Midquarter 1Q21 2021 Outlook Market Intelligence
2Q21 OutlookMarketIntelligenceThe latest thinking from ourasset management network
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What you’ll findFixed income: using a risk-managed approach to credit marketsAbout John Hancock Investment Management19Our multimanager approach4The bond market and the Fed aren’t seeing eye to eye on monetary policy20Insight that leverages the best of our assetmanagement network5Holding bonds to maturity has typically earned initial yield despitepaper losses216Careful asset class selection in credit may lead to favorablerisk/reward trade-offs227While there is extra income potential, EM debt can have greater durationand currency risk23Cash on the sidelines has fallen but is still near an all-time high24U.S. equity: quality and value for an early to midcycle environmentLeading economic indicators continue to improve, and the paceshould quickenU.S. earnings growth estimates are now exceeding the peak of early 2020 8A historic bull market is under way, but prepare for choppiness andpossible consolidation9Overweight value and quality factors for an early to midcycle environment10Overweight sectors with a balance of quality and value11Mid-cap stocks offer an attractive postrecession opportunity12International equity: shifting toward quality, growth,and emerging marketsOur top portfolio ideas to consider now25Family of funds26Our investment strategists2713Manufacturing PMIs are gaining abroad, but there are cloudson the horizon14Developed-market earnings growth estimates have bottomed,but still have a long way to go15EM earnings estimates are accelerating16The U.S. dollar’s direction may have key cross-asset implications in 2021 17Negative yields may keep pressuring financials-heavy international valueJohn Hancock Investment Management Market Intelligence183
Our multimanager approachNavigating the challenges of today’s markets requires unique talents and expertise on a global scale. That’s why we’ve spent the past three decades buildingan unrivaled network of specialized asset managers, backed by some of the most rigorous investment oversight in the industry. The result is a diverse lineup oftime-tested investments from a premier asset manager.59 proven portfolio teamsClosed-end funds198899 investment strategiesManaged accountsIntroducedmultimanager approach196925 elite asset managers19901992UCITS ve AssetAllocation Fund20082010ETFs20122014ESGfunds20162018Epoch Investment Partners, Inc.Our team of nearly 200 professionals who specializein manager research and oversight vets more than125 new strategies and holds over 100 oversightmeetings with managers annually.Representative list of asset managers shows managers of stand-alone funds only. All data is as of 3/31/21. All logos are the property of their respective owners.John Hancock Investment Management Market IntelligenceAbout John Hancock Investment Management4
Insight that leverages the best of our asset management networkA natural by-product of our manager research is timely investment insight from across the industry. Our capital markets research team aggregates,analyzes, and weights those views to develop a 12- to 18-month outlook on a range of asset classes, along with a focused collection of what they believeare the most compelling investment ideas for clients today. The result is Market Intelligence.How we formulate our 12- to 18-month outlookHow to read our viewsDarker shading indicatesa greater concentration ofviews within our network.We conduct a quantitative assessment of assetmanager, strategist, and broker-dealer viewsacross 17 asset classes.We analyze, evaluate, and weight these views inlight of asset manager biases, market fundamentals,investor sentiment and fund flows, and globalmacroeconomic factors.We implement our asset class views in thecontext of a global multi-asset portfolio, highlightingour most compelling ideas for clients based on ourresearch and focus on risk management.John Hancock Investment Management Market IntelligenceBEARISHNEUTRALBULLISHA golden caret indicates our current12- to 18-month outlook for the asset classbased on our available research.About John Hancock Investment Management5
U.S. equity: quality and value for an early to midcycle environmentWhile near-term challenges remain, the economic recovery appears set to continue in 2021.Range of views from our networkOur positionDarker shading indicates a greater concentration of views within our network.Our 12–18 month view: SLIGHTLY BULLISHIn mid-2019, we upgraded U.S. large- and mid-cap equityfrom neutral to slightly bullish, and in Q1 2020 we upgradedU.S. small-cap equity from slightly bearish to neutral. We seemid-cap stocks as the best opportunity for offense within U.S. equities. We’ve been bullish on the quality factor since the thirdquarter of 2018 and are now pairing that with value for anearly/midcycle environment.What’s inside Leading economic indicators continue to improve, and the paceshould quickenBEARISHNEUTRALBULLISHU.S. equityU.S. large capU.S. mid capU.S. small cap U.S. earnings growth estimates are now exceeding the peak ofearly 2020U.S. growth A historic bull market is under way, but prepare for choppinessand possible consolidationU.S. value Overweight value and quality factors for an early tomidcycle environment Overweight sectors with a balance of quality and value Mid-cap stocks offer an attractive postrecession opportunityJohn Hancock Investment Management Market IntelligenceChanges to network views: The first quarter saw a continued preferencefor U.S. over non-U.S. equities. Our network moved down in market cap andshifted to a preference for value over growth this quarter. Mid-cap stocks remainthe largest overweight within global equities across the network.U.S. equity: quality and value for an early to midcycle environment6
