S&P 500 outlook: Close to peak for 2015

S&P 500 outlook: Close to peak for 2015 August 12, 2015 Markets and Products Analysis INVESTMENT PORTOFOLIO ANALYSIS DIVISION Important Disclaimer in page 2 1

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6/1990 6/1991 6/1992 6/1993 6/1994 6/1995 6/1996 6/1997 6/1998 6/1999 6/2000 6/2001 6/2002 6/2003 6/2004 6/2005 6/2006 6/2007 6/2008 6/2009 6/2010 6/2011 6/2012 6/2013 6/2014 6/2015 S&P 500 market capitalisation versus GDP is elevated 140% S&P 500 market capitalisation versus US GDP (1990-2015) 120% 100% 80% 60% 40% 20% S&P 500 market cap/us GDP average (since 1990) 0% The ratio of S&P 500 market capitalisation/us GDP is currently at 106% versus an average of 73% since 1990 (Buffett rule of thumb: 80%-100%). Taking into account that GDP growth is modest, potential for further rise in the market capitalisation of the index appears as limited. 3

12/1951 12/1954 12/1957 12/1960 12/1963 12/1966 12/1969 12/1972 12/1975 12/1978 12/1981 12/1984 12/1987 12/1990 12/1993 12/1996 12/1999 12/2002 12/2005 12/2008 12/2011 12/2014 US households net worth value/gdp ratio is at historic high 5,00 4,80 US households net worth/ GDP 4,60 4,40 4,20 US household net worth value/gdp average (since 1951) 4,00 3,80 3,60 3,40 3,20 3,00 The ratio of US households (& non-profit corporations) net worth value/gdp reached historic high of 4.8 times in Q1 2015. Looking forward, if we assume a gradual reversion towards the long-term mean, then either GDP growth will have to be surprisingly very high or net worth value (which includes equities holdings value) will need to correct. Based on our expectation of quite subdued GDP growth, the risk lies with households net worth value subsiding possibly including equities correction. Source: Markets and Products Analysis, Fed, Bloomberg 4

7/00 1/01 7/01 1/02 7/02 1/03 7/03 1/04 7/04 1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 12/1956 12/1958 12/1960 12/1962 12/1964 12/1966 12/1968 12/1970 12/1972 12/1974 12/1976 12/1978 12/1980 12/1982 12/1984 12/1986 12/1988 12/1990 12/1992 12/1994 12/1996 12/1998 12/2000 12/2002 12/2004 12/2006 12/2008 12/2010 12/2012 12/2014 % Domestic economy versus external The unemployment rate is currently at a low (5.3%, historic average: 5.8%) since 2008. Non farm payrolls average for the year so far is at 211,000, which is indicative of further drop in the unemployment rate. Consumption is the supportive factor for US GDP. ISM non- manufacturing (services) index has risen in July at a high (60.3) since 2005. Aggressive monetary easing policy of the Fed during the past years has played a vital role in supporting economy. On the other hand, the relative strength of USD, in the expectation of Fed s rate hike, has persistent negative impact on exports, trade balance. US exports are down by around 5.6% yoy (June 2015). US monthly trade deficit was at -$43.84 bn. in June (12month moving average: -$42.49 bn.) ISM manufacturing index (external economy exposed) dropped in July at 52.7 from 53.5 in June. 10 8 6 4 2 0-2 -4 65 60 55 50 45 40 35 30 GDP yearly change versus employment annual change (1956-2014) US GDP annual change employment change yearly change USA: ISM manufacturing index, non manufacturing index, 2000-2015 ISM non manufacturing ISM Manufacturing 5

Profitability evolution S&P 500 Earnings Per Share Surprises History Index Number of Stocks Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 S&P 500 INDEX % Positive Surprises % Negative Surprises % Neutral Surprises 66,9 68,2 64,7 68,9 68 67,2 68 67,2 71,4 67,9 75,1 67,2 67,5 68,6 23,7 21,7 24,5 21,8 23,7 23,5 19,6 21,6 19,6 20,3 16,3 21,6 22,5 21,8 9,4 10,1 10,8 9,4 8,3 9,3 12,4 11,3 9 11,8 8,7 11,3 10 9,6 32,0 31,0 S&P 500 EPS per quarter 30,0 29,0 28,0 27,0 26,0 25,0 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Est Q3 2015 Est Q4 2015 6

