 0.6 –3.0
35|CMO 3Q19
Current analysis does not guarantee future results.
*Exports plus imports of goods and services as a share of GDP
As of December 31, 2018
Source: Haver Analytics and AB
Global Macro Outlook: Trade-War Vulnerability
Who’s Most at Risk?
Policy Flexibility and Trade Openness
20
30
40
50
60
70
80
90
100
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Tra
de
Op
en
ne
ss (
Pe
rce
nt)
*
Policy Flexibility
US
Japan
Euro Area
China
Germany
South Korea
Italy
HighLow
UK
Australia
France Average
36|CMO 3Q19
Market-Implied Policy Rate
US Fed Funds
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Jul19
Sep19
Nov19
Jan20
Mar20
May20
Jul20
Sep20
Nov20
Pe
rce
nt
Current analysis does not guarantee future results.
As of June 30, 2019
Source: Bloomberg, IHS Markit, Institute for Supply Management, S&P, STOXX and AB
It’s Still Not About Growth; It’s About Valuations
Global PMIs Decelerating
42
44
46
48
50
52
54
56
58
60
62
64
Jan17
May17
Sep17
Jan18
May18
Sep18
Jan19
May19
China
Germany
US
Euro Area
75–100
b.p. of
Rate Cuts
Expected
by Dec
2020
37|CMO 3Q19
Historical analysis and current forecasts do not guarantee future results.
*Tracks the S&P 500, 10-Year US Treasury yield, euro/dollar and dollar/yen.
†Betas are calculated over 21-day rolling periods for periods when S&P returns are positive (up) and negative (down) separately. The down beta vs. up beta is the difference
between the two betas.
As of June 30, 2019
Source: Bloomberg, S&P and AB
Stocks, Yields and Currencies Moving Together More
Often: Rolling 100 Days*
Asymmetric Beta Still Suggests Significant Bias Toward Downside Risk
Asymmetric Beta (Beta of Treasury Yield Changes to
Down vs. Up S&P Returns)†
–10
–8
–6
–4
–2
0
2
4
6
2016 2017 2018 2019
Asymmetric beta, the difference between the beta of 10-year US Treasury changes to down vs. up S&P returns days, was at five-
year highs in May and is even higher today
This is another indicator of heightened risk aversion as investor sentiments skew to the downside
Down Beta vs.
Up Beta
5
10
15
20
25
30
2014 2015 2016 2017 2018 2019
Days
38|CMO 3Q19
Current analysis does not guarantee future results.
As of June 30, 2019
Source: Bloomberg and AB
Reminder: What the Market Was Pricing In on 1/1/19 vs. Now
RATES
No rate hikes
2020 rate cut
EARNINGS
0% earnings growth
ECONOMY
A “growth recession”
THEN
NOW
THEN
NOW
THEN
NOW
75–100 b.p. of
Rate Cuts by Dec 2020
2019 Estimated
EPS Growth: 2.1%
3.1% GDP in
1Q:2019
39|CMO 3Q19
A Word About Risk
The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication.
AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion
in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this
publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or
accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual
circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or
solicitation for the purchase or sale of any financial instrument, product or service sponsored by AllianceBernstein L.P. or its affiliates.
Important Risk Information Related to Investing in Equity and Short Strategies
All investments involve risk. Equity securities may rise and decline in value due to both real and perceived market and economic factors as well as general
industry conditions.
A short strategy may not always be able to close out a short position on favorable terms. Short sales involve the risk of loss by subsequently buying a security at a
higher price than the price at which it sold the security short. The amount of such loss is theoretically unlimited (since it is limited only by the increase in value of
the security sold short). In contrast, the risk of loss from a long position is limited to the investment in the long position, since its value cannot fall below zero. Short
selling is a form of leverage. To mitigate leverage risk, a strategy will always hold liquid assets (including its long positions) at least equal to its short position
exposure, marked to market daily.
Important Risk Information Related to Investing in Emerging Markets and Foreign Currencies
Investing in emerging-market debt poses risks, including those generally associated with fixed-income investments. Fixed-income securities may lose value due to
market fluctuations or changes in interest rates. Longer-maturity bonds are more vulnerable to rising interest rates. A bond issuer’s credit rating may be lowered
due to deteriorating financial condition; this may result in losses and potentially default, or failure to meet payment obligations. The default probability is higher in
bonds with lower, noninvestment-grade ratings (commonly known as “junk bonds”).
There are other potential risks when investing in emerging-market debt. Non-US securities may be more volatile because of the associated political, regulatory,
market and economic uncertainties; these risks can be magnified in emerging-market securities. Emerging-market bonds may also be exposed to fluctuating
currency values. If a bond’s currency weakens against the US dollar, this can negatively affect its value when translated back into US-dollar terms.
