August 25, 2017

United States

US Weekly Kickstart
Portfolio Strategy Research

Which of these is not like the other? Mutual fund and hedge fund positioning compared
Mutual funds and hedge funds have similar views of Information Technology but opposite positioning in Financials and Materials. Tech
accounts for 26% of mutual fund holdings and 26% of hedge fund net exposure. Financials represents the biggest discrepancy in
positioning. Mutual funds have a 16% weight in Financials (141 bp overweight). In contrast, hedge funds have 11% net exposure to
Financials, which ranks as their largest underweight (-438 bp) relative to the Russell 3000 index. Although Materials is the second-largest
overweight for hedge funds with 7% net exposure (+398 bp), large-cap mutual funds are 22 bp underweight the sector (2.9% vs. 3.1%).

Performance Sector views and performance

David J. Kostin
The S&P 500 was up 0.4% this week. Utilities was Domestic Cyclicals up 7.6% vs. Global Cyclicals up
(212) 902-6781 david.kostin@gs.com
the best-performing sector (+1.4%) while 10.2% YTD. O/W Financials and Information Goldman Sachs & Co. LLC
Consumer Staples was the worst-performing Technology. U/W Consumer Staples, Telecom
sector (-1.6%). We expect the S&P 500 will end Services, Utilities, and Real Estate. Ben Snider
2017 at 2400 (-1.6%). See pages 5-15 for (212) 357-1744 ben.snider@gs.com
Goldman Sachs & Co. LLC
performance charts by sector, style, size, themes. Key pages for portfolio managers
Markets and Money flow (page 5) Arjun Menon, CFA
S&P 500 earnings and valuation
Absolute and risk-adjusted returns for markets, (212) 902-9693 arjun.menon@gs.com
Goldman Sachs Consensus Goldman Sachs & Co. LLC
sectors, styles, and strategies (page 6)
Portfolio Strategy Bottom-Up
Correlation, breadth, and dispersion (page 21) Ryan Hammond
2017E 2018E 2017E 2018E (212) 902-5625 ryan.hammond@gs.com
EPS $129 $139 $132 $146 Chart of the Week: GS Breadth Index Goldman Sachs & Co. LLC
Growth 9% 7% 11 % 11 % Narrowest breadth reading since June 2016 (p. 21)
Cole Hunter, CFA
NTM 2018E NTM 2018E (212) 357-9860 cole.p.hunter@gs.com
P/E 18.2x 17.6x 17.6x 16.7x US Portfolio Strategy recommendations Goldman Sachs & Co. LLC
Source: I/B/E/S, FirstCall and Goldman Sachs Investment Research Buy S&P 500 / Sell 10-year Treasury: +6.5% YTD
Buy High Tax Rate vs. S&P 500: -6.2%
Buy Dividend Growth vs. S&P 500: -0.9%

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US
affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research

Goldman Sachs Global Investment Research 1
August 25, 2017
Conversations we are having with clients: Key sector overweights lead to outperformance
We recently published our Hedge Fund Trend Monitor and Mutual
Fundamentals reports that analyze fund positioning based on current
filings. We analyzed the holdings of 803 hedge funds with $1.9 trillion of
gross equity positions and 543 mutual funds with $2.0 trillion of AUM.
Below we compare the positioning of the two investor categories.
Both mutual funds and hedge funds have enjoyed strong YTD returns.
Among mutual funds, large-cap growth managers have fared best from a
return perspective climbing 16% YTD but only 42% has beat the Russell 1000
Growth benchmark that has returned 18% since the start of 2017. In contrast,
value funds have struggled in terms of returns, rising by an average of just
5% YTD, but that was sufficient for 66% to outperform the 4% advance of the
Russell 1000 Value index. While the typical large-cap core fund rose 9% YTD,
the S&P 500 rallied by 11% and as a result only 29% of large-cap core funds
has beat the index. In 2016, the outperformance hit rates were 9%, 22%, and
26%, for growth, value, and core funds, respectively. In comparison, the
typical equity long/short hedge fund has returned 7%, notching the
strongest YTD return since 2009. Macro hedge funds have lagged by 1%.
High allocations to the Information Technology sector have boosted
fund returns this year. Large-cap mutual funds carry a 26% aggregate
weight in Info Tech and are overweight the sector by 337 bp (see Exhibit 1).
Info Tech is also the largest net sector exposure among hedge funds, both in
absolute terms (26%) and relative to the Russell 3000 (+409 bp). We
recognize hedge funds do not manage assets relative to an index, but
interpreting sector tilts requires orientation to some benchmark.
Although both investment categories have benefitted from Info Tech
overweights, hedge fund and mutual fund managers disagree on the
outlook for the Financials and Materials sectors. Financials is the sector
with the biggest discrepancy in positioning between hedge funds and
mutual funds. At 16%, Financials carries the second-largest aggregate
weight in large-cap mutual fund portfolios at 141 bp overweight. In contrast,
hedge funds have a net exposure of 11% to Financials which ranks as their
largest underweight (-438 bp) relative to the Russell 3000 index.
Materials is another key positioning difference. Materials is the second-
largest overweight for hedge funds at +398 bp (7% vs. 4%) led by MON. In
contrast, Materials is 22 bp underweight in mutual funds led by DOW. For
investors focused on Materials, our Chemicals analyst Bob Koort has a Buy-
rating on Sherwin-Williams (SHW) with 20% upside to his target price (Notes
from the road: The large cap growth name to own in Materials, August 22).
Goldman Sachs Global Investment Research
United States
Both types of fund managers increased positioning in Financials ahead
of the Fed’s CCAR results in June. Large-cap mutual funds increased
positioning in the sector by 90 bp to 141 bp overweight from 51 bp
overweight at the end of 2016 (Exhibit 2). Hedge funds trimmed
underweights in Financials by 10 bp to 438 bp underweight from 448 bp
underweight previously. The sector has lagged S&P 500 YTD (7% vs. 10%).
Looking forward, we recommend investors overweight Financials. We
forecast select large Banks will increase capital returned to shareholders
(buybacks + dividends) by 22% annually during the next three years
including a 37% jump in 2017. As an example, our Banks analyst Richard
Ramsden forecasts BAC will double the capital returned to shareholders this
year to $17.4 billion led by a 55% rise in dividends and a 140% jump in
buybacks (see US Weekly Kickstart: By focusing on macro..., August 4th).
Banks is the most underweight of 71 GICS industries among hedge
fund managers but the third most overweight among mutual funds.
Hedge funds hold just 3.5% of net exposure in Banks and are 287 bp
underweight the industry vs. Russell 3000 (Exhibit 3). In contrast, large-cap
mutual funds invest 7.6% of aggregate assets in Banks and are 136 bp
overweight the industry led by holdings of C, FRC, JPM, PNC, and WFC.
Although managers disagree on the Banks industry as a whole, JPM
and C are constituents of both our Hedge Fund VIP and Mutual Fund
Overweight baskets, reflecting some consensus among fund managers.
Both baskets of popular hedge fund and mutual fund positions have
outperformed YTD. Our Hedge Fund VIP basket of the most popular hedge
fund long positions (ticker: GSTHHVIP) has outperformed a basket of
popular short positions (GSTHVISP) by 1140 bp YTD (18% vs. 7%). Similarly,
a basket of the 50 most overweight stocks by large-cap mutual funds
(GSTHMFOW) has outperformed a basket of the most underweight stocks
(GSTHMFUW) by 920 bp YTD (16% vs. 7%).
Popular technology stocks such as FAAMG (FB, AAPL, AMZN, MSFT,
GOOGL) remain an important part of hedge fund and mutual fund
portfolios. GOOGL, AAPL, and FB were among the top ten largest increases
in mutual fund positions during 2Q 2017. FB and GOOGL are constituents of
both our Hedge Fund VIP and Mutual Fund Overweight baskets. AAPL and
MSFT are constituents of our Hedge Fund VIP basket, but also trade in
Mutual Fund Underweights, suggesting fund managers disagree on the
outlook for the two stocks. Exhibit 5 shows the full overlap between our
hedge fund and mutual fund ownership baskets.
2
August 25, 2017 United States