12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 % Q2 financial results Looking at the second quarter of 2015, 69% of the companies which have reported results (11/8: 453 companies) have beaten estimate by earnings per share measure versus a 10-year average of 68% (around 63% if 20 years data are used). Sales positive surprises are 41.1% (as of 11/8) versus an average of around 49%. 85 80 75 70 65 60 55 50 45 40 Positive Surprises Earnings per share, 2005-2015 Despite that 68% of companies are beating earnings estimates, it appears that on an aggregate index level (where index weights, weight rebalancings and the $ size of beating/missing estimate all do matter), S&P 500 index EPS forecast tends to be overestimated. Looking at the actual EPS versus the estimated EPS (data since 1990: Bloomberg), we get that the actual EPS is lower than the estimate by an average of about $5. 0-1 -2-3 -4-5 -6-7 -8-9 -10-11 -12-13 -14-15 -16-17 -18 S&P 500: Difference (in $/ share) of actual trailing 12month EPS versus estimates difference of 12month trailing EPS actual versus estimates average of difference 7

Value creation or value extraction? Buybacks & Dividends as % of Operating Earnings Figure 12. 1400 S&P 500 BUYBACKS, DIVIDENDS, & OPERATING EARNINGS 1400 1200 (billion dollars, trailing four-quarter) 1200 Buybacks (538.1) 1000 Q1 1000 Dividends (369.6) Q1 800 Operating Earnings (988.9) 800 Buybacks+Dividends (237.5) 600 600 Q1 400 Q2 400 200 200 0 0 150 150 125 Buybacks+Dividends as percent of Operating Earnings (91.0) 125 100 100 Q1 75 75 50 yardeni.com 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Standard & Poor s Corporation. 50 On the chart above, the ratio of (dividends + buybacks) as a percentage of operation income is elevated (91%) and above the period of 1999-2006. It is comparably elevated as in 2007. This may be a drawback for value creation in the long term. Source: Markets and Products Analysis, yardeni.com, Standard & Poor s, Bloomberg 8

6/95 12/95 6/96 12/96 6/97 12/97 6/98 12/98 6/99 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 6/05 12/05 6/06 12/06 6/07 12/07 6/08 12/08 6/09 12/09 6/10 12/10 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 6/15 Capital expenditure is subdued 1,0 0,9 S&P 500: ratio of trailing 12 month Capital Expenditures/trailing 12month Cash Flow (1995-2015) 0,8 0,7 0,6 0,5 0,4 0,3 0,2 ratio: trailing 12 month CAPEX/trailing 12month Cash Flow The ratio of Capex/Cash flow (from operations) is currently (0.43) lower than the average (0.50) of the period 1995-2015. Investments in fixed assets is subdued, which can be negative the long term. It may also be a sign of disbelief in the strength and the persistence of economic growth. Source: Markets and Products Analysis, Goldman Sachs, Bloomberg 9

7/91 7/92 7/93 7/94 7/95 7/96 7/97 7/98 7/99 7/00 7/01 7/02 7/03 7/04 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 18 17 16 15 14 13 12 11 S&P 500: valuation is stretched S&P 500: forward 12month P/E ratio (2005-2015) 10 S&P 500:Forward 12month P/E ratio 9 10-year average 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 40% 30% 20% 10% 0% -10% -20% -30% -40% 12 month forward EPS growth, % change year on year 12month forward EPS growth, % change year on year 2 1,9 1,8 1,7 1,6 1,5 1,4 1,3 1,2 1,1 1 0,9 0,8 0,7 0,6 0,5 S&P 500: Price/sales 12 month forward ratio (2005-2015) S&P 500:Price to sales 12month forward 10-year average 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 3 2,9 S&P 500: Price/Book ratio (2005-2015) 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2 1,9 1,8 1,7 S&P 500:Price to Book ratio 1,6 1,5 10-year average 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 10