Bond Ratings Definition
A measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition, and not based on the financial condition of the fund itself. AAA
is highest (best) and D is lowest (worst). Ratings are subject to change. Investment-grade securities are those rated BBB and above. If applicable, the Pre-
Refunded category includes bonds which are secured by US government securities and therefore are deemed high-quality investment grade by the advisor.
40|CMO 3Q19
Index Definitions
Following are definitions of the indices referred to in this presentation. It is important to recognize
that all indices are unmanaged and do not reflect fees and expenses associated with the active
management of a mutual fund portfolio. Investors cannot invest directly in an index, and its
performance does not reflect the performance of any AB mutual fund.
Bloomberg Barclays Global Aggregate Bond Index: Measure of global investment-grade debt from 24 local-currency markets; includes Treasury, government-related, corporate
and securitized fixed-rate bonds from both developed- and emerging-market issuers.
Bloomberg Barclays Global Aggregate Corporate Bond Index: Tracks the performance of investment-grade corporate bonds publicly issued in the global market and found in
the Global Aggregate. (Represents global corporate on slide 1.)
Bloomberg Barclays Global High-Yield Bond Index: Provides a broad-based measure of the global high-yield fixed-income markets. It represents the union of the US High-
Yield, Pan-European High Yield, US Emerging Markets High-Yield, CMBS High Yield and Pan-European Emerging Markets High-Yield indices.
Bloomberg Barclays Global Treasury Index: Tracks fixed-rate local currency government debt of investment-grade countries. The index represents the Treasury sector of the
Global Aggregate Bond Index.
Bloomberg Barclays Global Treasury: Euro Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Euro Area Treasury sector of the Global
Aggregate Bond Index. (Represents euro-area government bonds on slide 1.)
Bloomberg Barclays Global Treasury: Japan Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Japanese Treasury sector of the Global
Aggregate Bond Index. (Represents Japan government bonds on slide 1.)
Bloomberg Barclays Municipal Bond Index: A rules-based, market value–weighted index engineered for the long-term tax-exempt bond market. (Represents municipals
on slide 1.)
Bloomberg Barclays US Aggregate Bond Index: A broad-based benchmark that measures the investment-grade, US dollar–denominated, fixed-rate, taxable bond market,
including US Treasuries, government-related and corporate securities, mortgage-backed securities (MBS [agency fixed-rate and hybrid ARM pass-throughs]), asset-backed
securities (ABS), and commercial mortgage-backed securities (CMBS).
Bloomberg Barclays US Corporate Bond Index: Measures the investment-grade, fixed-rate, taxable corporate bond market and includes USD-denominated securities
publicly issued by US and non-US industrial, utility and financial issuers.
Bloomberg Barclays US Corporate High-Yield Bond Index: Represents the corporate component of the Bloomberg Barclays US High-Yield Index. (Represents US high
yield on slide 1.)
41|CMO 3Q19
Index Definitions (continued)
Bloomberg Barclays US Treasury Index: Includes fixed-rate, local-currency sovereign debt that makes up the US Treasury sector of the Global Aggregate Index.
(Represents US government bonds on slide 1.)
HFRI Equity Hedge Index: Investment managers who maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment
processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly
focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation
ranges of typical portfolios. Equity Hedge managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and
short.
J.P. Morgan Emerging Market Bond Index Global: A benchmark index for measuring the total return performance of government bonds issued by emerging-market
countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements. In order to qualify for index
membership, the debt must be more than one year to maturity, have more than $500 million outstanding, and meet stringent trading guidelines to ensure that pricing
inefficiencies don’t affect the index. (Represents emerging-market debt on slide 1.)
MSCI All Country World Index: A market capitalization–weighted index designed to provide a broad measure of equity market performance throughout the world.
MSCI EAFE Index: A free float–adjusted, market capitalization–weighted index designed to measure developed-market equity performance, excluding the US and Canada. It
consists of 22 developed-market country indices. (Represents EAFE on slide 1.)
MSCI Emerging Markets Index: A free float–adjusted, market capitalization–weighted index designed to measure equity market performance in the global emerging markets. It
consists of 21 emerging-market country indices. (Represents emerging markets on slide 1.)
MSCI World Index: A market capitalization–weighted index that measures the performance of stock markets in 24 countries.
Russell 1000 Index: A stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, representing about 90% of the total market capitalization
of that index.
Russell 2000 Index: Measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 Index, representing approximately 8% of the
total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.
(Represents US small-cap on slide 1.)
S&P 500 Index: Includes a representative sample of 500 leading companies in leading industries of the US economy. (Represents US large-cap on slide 1.)
MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be
further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
© 2019 AllianceBernstein L.P. www.AllianceBernstein.com
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