Charts we are watching: Mutual fund and hedge fund positioning and performance
Exhibit 1: Agreement on high Info Tech allocation, but split jury on Financials Exhibit 2: Funds increased exposure most in Financials and Info Tech in 2017
as of August 24, 2017 as of August 24, 2017

Large-cap Financials
S&P 500 Hedge Funds
Mutual Funds
Change in sector
Tilt vs. Info Tech
overweight/(underweight)
Index YTD Aggregate Tilt vs. Net Russell 2Q 2017 vs. 4Q 2016
Utilities
weight return weight Bench. weight 3000
Info Tech 22 % 24 % 26 % 337 bp 26 % 409 bp Telecom Services Mutual Funds
Health Care 15 16 15 27 13 (5) Real Estate Hedge Funds
Utilities 3 15 2 (117) 2 (117)
Cons. Discretionary
Materials 3 10 3 (22) 7 398
Cons. Discretionary 12 9 15 188 17 367 Consumer Staples
Real Estate 3 8 1 (212) 2 (210) Energy
Industrials 10 8 9 (97) 9 (151)
Financials 15 7 16 141 11 (438) Materials
Consumer Staples 9 7 7 (194) 6 (273) Industrials
Telecom Services 2 (7) 1 (69) 1 (107)
Health Care
Energy 6 (15) 6 26 7 127
Note: Mutual fund tilts are compared to their respective benchmarks; hedge fund tilts compared (300)bp (200)bp (100)bp 0 bp 100 bp 200 bp
to Russell 3000 and exclude ETF positions.
Source: FactSet and Goldman Sachs Global Investment Research. Source: FactSet and Goldman Sachs Global Investment Research.

Exhibit 3: Funds are positioned differently within the Financials sector Exhibit 4: Important hedge fund and mutual fund positions have rallied YTD
as of August 24, 2017 as of August 24, 2017
Large-cap 112
Hedge Funds
mutual funds Hedge fund VIP (GSTHHVIP)
108 vs. Very Important Shorts (GSTHVISP)
Tilt vs.
Aggregate Tilt vs. Net Russell 104
Indexed performance
Industry weight Bench. weight 3000
Banks 7.6 % 136 bp 3.5 % (287)bp 100
Capital Markets 3.6 63 2.7 (26)
Consumer Finance 0.9 16 1.0 27 96

Thrifts & Mtg. Finance 0.0 3 0.5 22

92 Mutual fund overweights
Mortgage REITs 0.0 (7) 0.2 (3) (GSTHMFOW)
Insurance 2.7 (13) 2.3 (68) vs. Underweights
88
(GSTHMFUW)
Diversified Financial Svcs. 0.9 (57) 0.6 (103)
Financials 15.7 % 141 bp 10.6 % (438)bp 84
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Source: FactSet and Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 3

August 25, 2017 United States

Overlap between mutual fund and hedge fund positioning

Exhibit 5: Overlap between our hedge fund and mutual fund ownership baskets
For details on the baskets, see Mutual Fundamentals (August 24, 2017) and Hedge Fund Trend Monitor (August 17, 2017).

Overlap with our MUTUAL FUND baskets

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

AGN C CELG AAPL BRK.B CHTR MON MSFT

Overlap with our

Hedge Fund CRM FB GOOGL NFLX TWX

Long

VIP List JPM PCLN PYPL

<GSTHHVIP> TMUS V

CVS ISRG UNH ABBV BA CAT CVX DIS 20 stocks in our

Hedge Fund
F GE IBM INTC JNJ mutual fund
Short

Very Important underweight basket

KO MAR MMM NVDA PFE
Short Positions are also important
PG SPG T VZ XOM
<GSTHVISP> hedge fund shorts

11 stocks in our
mutual fund overweight basket are
also important
hedge fund holdings

Source: Goldman Sachs Global Investment Research.

Pricing in this report as of August 24, 2017, unless otherwise indicated.

Goldman Sachs Global Investment Research 4

August 25, 2017 United States

Markets and Money Flow

S&P 500 level and EPS 10-yr. Treasury Yields Fed Funds Target Rate
2700 150 5.0 % 7%
S&P 500 2018E US 10-Year GS
2600 145 Fed Funds
Price Current 2500 4.5 %
Treasury Yield forecast 6%
2017E Target Rate
2500 2439 2400 140 4.0 %
5% GS forecast

S&P 500 adjusted EPS

2400
S&P 500 Price

2018E 2018E
135
$139 3.5 % 3.25%
2300 2017E
130 2.75% 4%
Current 2018E:
2200 2017E
3.0 %
125 2.2% 2.4%
$129 3%
2100 2.5 %
2016A 120
2017E:
2000 $119 2% 1.4%
2.0 % Futures
1900 115 market Current:
Goldman Sachs 1.5 % 1% Futures
1800 110 1.1%
Adjusted EPS Forecast market
1700 105 1.0 % 0%

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

2004

2008

2012

2016

2020

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

(1.0)
80
36
Standard deviations

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

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Jun-15

Jun-16

Jun-17
Dec-14

Mar-15

Sep-15

Dec-15

Mar-16

Sep-16

Dec-16

Mar-17

Sep-17

Dec-14

Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Apr-15
Note: Sentiment Indicator ranks net futures positioning versus the past 12 months. Readings Note: Rotation Index plots the first principal component of weekly reallocation activity
below 10 or above 90 indicate extreme positions that are significant in predicting future returns. across equity and debt mutual fund categories as a measure of retail risk appetite.