S&P 500: other ratios 20 18 16 S&P 500: Return on common equity % (2005-2015) 6 5 S&P 500: net debt to ebitda (1995-2015) 14 12 4 10 8 6 4 S&P 500: return on common equity ratio 10-year average 3 2 S&P 500: net debt to ebitda 20-year average 2 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 1 7/95 7/97 7/99 7/01 7/03 7/05 7/07 7/09 7/11 7/13 7/15 14 13 S&P 500: EV/trailing 12 month EBITDA (2005-2015) 12 11 10 9 8 7 6 S&P 500: enterprise value to ebitda 10-year average 5 7/05 7/06 7/07 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 11

Low yields remain mildly supportive for S&P 500 versus government bonds, so far. 6,50 6,10 5,70 5,30 4,90 4,50 4,10 3,70 3,30 2,90 2,50 2,10 1,70 1,30 0,90 0,50 S&P 500: earnings yield- US 10year government bond yield, 2005-2015 earnings yield-us 10year government bond yield 10-average Attractive equities over bonds Attractive bonds over equities 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 At an interview with CNBC in May 2015, Warren Buffett said that the stock market would be viewed as cheap now if interest rates continued to remain low. If rates normalise, stocks would be on the high side on a valuation basis, he said. 12

From a long term perspective, valuation looks stretched Looking at the cyclically adjusted Shiller s P/E ratio (CAPE) the index appears as overvalued from a long term perspective. According to Shiller s P/E estimate, cyclically adjusted P/E is at 26.7 versus the Shiller s P/E 100 years average of 16.7 (last 30 years Shiller s P/E average is calculated at 23.8). Source: Markets and Products Analysis, R. Shiller, yale.edu, Bloomberg 13

