EFTA Document EFTA01459070

20 November 2015 US Equity Insights Margin expansion is possible, but upside counterbalanced by downside risk Fierce price competition at Retailers, more global competition at Industrials and the political threats at Health Care pose some sales risk, but mostly margin risk. There is also tax rate risk. Many are concerned about wage pressure on margins, but this is not a major risk for S&P firms. However, a tighter than expected labor market could lead to more Fed hikes than expected and thus EPS risks via dollar, oil or PE risk via credit market or higher Tsy ylds. Fed hikes are a small boost to S&P EPS. [Figure 33: S&P nailing 4qtr net margins MSRealm SA•lia lama mialiattiJO Warr. Saps Oneesant. COW...a ea Figure 35: Labor participation in decline § l§ 12 1' JIM, WE; R Recesses -FOarno COW., Mc% enT/000. MS) Same &A anstiollint Deutsche Bank Securities Inc. —Peewees me pad 16 err pep. In) 'Figure 34: S&P quarterly net margins 12% 10% 3% 6% 4% 2% 0% .2% -4% -6% 12% .8% S S8661 6-sassiciarAgggia,A, 7. *A nS P. 2 P. P. For 2 2 2 2 W, 2 2 2 2 2 —Pro Immo Net Margins —GAAP Net Margins Source Orsathe Sent I465 Figure 36: Fed hikes yet to begin despite rising wage 5% 4% 3% 2% 1% 0% wormeri Recession — Fed Funds Target (01s) Avg hourly earnings (Production and non-supervisory. y/y, rhs) - Avg hourty beatings (Al employees, yly. rhs) Rues &aR Crearfre an Page 15 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119284 CONFIDENTIAL SDNY_GM_00265468 EFTA01459070