EFTA01377505.pdf

Global Equities — With global risks (e.g. Greece/China) apparently 90% fading, U.S. equities have taken their direction from fundamentals (e.g. earnings), as well as the outlook • 80% for economic growth and monetary policy. — With —60% of the S&P 500 companies having reported Q2 2015 earnings, the S&P 500 has been able to rally 1.0% I 50% as earnings have come in —4% better than expected. 0.5% 40% — In addition, while earnings are on pace to come in 30% 0.0% modestly negative in Q2 (-1% YoY) the bulk of the 20% weakness has been in the commodity sectors. In fact, .0.5% 10% earnings and revenues excluding energy are on pace -1.0% 0% to rise (+5% and +2% YoY, respectively). Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec — Although the Q2 earnings season has been better nS8P 500 Monthly Returns Lest 20 Yews (LHS) than expected, we caution investors against getting •% Time Positive (Last 20 Years) (RHS) complacent in the current environment. Figure 1. Beware of negative seasonality' — Valuations (P/E LTM) remain near a 5YR high and Source: FactSet, Deutsche AWM economic data has been mixed as seen by the Data as of July 30. 2015. • Data presented are averages for 19942014 Citigroup Economic Surprise Index improving but still in negative territory. In addition, the first Fed rate hike remains on the table for September which has historically fueled volatility and August has been the Focus of the week weakest month for equities over the past 20 years. Equities: With valuations heightened and negative seasonality, we remain cautious on equities in the Global Fixed Income near term. 10-year U.S. Treasuries have been in a tight range as Fixed Income: Despite recent weakness in high the eventuality of rate hikes has been overshadowed yield we remain constructive long term on the by disinflation fears as commodity prices have declined sector. and economic data has been mixed. The sector that has seen the most pronounced movement has been high yield as it is on pace to post its first back-to-back monthly losses in two years. We continue to like high yield despite the recent downturn for several reasons. First, the current spread level (—500 bps) is likely reflecting the potential for an increase in energy related defaults over the next year. Second, sharp losses in high yield have historically coincided with a credit event (e.g. Long Term Capital Management) or recession. With the Fed's eventual tightening cycle to be more Barclays U.S. Corporate High Yield / Energy Spread (in bps) gradual, economic growth to remain reasonable and —Barclays U.S. Corporate High Yield Spread (in bps) energy prices to stabilize we see limited risk for either Figure 2: High yield weakness is energy-related event. Source: FactSet, Deutsche AWM Data as of July 30. 2015. Lastly, corporate America remains healthy and default expectations remain historically low. No assurance can be given that any forecast or target can be achieved. Forecasts are based on assumptions, estimates, opinions and hypothetical models which may prove to be incorrect. Past performance is not indicative of future returns. Investments come with Deutsche Asset risk. The value of an investment can fall as well as rise and you might not get back the 3 S. Wealth Management amount originally invested at any point in time. Your capital may be at risk July 31. 2015 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0074403 CONFIDENTIAL SDNY_GM_00220587 EFTA01377505