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

Goldman Sachs Global Investment Research 5

August 25, 2017 United States

Market Performance: 2017 YTD absolute and risk-adjusted returns

Total Return Risk Adjusted Return (Sharpe Ratio)

MSCI Emerging Markets 28 MSCI Emerging Markets 3.7
INFORMATION TECHNOLOGY 24 HY Credit 3.0
Nasdaq 100 21 INFORMATION TECHNOLOGY 2.7
Russell 1000 Growth 17 Russell 1000 Growth 2.6
HEALTH CARE 16 MSCI Developed Markets 2.5
UTILITIES 15 Nasdaq 100 2.5
MSCI Developed Markets 13 HEALTH CARE 2.3
Gold 12 UTILITIES 2.0
$/Euro 12 IG Credit 1.9
S&P 500 10 $/Euro 1.9
MATERIALS 10 S&P 500 1.8
CONSUMER DISCRETIONARY 9 Gold 1.5
REAL ESTATE 8 CONSUMER DISCRETIONARY 1.4
INDUSTRIALS 8 Equity L/S HF Index 1.4
FINANCIALS 7 CONSUMER STAPLES 1.2
CONSUMER STAPLES 7 MATERIALS 1.1
HY Credit 6 INDUSTRIALS 1.0
IG Credit 5 REAL ESTATE 1.0
Equity L/S HF Index 4 10-year US Treasury 0.9
Russell 1000 Value 4 FINANCIALS 0.7
10-year US Treasury 4 Russell 1000 Value 0.6
Russell 2000 2 Russell 2000 0.2
Global Macro HF Index 0 Global Macro HF Index 0.0
TELECOM SERVICES (7) TELECOM SERVICES (0.7)
ENERGY (15) Crude Oil (S&P GSCI) (0.8)
Crude Oil (S&P GSCI) (17) ENERGY (1.4)

(30) (20) (10) 0 10 20 30 40 50 (3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0 6.0

Note: Crude Oil (S&P GSCI) return represents S&P GSCI Crude Oil Index total return. Spot change equals (8)% YTD.

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

Goldman Sachs Global Investment Research 6

August 25, 2017 United States

Sector Baskets – Performance Relative to S&P 500

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

100 102
106
100

98 104 101

99
102
96 100

100
98
94 99
98

92 96 98 97
Jul-15

Jul-15

Jul-15

Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16

Jun-16
Sep-16
Dec-16

Mar-17
Jun-17
Sep-17

Dec-14
Apr-15

Sep-15
Dec-15

Mar-16
Jun-16
Sep-16

Dec-16
Mar-17
Jun-17
Sep-17

Dec-14

Apr-15

Sep-15
Dec-15

Mar-16
Jun-16
Sep-16

Dec-16
Mar-17
Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15
Mar-16
Jun-16

Sep-16
Dec-16
Mar-17

Jun-17
Sep-17
Domestic Cyclicals Global Cyclicals Domestic Defensives Global Defensives
104 106 116 112
GSSBDCYC GSSBGCYC GSSBDDEF GSSBGDEF
102 110
104
100 112 108
102
106
98
100 104
96 108
102
94 98
100
92 104
96 98
Autos Food Retailing
90
Capital Goods Health Care 96
94
Banks Energy Real Estate Consumer Durables
88 Financials 100 94
Materials Retailing Consumer Services
Insurance 92 Tech Hardware Professional Services Food, Beverage & Tobacco
86 Media 92
Semiconductors Telecom Household & Personal Products
Transportation Software Utilities Pharmaceuticals
84 90 96 90
Jul-15

Jul-15

Jul-15

Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16

Jun-16
Sep-16
Dec-16

Mar-17
Jun-17
Sep-17

Dec-14
Apr-15

Sep-15
Dec-15

Mar-16
Jun-16
Sep-16

Dec-16
Mar-17
Jun-17
Sep-17

Dec-14

Apr-15

Sep-15
Dec-15

Mar-16
Jun-16
Sep-16

Dec-16
Mar-17
Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15
Mar-16
Jun-16

Sep-16
Dec-16
Mar-17

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

Goldman Sachs Global Investment Research 7

August 25, 2017 United States

Sector Basket Performance

110
Cyclicals vs. Defensives 106
Domestic vs. Global
CYCLICALS DOMESTIC
outperforming outperforming
105 104

100 102

95 100

90 98

85 96
DEFENSIVES GLOBAL
outperforming outperforming
80 94
Jul-15
Apr-15

Mar-17
Dec-14

Sep-15

Mar-16
Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17

Apr-15

Jul-15

Sep-15

Mar-16

Mar-17

Jun-17

Sep-17
Dec-14

Dec-15

Jun-16

Sep-16

Dec-16
Performance and fundamentals of our sector baskets
Bloomberg % of
Ticker # of S&P 500 Non-US Earnings Growth Sales Growth NTM LTM Div Total Return
Basket <GSSBXXXX> Stocks Cap Beta Sales 2017E 2018E 2017E 2018E P/E P/B Yield 1 Wk 1 Mo 3 Mo LTM YTD

Defensives DEFS 252 56 % 0.9 22% 6% 10 % 5% 5% 19.3x 4.4x 1.9 % 0.3 % (1)% 2% 9% 13 %
Cyclicals CYCL 248 44 1.1 39 16 12 8 5 15.8 2.3 2.2 0.4 (1) 2 17 8

Global GLBL 259 58 % 1.0 48% 14 % 12 % 7% 5% 18.5x 4.2x 2.0 % 0.6 % (1)% 2% 14 % 12 %
Domestic DOMS 241 42 1.0 15 7 10 5 5 16.5 2.3 2.0 0.1 (1) 2 15 8

Global Defensives GDEF 101 31 % 0.9 46% 6% 11 % 6% 6% 19.9x 5.6x 1.8 % 0.6 % (1)% 4% 11 % 16 %
Global Cyclicals GCYC 158 27 1.1 48 22 13 8 5 17.1 3.2 2.3 0.5 (1) (0) 16 10
Domestic Defensives DDEF 151 24 0.9 13 5 8 5 5 18.6 3.5 2.1 0.0 (1) 1 6 9
Domestic Cyclicals DCYC 90 17 1.1 21 10 11 7 5 14.1 1.6 1.8 0.2 (1) 4 27 8

S&P 500 500 100 % 1.0 30% 11 % 11 % 7% 6% 17.6x 3.1x 2.0 % 0.4 % (1)% 2% 14 % 10 %

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 8

August 25, 2017 United States

Sectors – Relative Performance vs. S&P 500

Consumer Discretionary Financials Information Technology Recommended Sector Positioning

