EFTA01367792

22 May 2015 US Equity Insights PE at post-crisis high on delayed Fed hike expectations, boosts S&P to record S&P grinds higher despite continued soft macro data on dovish central bank communications. S&P trades at 18x trailing 4-qtr EPS (2O14-1Q15), the highest since 2010. Fed lowered its 2015.16 FF rate outlook in March and the April minutes dismiss the June hike. Market liftoff expectations are slipping to after Sept. ECB reiterates its asset purchase goals. Liftoff accompanied by Fed forecasts of a 2% plateau rate this cycle would pave the road for a S&P trailing PE of 18.5 at 2015 end and perhaps higher in later years if 10yr Treasury yields do not materially exceed 3%. But waiting too long to hike raises the risk of unit labor cost acceleration and a disorderly climb to higher 10yr yields. 'Figure 1: S&P 500 PE and ERP: 3 scenarios 2 yrs after recession — A 9 ERP . 4% 3 Swine tee 2016 YE SAP targets 01 If 190 MI through 7015 0% 2400 01111* Nab 33.6%: 1300 001100 veld 4% 2200 ROC•SSI041 embed ERP Ins/ Alp PEa 16.9 1 SSP, Onset* dint iFigure 2: Implied future Fed Funds rate and timing of liftoff Lir" HMO tvert.e•.-XT yl ANN ~W 1/4 9 • 164 I•1•40•Ha. • Po Iktlaft ittl• —•TIV —1•••C' Grohs ne /eh New , 119' • g• Ww 'ICI\ • 100.0,", Sane Start*" "van LO, Oats.* Is* at~Trai PE (to/ — • Avg ERP ex 1970432 .3.6% Page 2 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0059405 CONFIDENTIAL SDNY_GM_00205589 EFTA01367792