9 2023 OUTLOOK Our 2023 year-end range for the S&P 500 is wide at 3,800 – 4,500, reflecting the considerable macro-uncertainty ahead. Based on the midpoint of this range, that’s a gain of about 9% from today’s S&P 500 level of about 3,800. Markets are discounting mechanisms and will begin to price in an earnings recovery before we start to see improvements in the economy itself. Assuming an economic recovery by the end of 2023, we anticipate earnings will move higher in 2024 and have estimated an earnings of $240-$250. Although it is unlikely the market will have a V-shaped recovery given the prospect of higher rates and inflation continuing in the coming years, we do expect returns to be positive in 2023. “Although it is unlikely Positioning for Potential Recession and Recovery the market will have While 2022 was a challenging year, we believe some of our asset allocation a V-shaped recovery shifts over the last year have allowed portfolios to adapt to an environment given the prospect of higher rates, lingering inflationary pressures and a hawkish Fed. These of higher rates and adjustments included a neutral equity posture, an underweight to non- inflation continuing U.S. equities, an early underweight to fixed income, increased exposure to alternatives and building more liquidity, which will allow us to take advantage in the coming years, of forthcoming market dislocations. we do expect With a 70% chance of a recession in 2023, our cautious positioning with a returns to be neutral weighting in equities, a small underweight in fixed income and a small positive in overweight to less correlated diversifiers remains prudent. Until we see more evidence of earnings weakness and an economic slowdown, we will remain 2023.” cautious. For the first time in more than a decade, fixed income will provide more yield than equities and play its traditional role as a diversifier to offset stock market volatility. We have shifted positioning within our fixed income allocation to capture yield, increase quality and modestly extend duration ahead of a recession. We continue to favor credit, especially investment grade corporate bonds given their attractive yields and improving corporate balance sheets. We are a bit more cautious on high yield bonds and may reduce our neutral weighting should credit ratings and profitability begin to deteriorate. While off their highs, municipal bonds still offer attractive after-tax yields, especially within intermediate and long maturities. Our equity allocation favors the U.S. relative to other markets, with a preference for large cap stocks. There has been a regime change within equities, with companies that outperformed in the era of ultra-low rates and ample liquidity expected to underperform in an environment of higher borrowing costs and lingering inflation. High-quality companies that generate strong cash flows and profits, as well as those that offer sustained dividend growth, should provide better value. Although we maintain a small underweight to non-U.S. equities, there is the potential to increase exposure to beaten down areas of the market in the new year, especially if the U.S. dollar’s strength softens. This could occur as the U.S. economy slows and interest rate differentials begin to converge as the Fed nears the end of its tightening cycle. We are also watching for opportunities in small cap stocks, which tend to outperform large caps when bear markets end.