112 104 128 Goldman S&P
Sachs 500
110 124 Sectors Weighting Wgt YTD
100
108 120 Info Tech 23% 24 %
96 Overweight
106 116 Financials 14 7
Health Care 14 16
104 92 112
Materials 3 10
102 108 Cons umer Dis cr Neutral 12 9
88
100 104 Industrials 10 8
84 Energy 6 (15)
98 100
Utilities 3 15
96 80 96 Real Estate 3 8
Underweight

Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-14
Apr-15
Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17 Cons umer Staples 9 7
Telecom Services 2 (7)
S&P 500 100% 10 %

Industrials Energy Materials Real Estate

106 105 108 116
100 112
104 104
95 108
102 90 100 104
100 85
100
80 96
98 96
75
92 92
96 70
88
65 88
94 84
60
92 55 84 80

Dec-14
Apr-15
Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17

Dec-14
Apr-15
Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-14
Apr-15
Jul-15
Sep-15
Dec-15

Jun-16
Sep-16
Dec-16

Jun-17
Sep-17
Mar-16

Mar-17

Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Consumer Staples Health Care Telecommunication Services Utilities
116 115 130 115

112 110 110

120
108 105 105
110
104 100 100
100
100 95 95

96 90 90
90

92 85 80 85
Jul-15
Dec-14
Apr-15

Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17

Dec-14

Jul-15
Sep-15
Dec-15

Jun-16
Sep-16
Dec-16

Jun-17
Sep-17
Apr-15

Mar-16

Mar-17
Dec-14
Apr-15
Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-14
Apr-15
Jul-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 9

August 25, 2017 United States

S&P 500 Sector and Industry Group Performance

1 Week Prior Week 1 Month 3 Months Last 12 Months YTD
S&P 500 0.4 % (0.3)% (1.0)% 2% 14 % 10.4 %
Utilities 1.4 % 0.2 % 4.1 % 5% 13 % 15 % Top quartile

Real Estate 1.1 0.4 0.8 3 2 8 Bottom quartile

S Materials 1.1 0.2 (1.6) 3 14 10

E Energy 1.1 (3.7) (3.4) (7) (8) (15)
C Information Technology 1.0 0.9 (0.1) 4 29 24
T Health Care 0.8 (0.0) (2.4) 5 9 16
O Telecommunication Services 0.6 (1.4) 5.8 3 (4) (7)
R Financials 0.5 (0.9) (0.6) 5 30 7
Consumer Discretionary (0.3) (0.8) (2.6) (1) 10 9
Industrials (0.4) (0.6) (2.1) 1 15 8
Consumer Staples (1.6) 0.5 (0.8) (2) 3 7 Region Cycle

Utilities 1.4 % 0.2 % 4.1 % 5% 13 % 15 % Domestic Defensives

Pharmaceuticals Biotechnology & Life Sciences 1.3 (0.6) (2.0) 6 7 14 Global Defensives

Technology Hardware & Equipment 1.1 1.1 2.3 3 38 28 Global Cyclicals

Real Estate 1.1 0.4 0.8 3 2 8 Domestic Defensives

Automobiles & Components 1.1 (0.2) (2.2) 3 9 4 Global Cyclicals

I Materials 1.1 0.2 (1.6) 3 14 10 Global Cyclicals

N Semiconductors & Semiconductor Equipment 1.1 0.3 (0.7) 1 28 16 Global Cyclicals

D Energy 1.1 (3.7) (3.4) (7) (8) (15) Global Cyclicals

U Software & Services 1.0 1.0 (1.0) 5 25 24 Global Defensives

S Consumer Services 1.0 0.4 (0.5) (1) 26 20 Global Defensives

T Banks 0.9 (1.3) (0.6) 4 37 5 Domestic Cyclicals

R Telecommunication Services 0.6 (1.4) 5.8 3 (4) (7) Domestic Defensives

Y Diversified Financials 0.6 (0.3) 0.3 8 26 9 Domestic Cyclicals

Commercial & Professional Services 0.2 0.1 (1.9) 2 5 5 Domestic Cyclicals

G Household & Personal Products (0.0) 0.2 2.3 3 5 12 Global Defensives

R Health Care Equipment & Services (0.1) 0.8 (3.0) 3 14 19 Domestic Defensives

O Capital Goods (0.2) (0.8) (1.4) 1 14 9 Global Cyclicals

U Retailing (0.2) (1.1) (3.7) (3) 7 8 Domestic Defensives

P Media (0.6) (0.9) (1.0) 0 17 8 Domestic Defensives

Insurance (0.8) (1.3) (2.5) 4 23 9 Domestic Cyclicals

Transportation (1.1) (0.1) (4.2) (2) 21 4 Domestic Cyclicals

Food Beverage & Tobacco (1.7) 0.9 (2.4) (3) 5 7 Global Defensives

Food & Staples Retailing (2.7) 0.1 0.2 (4) (4) 1 Domestic Defensives

Consumer Durables & Apparel (2.9) (1.4) (5.2) 2 (7) 8 Global Cyclicals

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 10

August 25, 2017 United States

Style and Size

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

114 115
Growth outperforming Russell 1000 outperforming
112
110
110

108
105

106

104 100

102
95
100
Value outperforming Russell 2000 outperforming
98 90
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17
Sectors: Russell 1000 Growth vs. Value Sectors: Russell 1000 vs. Russell 2000
Weight (%) 1-Week (% Return) YTD (% Return) Weight (%) 1-Week (% Return) YTD (% Return)
Russell Sector Growth Value Growth Value ∆ (bps) Growth Value ∆ (bps) Russell Sector R1000 R2000 R1000 R2000 ∆ (bps) R1000 R2000 ∆ (bps)
Energy 1 10 2 1 105 (20) (16) (412) Consumer Staples 7 2 (1) (1) 8 6 (11) 1,747
Health Care 13 14 1 0 101 18 13 516 Materials 4 7 1 1 (23) 10 (2) 1,164
Financials 11 31 1 0 72 21 6 1,493 Financials 21 26 1 1 (35) 9 (2) 1,086
Industrials 13 8 (0) (1) 48 13 2 1,051 Technology 19 14 1 2 (39) 24 10 1,408
Consumer Staples 6 8 (1) (2) 44 3 9 (634) Cons Discretionary 14 13 (0) 0 (42) 10 (1) 1,088
Technology 32 8 1 1 19 28 11 1,722 Utilities 5 5 1 2 (48) 5 12 (686)
Cons Discretionary 19 8 (0) (0) (2) 11 6 485 Industrials 11 13 (0) 0 (55) 8 0 801
Utilities 1 10 1 1 (19) (4) 6 (973) Energy 6 3 1 2 (110) (16) (35) 1,872
Materials 4 3 1 1 (77) 10 9 77 Health Care 14 15 1 3 (182) 16 21 (552)

