2017 Outlook For the Financial Markets May 4, 2017 Scott Colbert, CFA Executive Vice President Chief Economist – Director of Fixed Income scott.colbert@commercebank.com

Economic Output – Where In the World Does It Come From? Percentage Contribution to World GDP Source: International Monetary Fund

Economic Output – Where in the World Will It Come From? Source: International Monetary Fund

U.S. Real GDP (2% is the new 3%) Source: Bloomberg, Bureau of Economic Analysis

U.S. Total Domestic Debt vs. GDP Indicates Recession Source: Flow of Funds Accounts, Federal Reserve

China: Developing Country with Advanced Leverage Source: McKinsey Global Institute, Debt and (Not Much) Deleveraging, February 2015

Long Term Drivers of U.S. Economic Growth Source: JP Morgan, Bureau of Labor Statistics

Total U.S. Auto Sales - Recovered Source: Bloomberg

New Housing Starts Source: Bloomberg

Corporate Credit Spreads (Relative to Treasury Bonds) Source: Bloomberg, Barclays

Employment – Steady and Better Than It Feels Source: Bureau of Labor Statistics

The Falling Labor Participation Rate Source: Bureau of Labor Statistics

Unemployment Falling While Wages Rise Source: Bureau of Labor Statistics

Inflation – Benign but Turning Up Source: Bloomberg

3 Prior Fed Hikes vs. Current FOMC vs. Market Expectations Source: Bloomberg, BofA/Merrill Lynch

You Think Our Rates Are Low? Source: Bloomberg

10-Year Government Bond Yields: U.S. vs. G7 Source: Bloomberg

2017 YTD Index Returns

Index Returns After the Election – 11/8/2016 to 03/31/2017

S&P 500 P/E and Inflation Ratio

Stock Returns vs. Consumer Confidence

Domestic, International Developed & Emerging Market Cumulative Returns – 12/31/2012 to 03/31/2017

U.S. Dollar Index Source: Bloomberg

Domestic Versus International Equity Returns S&P 500 vs. EAFE Log Scale as of 03/31/2017

Impact of Interest Rate Changes on a Portfolio

Housing and Stocks vs. GDP (Expensive)