Leading economic indicators continue toimprove, and the pace should quickenU.S. equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“The U.S. LEI continued rising in February and did not fully reflect acceleration of the vaccination campaign andnew fiscal support. The U.S. economy should expand by 5.5% in 2021.”YoY change in the LEI (%)15Recessions1050-5-10LEI (ranked by weighting in the index)-15The YoY LEI growth rate improved to –1.25%in February, compared with –1.52% inJanuary. Across the underlying components,6 of the 10 had positive readings on amonth-over-month basis.-201972197419761978198019821984Leading Credit Index8%ISM Index of New Orders16%New orders of nondefensecapital goods4% —Consumer expectations14%Stock prices4%Yield spread11%Weekly unemployment claims 3%New orders of consumer goodsand materials-251970Weekly manufacturing hours worked 28%198619881990199219948%1996Building permits1998 200020023%20042006200820102012201420162018 2020Source: The Conference Board, as of 2/28/21. The Composite Index of Leading Indicators (LEI) is an index published monthly by The Conference Board, used to predict the direction of the economy’s movements in the months to come. Theindex is made up of 10 economic components whose changes tend to precede changes in the overall economy. It is not possible to invest directly in an index. YoY refers to year over year. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment7
U.S. earnings growth estimates are nowexceeding the peak of early 2020U.S. equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“The overall profit cycle is poised to improve in the year ahead, assumingthe economic recovery remains on track, even if choppy.”Stock prices and earnings estimates have moved higher nearly in lockstep3,900220EPS growth estimates YoY (%)S&P 500 Index (left axis)S&P 500 Index EPS forecast, next 12 months (right �44.06Industrials90.2833.14Consumer discretionary54.2532.73Materials40.68-3.83S&P 500 Index25.6614.58Financials24.5410.50Information technology17.9010.27Communication services13.5515.99Healthcare12.858.83Consumer staples5.427.58Real estate3.7012.25Utilities2.7718.57140After a significant increase in prices, earnings willlikely take over as the key driver of returns in 2021.1,9003/153/163/173/183/193/201203/21Source: FactSet, as of 3/31/21. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Earnings per share (EPS) is ameasure of how much profit a company has generated calculated by dividing the company’s net income by its total number of outstanding shares. YoY refers to year over year. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment8
A historic bull market is under way, but preparefor choppiness and possible consolidationU.S. equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“2020 was largely a year of market recovery, while 2021 is a year of economic recovery.”Historically, a 30% or greater decline in the S&P 500 Index has led to strong forward returns, albeit not in a straight line (%)PeakTrough Drawdown 1 yr from 3 yr from 5 yr from(%) trough (%) trough (%) trough (%)200n 3/23/20–12/31/20n 12/4/87–12/4/92n 3/9/09–3/7/14n 10/3/74–10/3/79n 10/9/02–10/9/07n 5/26/70–5/26/75150100502/19/20 77.603/24/00 10/9/02-49.1533.7353.96101.508/25/87 12/4/87-33.5121.3945.7492.951/11/73 10/3/74-48.2038.0155.3375.9611/29/68 5/26/70-36.0643.7355.7830.73Cumulative nualized averages1 year2 years3 years4 years5 yearsSource: FactSet, as of 3/31/21. The last two market cycle peaks occurred in October 2007 and March 2000. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States.It is not possible to invest directly in an index. Drawdown is a measure of market declines from a peak to a subsequent trough. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment9