Index 100 100 1 0 24 17 4 1,280 Index 100 100 0 1 (67) 10 2 813

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 11

August 25, 2017 United States

US Portfolio Strategy Baskets

Bloomberg Total Return P/E P/B Div
YTD Performance Ticker 1 wk 1 mo YTD NTM LTM Yield
Macroeconomic
Dual Beta GSTHBETA 1.0 % (3)% 8% 15x 2.2x 1.7 %
BRICs Sales 19
Interest Rate Sensitive GSTHUSTY 1.4 (3) 9 15 3.1 1.1
Hedge Fund "VIP" List 18 High Operating Leverage GSTHOPHI 1.0 (4) 8 18 3.6 1.1
Western Europe Sales 17 Low Operating Leverage GSTHOPLO 1.0 (3) 10 19 5.4 1.6
High Tax GSTHHTAX 0.8 (3) 3 18 3.2 1.6
High Revenue Growth 16
Low Tax GSTHLTAX 1.0 (2) 13 18 3.2 2.2
International Sales 16 High Labor Cost GSTHHLAB 0.2 (4) 4 19 3.1 1.3
Mutual Fund Overweight Positions 16 Low Labor Cost GSTHLLAB 0.2 (2) 13 15 3.4 1.8

Capex and R&D 14 Geographic Sales

Low Tax 13 Domestic Sales GSTHAINT 0.3 % (2)% 5% 17x 3.3x 1.4 %
International Sales GSTHINTL 0.4 (3) 16 19 3.3 1.6
Low Labor Cost 13
BRICs Sales GSTHBRIC 1.3 (1) 19 19 3.3 1.4
High Sharpe Ratio 12 Western Europe Sales GSTHWEUR 0.9 (2) 17 21 3.8 1.1
Dividend Growth 11 Fundamental

Overseas Earnings 11 High Revenue Growth GSTHREVG 1.2 % (3)% 16 % 23x 4.2x 0.3 %
ROE Growth GSTHGROE 0.7 (2) 6 17 3.1 2.1
S&P 500 10
High Quality Stock GSTHQUAL 0.5 (1) 9 20 5.1 1.5
Low Operating Leverage 10 Strong Balance Sheet GSTHSBAL 0.4 (2) 9 24 7.3 1.1
Strong Balance Sheet 9 Weak Balance Sheet GSTHWBAL (0.2) (6) 4 15 2.6 1.3
High Adjusted FCF Yield GSTHHACF 0.2 NM NM 13 2.6 2.6
High Quality Stock 9
Low Adjusted FCF Yield GSTHLACF 0.3 NM NM 22 4.8 0.7
Interest Rate Sensitive 9
Shareholder Return
High Hedge Fund Concentration 8
Capex and R&D GSTHCAPX 0.8 % (3)% 14 % 13x 3.0x 1.5 %
Low Hedge Fund Concentration 8 Total Cash Return to Shareholders GSTHCASH 0.1 (3) 6 13 3.1 2.2
Dual Beta 8 Buyback GSTHREPO 0.0 (3) 5 13 2.6 2.1
Dividend Growth GSTHDIVG 0.4 (2) 11 15 3.2 2.6
High Operating Leverage 8
High Growth Investment Ratio GSTHHGIR 0.5 NM NM 20 4.7 1.0
Hedge Fund Very Important Shorts 7
Hedge Fund
Mutual Fund Underweight Positions 7 Hedge Fund "VIP" List GSTHHVIP 1.3 % 0% 18 % 22x 4.0x 0.0 %
Total Cash Return to Shareholders 6 Hedge Fund Very Important Shorts GSTHVISP (0.2) (0) 7 18 4.7 2.6
ROE Growth 6 High Hedge Fund Concentration GSTHHFHI 2.4 (1) 8 20 3.8 0.4
Low Hedge Fund Concentration GSTHHFSL 0.7 0 8 21 4.6 3.0
Buyback 5
Mutual Fund
Domestic Sales 5
High Sharpe Ratio GSTHSHRP 0.2 % (3)% 12 % 13x 2.4x 1.8 %
Weak Balance Sheet 4 Mutual Fund Overweight Positions GSTHMFOW 1.0 (2) 16 19 4.0 1.5
High Labor Cost 4 Mutual Fund Underweight Positions GSTHMFUW 0.3 (1) 7 19 4.2 3.1
Overseas Earnings GSTHSEAS 0.5 (1) 11 17 3.3 2.4
High Tax 3
S&P 500 0.4 % (1)% 10 % 18x 3.1x 2.0 %
(5) 0 5 10 15 20 25 30
S&P 500 Average 23 5.6 1.9
S&P 500 Median 18 3.3 1.9

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

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 12

August 25, 2017 United States

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

Macroeconomic Geographic Sales

Dual Beta Interest Rate Sensitive US Sales International Sales
108 106 108 114
Bloomberg <ticker> GSTHUSTY GSTHAINT GSTHINTL
104 112
GSTHBETA
104 106
110
102
108
100 100 104
106
98 104
96 102
96 102
92 100 100
94
98
88 92 98
96
90
94
84 96
88 92

80 86 94 90
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17
High vs. Low High vs. Low
Operating Leverage Tax Rate BRICs Sales Western Europe Sales
104 112 112 118
GSTHOPHI/ GSTHHTAX/ GSTHBRIC GSTHWEUR
GSTHOPLO 108 GSTHLTAX 116
103
104 108
114
102
100
112
104
101 96
110
92
100 100 108
88
106
99 84
96
104
80
98
76 102
92
97
72 100

96 68 88 98
Jul-15

Jul-15

Jul-15

Jul-15
Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

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

Goldman Sachs Global Investment Research 13

August 25, 2017 United States

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

Fundamentals Shareholder Return

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

104
102
106 100
102
100
104 100 96
98
98
102 92
96
96

100 88
94 94

98 92 84 92
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17
Strong vs. Weak
High Quality Balance Sheet Buybacks Dividend Growth
106 108 106
GSTHQUAL GSTHSBAL/ GSTHREPO GSTHDIVG
101
106 GSTHWBAL
104 104
104
99
102
102 102

100 100
97
100
98
98
96 95
98
96 94
93
92 96
94
90
91 94
92
88

90 86 89 92
Jul-15

Jul-15

Jul-15

Jul-15
Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

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

Goldman Sachs Global Investment Research 14

August 25, 2017 United States

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

Hedge Fund Ownership Mutual Funds

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

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

88
92 90 92

84 90 88 90
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17
High Concentration Low Concentration High Sharpe Ratio Earnings Held Overseas
125 114 118 104
GSTHHFHI GSTHHFSL GSTHSHRP GSTHSEAS
112 116
103
120 114
110
102
112
108
115 101
110
106
108 100
110 104
106 99
102
104
105 98
100
102
97
98 100
100
96 96
98