S&P 500: sectors Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Est Q3 2015 Est Q4 2015 2015 S&P 500 INFO TECH INDEX Earning Per Share 8,2 8,17 6,94 8,75 32,13 9,3 7,8 8,0 9,7 32,7 8,3 8,6 8,4 11,4 36,5 9,0 8,9 9,6 12,4 42,5 EPS YoY 14,1% -4,4% 15,4% 10,6% 1,6% -11,3% 9,5% 5,2% 17,3% 11,8% 8,8% 3,7% 14,4% 9,5% 16,4% Earning Per Share 5,1 4,13 4,98 5,00 19,22 5,0 5,6 5,4 5,7 22,0 5,4 5,7 5,7 5,2 21,8 5,7 5,8 5,6 5,8 22,8 S&P 500 FINANCIALS INDEX EPS YoY -1,4% 35,8% 8,0% 14,8% 14,6% 8,4% 1,1% 5,6% -9,8% -1,0% 5,4% 2,5% -1,8% 11,4% 4,7% S&P 500 HEALTH CARE IDX S&P 500 CONS DISCRET IDX S&P 500 INDUSTRIALS IDX S&P 500 CONS STAPLES IDX S&P 500 ENERGY INDEX S&P 500 MATERIALS INDEX S&P 500 UTILITIES INDEX Earning Per Share 8,2 7,92 7,98 7,43 31,37 7,7 8,7 8,6 7,8 32,1 8,0 9,2 9,0 8,7 34,7 9,5 9,8 11,6 11,8 47,3 EPS YoY -6,0% 10,2% 7,9% 5,1% 2,3% 4,4% 5,0% 4,4% 11,0% 8,2% 19,0% 7,2% 28,9% 36,4% 36,2% Earning Per Share 5,0 5,19 5,63 5,33 21,22 6,1 6,0 6,6 6,7 25,5 6,3 6,8 7,2 6,8 27,2 6,7 7,4 7,9 8,6 30,4 EPS YoY 22,2% 15,6% 17,1% 26,1% 19,9% 3,8% 13,7% 9,7% 1,8% 6,8% 6,2% 7,8% 9,4% 25,3% 12,0% Earning Per Share 5,1 6,35 5,65 5,38 22,68 5,3 6,1 6,4 6,4 24,0 5,4 7,0 7,1 7,3 26,6 6,1 7,1 7,1 7,7 28,1 EPS YoY 3,9% -4,3% 12,4% 18,8% 5,7% 0,4% 14,8% 11,7% 14,9% 10,9% 14,4% 1,9% 0,3% 4,2% 5,6% Earning Per Share 5,1 5,46 5,53 5,66 22,18 5,9 5,9 6,1 6,4 24,0 5,8 6,3 6,4 5,9 24,2 6,2 6,4 6,3 6,4 24,8 EPS YoY 16,2% 7,7% 11,0% 12,2% 8,1% -2,0% 6,3% 4,1% -7,6% 1,0% 8,0% 1,9% -2,0% 9,0% 2,3% Earning Per Share 10,8 10,83 11,29 11,29 44,66 11,3 10,0 10,8 10,6 42,8 11,6 12,1 11,2 7,4 41,2 5,3 5,1 4,6 4,5 19,3 EPS YoY 4,6% -7,6% -4,7% -6,5% -4,2% 3,3% 21,2% 3,9% -30,0% -3,7% -54,6% -57,7% -59,2% -39,5% -53,2% Earning Per Share 4,5 4,22 2,87 2,77 14,55 3,4 4,1 3,2 3,8 15,4 4,5 4,7 4,1 3,7 16,6 4,5 4,8 3,7 3,9 17,0 EPS YoY -24,8% -2,8% 10,5% 37,9% 6,0% 32,4% 14,6% 28,4% -3,7% 7,6% 1,3% 1,5% -9,3% 5,7% 2,6% Earning Per Share 3,3 2,62 4,14 2,24 12,36 2,2 2,6 4,1 2,4 11,8 3,7 2,8 4,2 2,5 13,2 3,8 3,0 4,3 2,7 13,7 EPS YoY -31,3% -0,4% -1,0% 8,0% -4,2% 66,5% 7,3% 2,9% 2,5% 11,5% 1,3% 6,4% 1,4% 8,5% 4,1% Earning Per Share 1,7 1,88 1,95 1,72 7,24 1,7 1,9 2,5 2,1 9,4 2,8 2,8 2,7 2,2 10,3 2,9 3,0 3,0 2,7 11,6 S&P 500 TELECOM SERV IDX EPS YoY -1,1% 1,6% 27,2% 21,5% 29,8% 64,0% 44,0% 8,9% 6,7% 10,0% 4,3% 10,2% 11,9% 19,7% 12,2% S&P 500 INDEX Earning Per Share 24,5 24,64 24,96 24,81 99,3000 25,5 25,8 26,7 27,8 106 26,9 28,6 29,1 28,1 113 27,3 28,1 29,0 30,9 118 EPS YoY 4,2% 4,7% 6,8% 11,9% 6,5% 5,4% 10,9% 9,2% 1,3% 6,4% 1,4% -1,7% -0,5% 10,0% 5,2% GDP CQOQ Index US GDP QoQ Annualised S&P 500 Sectors Earnings History 2,70 1,90 0,50 0,10 2,20 1,90 1,10 3,00 3,80 1,50-0,90 4,60 4,30 2,10 2,40 0,60 2,30 2,30 Energy sector exhibits large year over year drop of earnings in Q1 and Q2 2015. Healthcare sector presents high year over year increase of earnings in Q1 and Q2 2015. 14

Estimated EPS YoY 2015-2014 (source: Bloomberg) S&P 500: Sectors EPS growth affects returns in 2015 60,0% 50,0% 40,0% 30,0% Health Care 20,0% Info Tech 10,0% 0,0% Industrials Utilities Materials Telecom Financials Cons Staples Cons Discret -10,0% -20,0% -30,0% -40,0% size of cycles in the chart represents market cap weights of the respective sector. -50,0% -60,0% Energy -70,0% -20,00-15,00-10,00-5,00 0,00 5,00 10,00 15,00 20,00 % return Year to Date 15