95 94 96 95
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

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

Goldman Sachs Global Investment Research 15

August 25, 2017 United States

S&P 500 Earnings, Sales and Revisions

GS Top-Down EPS vs. Consensus Bottom-Up Earnings & Sales Revisions (Consensus)
EPS REVISIONS SALES REVISIONS
Adjusted EPS
1 month 3 month 1 month 3 month
GS Top-Down Consensus Bottom-Up
17E 18E 17E 18E 17E 18E 17E 18E
Contribution EPS growth Contribution EPS growth
2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E Information Technology 1.2 % 1.3 % 1.7 % 2.1 % 0.8 % 1.2 % 1.0 % 1.9 %
Real Estate $3 $4 8% 8% $3 $4 8% 9% Telecom Services 0.9 0.5 0.3 0.1 0.7 0.8 0.5 0.4
Materials 3 4 7 6 4 4 12 12 Utilities 0.7 (0.1) 1.0 0.1 NM NM NM NM
Health Care 21 22 5 7 21 22 5 8 Health Care 0.7 0.2 1.2 0.7 0.0 (0.2) 0.2 (0.1)
Information Technology 28 30 9 7 29 33 14 11 Industrials 0.6 0.4 1.4 0.3 0.5 0.7 0.6 0.4
Telecom Services 4 4 1 4 4 4 1 2 S&P 500 ex. Energy 0.4 0.1 0.6 0.3 0.2 0.3 0.3 0.4
Industrials 13 14 8 6 14 15 10 9 S&P 500 0.2 (0.1) (0.0) (0.6) 0.1 0.4 (0.1) 0.0
Financials 24 27 13 12 24 27 13 12 Real Estate 0.2 0.1 (0.3) (0.4) NM NM NM NM
Utilities 4 4 3 7 4 4 5 4 Financials (0.1) (0.4) (0.0) (0.2) NM NM NM NM
Consumer Staples 10 11 4 6 10 11 3 6 Consumer Discretionary (0.1) (1.6) (0.4) (2.1) (0.2) 0.1 (0.4) (0.4)
Consumer Discretionary 14 14 1 2 14 16 3 10 Consumer Staples (0.3) (0.3) (0.6) (0.6) 0.0 0.2 0.2 0.4
S&P 500 ex-Energy 126 135 7 7 128 140 9 10 Materials (0.5) 0.2 (1.0) (0.3) 0.3 0.7 0.7 1.9
Energy 3 4 152 16 4 6 231 44 Energy (6.0) (4.2) (16.0) (17.2) (0.8) 0.5 (3.1) (3.0)

S&P 500 EPS $129 $139 9% 7% $132 $146 11 % 11 %

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

2017 Earnings Per Share Growth Annual 2017E Sales Per Share Growth Annual
1QA 2QE 3QE 4QE 2017E 2018E 1QA 2QE 3QE 4QE 2017E 2018E
Energy NM 319 % 125 % 83 % 231 % 44 % Energy 32 % 15 % 25 % 22 % 23 % 12 %
Information Technology 18 15 10 12 14 11 Information Technology 8 13 14 15 13 8
Financials 21 10 6 19 13 12 Industrials 7 8 11 7 8 5
Materials 18 6 4 21 12 12 S&P 500 7 7 7 8 7 6
S&P 500 14 11 7 12 11 11 S&P 500 ex. Energy 5 6 6 6 6 5
Industrials 6 10 9 15 10 9 Health Care 4 5 5 4 5 5
S&P 500 ex. Energy 10 9 5 11 9 10 Consumer Staples 2 4 5 5 4 3
Real Estate 11 7 9 5 8 9 Consumer Discretionary 5 6 (0) 4 4 4
Health Care 6 8 2 4 5 8 Materials (1) (1) (1) 7 1 6
Utilities 4 10 0 6 5 4 Telecom Services (5) (3) (3) (2) (3) 1
Consumer Discretionary 1 1 (0) 10 3 10
Consumer Staples 3 4 (0) 4 3 6
Telecom Services (4) 6 1 2 1 2
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 16

August 25, 2017 United States

Valuation: Absolute and Relative

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

20 Cost of
17.6 8.0
15
Equity
10 7.4%
10-yr rolling avg 6.0
5
ERP
0
1/76 1/81 1/86 1/91 1/96 1/01 1/06 1/11 1/16 1/21 5.2%
4.0
10 Year
UST
S&P 500 LTM P/B 2.0
2.2%
6
5
P/B 0.0
LTM P/B (x)

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

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

Current aggregate valuation metrics - absolute Current relative valuation vs. 10-year average (Z-score)
EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median
Sales EBITDA Book Yield Ratio P/E Sales EBITDA Book Yield Ratio P/E Z-Score
S&P 500 2.2x 11.3x 3.1x 4.5 % 1.4x 17.6x S&P 500 1.8 1.1 1.7 1.0 0.6 1.5 1.3
Telecommunication Services 2.3 6.8 2.7 4.4 3.0 12.9 Real Estate NM NM 0.3 NM (1.2) (0.6) (0.6)
Financials NM NM 1.4 NM 1.1 14.0 Financials NM NM (0.4) NM (0.9) (0.5) (0.5)
Health Care 2.0 12.4 4.0 5.5 1.6 16.5 Telecommunication Services (1.2) (0.7) (0.3) 2.0 0.3 (1.2) (0.5)
Industrials 2.1 11.6 4.5 3.6 1.5 17.3 Utilities NM (0.8) (0.2) 0.0 0.5 (0.2) (0.2)
Materials 2.4 11.3 4.0 3.5 1.5 17.9 Industrials (1.4) (0.5) 1.8 1.6 0.4 (0.7) (0.1)
Real Estate NM NM 3.1 NM 1.7 18.0 Consumer Discretionary (0.3) (1.3) 0.5 (0.2) 0.3 0.2 (0.0)
Information Technology 4.1 12.7 5.2 5.3 1.3 18.4 Health Care (0.8) 0.3 (0.1) 0.4 0.1 (0.5) (0.0)
Utilities NM 10.0 2.1 (1.3) 4.7 18.6 Energy 0.4 (0.1) (1.4) (1.3) 0.2 0.4 0.0
Consumer Discretionary 1.9 10.4 4.8 4.7 1.3 19.5 Consumer Staples (1.2) (0.4) 0.6 (0.9) 1.7 0.6 0.1
Consumer Staples 1.6 12.6 5.2 4.8 2.5 19.9 Materials 0.8 (0.3) 0.5 0.6 (0.3) (0.4) 0.1
Energy 1.9 9.8 1.8 2.8 0.9 27.3 Information Technology 1.6 0.4 1.0 0.7 0.9 0.3 0.8

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

Goldman Sachs Global Investment Research 17

August 25, 2017 United States

Valuation: Sector baskets

Valuation of Cyclicals vs. Defensives Global vs. Domestic

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

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

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

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

1.2x

1.0x 1.1x

1.0x
0.9x

0.9x

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

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

Goldman Sachs Global Investment Research 18

August 25, 2017 United States

Valuation: Factors

Relative forward P/E

Z-Score History
145
Momentum
LONG / SHORT PAIRS Current 10-year 35-year
140
Dividend yield (high vs. low) 0.7x (2.9) (1.3) LESS Momentum Factor
Size (small vs. large) 0.8 (1.6) (0.5) EXPENSIVE
135 <GSMEFMOM>
Momentum (leaders vs. laggards) 1.1 (1.1) (0.7) 130 (leaders vs. laggards)
Valuation (low vs. high) 0.5 (0.8) 0.0 125
Growth (high vs. low) 1.2 0.3 0.1 120
Returns (high vs. low) 1.1 1.4 1.0
115
Balance sheet (strong vs. weak) 1.4 1.6 0.8
Margins (high vs. low) 1.3 1.9 1.3 MORE 110

Volatility (low vs. high) 1.4 2.0 3.0 EXPENSIVE 105

100

Absolute forward P/E 95

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

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17
High Volatility 13.6x (0.5) (0.2) LESS
High Momentum 17.1 0.1 0.4 EXPENSIVE
Low Margins 15.9 0.2 0.3 Growth vs. Value
High Dividend Yield 15.1 0.5 0.9
120
Small Size 16.2 0.6 1.1
Growth Factor
Low Valuation 12.2 0.6 1.0 115
<GSMEFGRO>
Low Returns 17.3 0.7 0.5 (high vs. low)
110
Weak Balance Sheet 16.0 0.7 0.6
High Growth 19.6 1.0 1.0 105
Low Momentum 15.9 1.1 1.1
Low Growth 15.8 1.3 1.2 100
High Valuation 24.8 1.3 0.9
95
High Returns 19.5 1.5 1.5
Low Volatility 19.6 1.5 1.8 90
High Margins 20.1 1.6 1.3 Value Factor
Strong Balance Sheet 22.8 1.8 1.2 85 <GSMEFVAL>
Large Size 19.1 2.0 1.1 MORE (low vs. high)
80
Low Dividend Yield 22.2 2.1 2.1 EXPENSIVE
Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17
Mar-16

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

Goldman Sachs Global Investment Research 19

August 25, 2017 United States

Fund Flows, Fund Performance, and Short Interest

Domestic equity fund flows Mutual Fund Performance

16 32
Domestic equity fund flows Distribution of % outperf
13 (4wk avg) Mutual Fund Style YTD
28 Large-Cap Core

% of Large-Cap Core Mutual Funds

Large-Cap Core 29%
10 ETFs
Mutual Fund Large-Cap Growth 43
24 YTD returns Large-Cap Value 66
7
20 Average Total 45%
$ Billions

4 YTD return
8.8%
1 16

(2) 12
(5) Net
flows 8
(8) Mutual
funds
4
(11)
Mar-15

Mar-16

Mar-17
Dec-14

Jun-15

Jun-16

Jun-17
Sep-15

Dec-15

Sep-16

Dec-16

Sep-17
0
1 3 4 6 7 8 10 11 13 14 15 17 18 20 21 22 24 25 27 28 29
YTD total return (%)

Weekly fund flows Short Interest

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

Short interest % of cap

All Equity 6,328 (3.5) (73.5) 3,332 6.0 278.6
Int'l Equity 3,126 0.2 21.6 1,142 3.5 119.3 2.6%

Global 480 0.2 13.6 310 1.3 57.4

Real Estate 284 (0.3) (9.4) 86 0.2 5.2 2.4%
Equity Income 637 (0.8) (11.7) 233 0.1 12.5
U.S. Equity 2,722 (3.9) (108.7) 1,880 1.3 101.9
2.2% 2.2%
All Bonds 3,869 4.1 147.8 732 2.4 107.2
All Taxable Bond 3,222 4.0 154.8 592 1.7 91.9
2.0%
Municipal Bond 377 0.2 5.3 29 0.1 3.2

May-16

May-17
Aug-15

Nov-15

Feb-16

Aug-16

Nov-16

Feb-17

Aug-17

Nov-17
Gov't Treasury 269 (0.1) (12.2) 111 0.5 12.1
Money Market 3,947 26.7 56.0 6 (0.0) 1.7
Source: FactSet, EPFR, and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 20

August 25, 2017 United States

Correlation, Breadth and Dispersion

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

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

+/- 1 standard deviation (pp)

31pp
Average 3-Month Correlation

0.7
30-year average: 29 pp
29pp
0.6
27pp
0.5
0.40 25pp
0.4
23pp
0.3 21pp
21pp
0.2 0.18
19pp
0.1 17pp
Average stock correlation
0.0 15pp
Jul-15

Mar-16

Mar-17

Jul-15

Mar-16

Mar-17
Dec-14

Apr-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17

Dec-14

Apr-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

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

Current 30-Year Historical Current 30-Year Historical

80
Aug 24 Average %ile Aug 24 Average %ile
70 S&P 500 13 pp 17 pp 28 % 21 pp 29 pp 11 %
60
Utilities 5 pp 10 pp 12 % 20 pp 18 pp 73 %
50
Energy 13 13 59 25 23 63
40
Telecom Services 20 13 87 23 23 63
30
Consumer Discretionary 18 17 75 27 29 48
20 Current
9 Real Estate 10 9 69 12 15 42
10 <5 = Narrow breadth Health Care 13 15 51 22 25 39
0 Consumer Staples 10 12 25 18 21 38
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020

Industrials 13 14 51 19 23 28

2 2 Materials 14 15 53 17 25 12
∗ ∑ R = SPX return
  w = individual constituent weights Financials 9 13 23 12 22 4
∑ 2 2 r = individual constituent returns
Information Technology 11 20 3 16 35 0

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 21

August 25, 2017 United States

Economics

GDP Core PCE and CPI Employment

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

4.0 % Economics

Initial Jobless Claims (thousands)

2.2
300

Year over Year change (%)

Initial Jobless
3.0 % 2.8 2.8
2.6 2.0 Claims
2.3 2.3 2.0 2.0 2.0
2.2 275
2.0 % 1.8
1.8
1.2
250
1.0 % 0.6 1.6

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

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-14

Apr-15

Jul-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17
Mar-16

Mar-17
2016 2017 2018

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

4.5 10.0 2.0 102.2
US-MAP Positive Financial Conditions Tighter
Data Surprises
4.0 China CAI 9.0 Surprise Index Index
1.5 101.8
8.0
3.5
1.0 101.4
US-MAP Surprise Index