S&P 500: Sectors historic scoring Sector S&P 500 Returns on Equity (25%) Valuation (25%) Returns to Shareholders (25%) Earnings (25%) ROE 10-Year Average P/E Ratio 10-Year Average Div Yield 10-Year Average Est EPS 15 YoY 10-Year Av. EPS Growth S&P 500 INFO TECH INDEX 21,25 19,82 18,70 18,43 1,58 1,05 16,3% 12,42% S&P 500 FINANCIALS INDEX 9,17 6,94 15,35 16,91 1,87 2,40 5,0% -28,87% S&P 500 HEALTH CARE IDX 16,94 17,33 23,45 16,00 1,41 1,88 36,2% 6,87% S&P 500 CONS DISCRET IDX 21,64 11,93 22,38 21,66 1,46 1,63 12,0% 38,35% S&P 500 INDUSTRIALS IDX 15,68 17,32 16,85 16,31 2,20 2,28 5,7% 7,45% S&P 500 CONS STAPLES IDX 20,38 22,52 20,43 17,25 2,62 2,74 2,2% 7,74% S&P 500 ENERGY INDEX 3,66 17,77 17,45 12,86 3,35 1,95-53,3% 4,37% S&P 500 MATERIALS INDEX 12,29 13,48 16,65 16,96 2,19 2,36 2,6% 8,30% S&P 500 UTILITIES INDEX 9,78 10,79 16,45 14,85 3,68 3,83 4,1% 3,37% S&P 500 TELECOM SERV IDX 12,01 9,29 13,91 16,60 5,03 4,62 12,3% 5,98% S&P 500 INDEX 13,12 13,47 18,55 16,39 2,03 2,09 5,2% 6,71% S&P 500 TELECOM SERV IDX S&P 500 INFO TECH INDEX S&P 500 HEALTH CARE IDX S&P 500 CONS DISCRET IDX S&P 500 FINANCIALS INDEX S&P 500 MATERIALS INDEX S&P 500 INDUSTRIALS IDX S&P 500 UTILITIES INDEX S&P 500 ENERGY INDEX S&P 500 CONS STAPLES IDX Less Attractive 10-Year Average Z- Score Source: Bloomberg Attractive -1,50-1,30-1,10-0,90-0,70-0,50-0,30-0,10 0,10 0,30 0,50 0,70 0,90 1,10 1,30 1,50 Ratios used to create the equally weighted score presented above are the following: Return on equity, dividend yield, P/E ratio, EPS year over year change. 16

S&P 500: sectors and investor profile S&P 500 Sectors estimated beta on market Financials 1.48 Materials 1.26 Industrials 1.21 Consumer discretionary 1.13 information technology 1.10 Energy 0.98 Healthcare 0.70 Telecoms 0.62 Consumer staples 0.58 Utilities 0.51 Looking at monthly data for the last 10years, we estimate the beta of the sector returns versus the (S&P 500) market return (CAPM). 17

S&P 500: technical outlook S&P 500 is trading (11/8: 2,084) above the 200-days moving average (2,073). However, on the daily chart, MACD is producing downwards divergence signal. Support is placed at 2,015 and at the area of 1,940 (Fibonacci retracement levels 38.2% & 61.8%: 1,821-2,135). Resistance is placed at the area of 2,135 (historic high of May 2015). Looking at the weekly chart, the index remains in range trading. The upper bound of the weekly Bollinger Bands is at the area of 2,136 and the lower bound at the area of 2.059. 18

S&P 500: Close to peak for 2015 Our view is that S&P 500 is currently (11/8: 2.084) close to peak-point, which we locate at the area of 2.140. This embodies an expected level of 2.6% government bond yield. We expect subdued EPS yearly growth for the full year 2015 of 1.5%. EPS yoy growth estimate is based on US GDP growth and headline CPI yoy change. The above would imply P/E ratio of 18.7 (which stands at 72% percentile of historic series). Stretched valuation can make the level of S&P 500 vulnerable to unexpected factor moves. In case, US-10year Treasury yield persistently rises to a level of 2.9% this can be associated with a drop for the index down to 1,880 points. Another risk is deflation. In case deflation (instead of disinflation) comes up, we expect a negative impact on EPS as corporations pricing power will likely be less. If inflation at -1% then this could imply a drop of -2.6% yoy in EPS. 19

Contact 210-3282791 marketanalysis@alpha.gr Panos Remoundos Maria Koutouzi Ioannis Kouravelos, CFA Konstantinos Anathreptaκis panos.remoundos@alpha.gr maria.koutouzi@alpha.gr ioannis.kouravelos@alpha.gr konstantinos.anathreptakis@alpha.gr 20