7.0
3.0
0.5 101.0
China CAI

6.0
US CAI

2.5
5.0 0.0 100.6
2.0
4.0
(0.5) 100.2
1.5
3.0
1.0 (1.0) 99.8
US CAI 2.0

0.5 1.0 (1.5) 99.4

Negative
0.0 0.0 Data Surprises Looser
(2.0) 99.0
Dec-14

Jul-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17
Apr-15

Mar-16

Mar-17

Dec-14

Jul-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17

Dec-14

Jul-15

Sep-15

Dec-15

Jun-16

Sep-16

Dec-16

Jun-17

Sep-17
Apr-15

Mar-16

Mar-17

Apr-15

Mar-16

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

Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 22

August 25, 2017 United States

Goldman Sachs Global Macro Forecasts

Goldman Sachs Global Macro Forecasts

Change
Goldman Sachs US Economics Forecasts
units Current 3m 6m 12m to Target % Annual Change
Equities 2016 2017E 2018E
STOXX Europe 600 level 375 390 400 410 9% Real GDP 1.5% 2.1% 2.2%
TOPIX level 1592 1600 1575 1700 7 Consumer Spending 2.7 2.6 2.0
S&P 500 level 2439 2425 2400 2450 0 Total Fixed Investment 0.7 3.7 2.9
MXAPJ level 530 500 510 530 (0) Business Fixed Investment (0.6) 4.2 3.3
Ten Year Rates Residential Investment 5.5 2.1 1.6
US % 2.2 2.8 2.9 3.1 91 bp Federal Government Spending 0.0 (0.1) 1.2
Euro Area (Germany) % 0.4 0.7 0.8 1.0 63
State and Local Government 1.2 0.3 1.8
Net Exports (Bil.) (586) (620) (630)
Japan % 0.0 0.1 0.1 0.3 23
Inflation
Currencies Headline CPI 0.9 2.0 1.9
US Dollar / Yen $/¥ 109 112 113 115 5% Core CPI 2.2 1.8 2.0
Euro / US Dollar EUR/$ 1.18 1.15 1.15 1.15 (3) Core PCE 1.8 1.6 1.9
Sterling / US Dollar £/$ 1.28 1.29 1.27 1.20 (6) Unemployment Rate 4.9 4.3 3.9
Energy Fed Funds Rate 0.5 1.4 2.4
10-year Treasury Rate 2.4 2.8 3.3
WTI Crude Oil $/bbl 47 48 55 55 16 %
Brent Crude Oil $/bbl 52 50 58 58 11
NYMEX Nat. Gas $/mmBtu 2.95 3.00 3.00 3.00 2 Real GDP
Metals 2015A 2016A 2017E 2018E 2019E
COMEX Gold $/troy oz 1292 1200 1250 1250 (3)% China 6.9 % 6.7 % 6.8 % 6.3 % 6.1 %
LME Copper $/mt 6577 6200 5600 5500 (16) World 3.5 3.2 3.8 3.8 3.8
Spain 3.2 3.2 3.1 2.5 2.3
EPS Forecast EPS Growth NTM P/E
Australia 2.4 2.5 2.3 2.9 2.9
Div
USA 2.8 1.5 2.1 2.2 1.7
2016 2017 2018 2017 2018 Current YE 2017 Yield
Germany 1.5 1.8 2.1 1.5 1.4
STOXX Russia (2.8) (0.2) 2.0 3.3 2.9
€ 21 € 25 € 26 15 % 5% 14.7 x 15.4 x 3.5 %
Europe 600
Euro Area 1.9 1.7 2.0 1.5 1.4
TOPIX ¥ 94 ¥ 102 ¥ 111 9 9 14.8 14.2 2.2 Japan 1.1 1.0 1.8 1.2 1.3
UK 2.2 1.8 1.6 1.2 1.8
S&P 500 $ 119 $ 129 $ 139 9 7 18.0 17.3 2.1 France 1.0 1.1 1.2 1.4 1.5
Italy 0.7 1.0 1.0 0.8 0.9
MXAPJ $ 30 $ 33 $ 36 11 8 15.2 13.8 2.9 Brazil (3.8) (3.6) 0.7 2.1 2.7
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 23

August 25, 2017 United States

Goldman Sachs Macro Forecasts

EURO YEN OIL
$1.25 ¥130 $80

Brent
$1.20 EUR/USD $1.18 ¥125 $70 crude
GS
forecast
$1.15 ¥120 ($/bbl) $58
$1.15 ¥115 $60
$1.15 $1.15 ¥113
¥115 ¥112
$1.10 $50
¥110 Futures
market
$1.05 ¥109 $40
¥105 $52

$1.00 ¥100 $30

USD/JPY
$0.95 ¥95 $20
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18
Investment Grade (IG) spread High-Yield (HY) spread Global Equity Market performance
Price Return (%) US Dollar Local
220 bp 1000 bp
Market 1-Wk 1-Mo 3-Mo YTD Currency
Investment Grade High-yield
900 bp China (MSCI China) 2% 5% 14 % 38 % 40 %
200 bp (IG) spread (HY) spread Mexico (Bolsa) 1 (0) 9 31 13
USD 800 bp
USD
Korea (KOSPI) 1 (4) 2 26 17
180 bp
Spain (IBEX 35) (0) 1 0 24 11
700 bp
160 bp Brazil (Bovespa) 5 10 17 22 18
600 bp Germany (Dax) 0 1 2 19 6
140 bp France (CAC 40) (0) 1 1 18 5
500 bp
Europe (DJ Stoxx 600) (0) 0 1 16 4
391 bp
120 bp Japan (TOPIX) (1) (0) 4 12 5
112 bp 400 bp
386 bp Australia (ASX 200) (1) 1 5 11 1
104 bp
100 bp 300 bp U.S. (S&P 500) 0 (1) 1 9 9
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

UK (FTSE 100) (0) (2) (3) 7 4

Average 1% 1% 5% 19 % 11 %
Source: FactSet and Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 24

August 25, 2017 United States

Equity Basket Disclosure

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

Rating and pricing information

Sherwin-Williams Co. (B/A, $335.56).

Goldman Sachs Global Investment Research 25

August 25, 2017 United States

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

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

Disclosures
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 54% 14% 65% 56% 49%
As of July 1, 2017, Goldman Sachs Global Investment Research had investment ratings on 2,753 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment
Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups
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Goldman Sachs Global Investment Research 26

August 25, 2017 United States

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

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a
stock's total return potential relative to its coverage. Any stock not assigned as a Buy or a Sell on an Investment List with an active rating (i.e., a stock that is not Rating Suspended, Not Rated,
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Additionally, each Investment Review Committee manages Regional Conviction lists, which represent investment recommendations focused on the size of the total return potential and/or the
likelihood of the realization of the return across their respective areas of coverage. The addition or removal of stocks from such Conviction lists do not represent a change in the analysts’ investment
rating for such stocks.
Total return potential represents the upside or downside differential between the current share price and the price target, including all paid or anticipated dividends, expected during the time horizon
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Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one
of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The
investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12
months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage
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Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic
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Goldman Sachs Global Investment Research 27

August 25, 2017 United States

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Goldman Sachs Global Investment Research 28