Overweight value and quality factors for anearly to midcycle environmentU.S. equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“The size, value, and profitability premiums can materialize quickly, rewardingdisciplined investors who are well-positioned to capture them.”Target factors with betas near 1 to participate sufficiently in the unfolding market cycleFactor3-year beta vs. theS&P 500 IndexSize1.07Value1.03Quality0.99Midcycle: qualityMomentum0.91As valuations rise, companies have to show better results, with secular trends propelling quality andmomentum. Momentum stocks are at risk of bubble-like valuations, while quality offers more fundamentalsupport. Typical sector leaders: technology, communication services, consumer discretionary, healthcare.High dividend0.86Low volatility0.73Early cycle: valueEconomic data and earnings improve, lifting small and more cyclical value-oriented businesses.The value factor still has catch-up potential, while size has seen a significant run in the fourth quarter.Typical sector leaders: financials, energy, materials, industrials.Late cycle: not there yetIn recessions, defensive stocks may hold up better. Typical sector leaders: consumer staples,utilities, real estate investment trusts.Source: FactSet, as of 3/31/21. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Beta measures the sensitivity of a factorto its benchmark. The beta of the market (as represented by the benchmark) is 1.00. Accordingly, a factor with a 1.10 beta is expected to have 10% more volatility than the market. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment 10
Overweight sectors with a balanceof quality and valueU.S. equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“While we continue to embrace a growth tilt, we are pairing that withstocks with attractive ROE and reasonable valuation.”A blend of sectors exhibiting quality and value provides recovery potential and superior fundamentalsQualityS&P 500 IndexQuality/valueSector weights (%)HealthcareTechnologyTop sector in quality indexes based on a30% ROE and strong balance sheets26.65 TechnologyTrading at a 26% discount to the overallmarket, high on quality metrics such as ROE13.00 HealthcareQuality/valueValue12.45 Consumer discretionaryCommunication servicesSecond-lowest PEG ratio across all 11 sectors at1.35; among the best sectors for gross margins11.32 Financials10.93 Communication services8.87 IndustrialsIndustrialsTends to look expensive after recessions,but earnings are likely to grow significantlyin following years; second-worst earningsdecline (54%) in 2020 other than energy6.15 Consumer l estateSource: FactSet, as of 3/31/21. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Return on equity (ROE) is ameasure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity. Market capitalization is the value of a corporation determined by the market price of its issued andoutstanding common stock. Price/earnings-to-growth (PEG) ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share, and the company’s expected growth.Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment 11
Mid-cap stocks offer an attractivepostrecession opportunityU.S. mid capBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“Mid-cap stocks often combine the growth potential of a young firm with thefinancial stability of a company that has survived beyond its early years.”Rolling 52-week excess return of the Russell Midcap Index vs. the S&P 500 Index (%)n Recessions2520Mid-cap vs. large-cap sector weights (%)Even after an initial postrecessionarybounce, mid caps tend to outperformlarge caps into the midcycle stage.15The industrials sector can be an importantreturn driver in economic recoveries.IndustrialsReal careConsumer discretionary-5Consumer staples-10Communication servicesInformation 01720192021-8-6-4-202468Source: FactSet, as of 3/31/21. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The Russell Midcap Index tracks the performance of approximately 800 publiclytraded mid-cap companies in the United States. It is not possible to invest directly in an index. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceU.S. equity: quality and value for an early to midcycle environment 12
International equity: shifting toward quality, growth, and emerging marketsThe economic data has bottomed overseas, and an outright defensive position is no longer warranted; quality and growth are best positioned for an uneven recovery.Range of views from our networkOur positionDarker shading indicates a greater concentration of views within our network.Our 12–18 month view: SLIGHTLY BEARISHIn mid-2019, we downgraded European and emerging-marketequities from neutral to slightly bearish. In Q1 2020, we returnedemerging-market equities to neutral, largely due to improvingeconomic data from China. In Q2 2020, we removed ouroverweight in outright defensive sectors such as utilities in favorof a quality-growth bias toward a combination of participationand protection.What’s inside Manufacturing PMIs are gaining abroad, but there are cloudson the horizonBEARISHNEUTRALBULLISHInternational equityEuropean equityJapanese equityEmerging-market equity Developed-market earnings growth estimates have bottomed, but still have a long way to go EM earnings estimates are accelerating The U.S. dollar’s direction may have key cross-asset implicationsin 2021 Negative yields may keep pressuring financials-heavy international valueChanges to network views: During the first quarter, the consensus view onnon-U.S. equities remained neutral, although we saw some members of ournetwork upgrade their views on emerging-market equities.John Hancock Investment Management Market IntelligenceInternational equity: shifting toward quality, growth, and emerging markets 13
Manufacturing PMIs are gaining abroad,but there are clouds on the horizonInternational equityBEARISHNEUTRALBULLISH OUR 12–18 MONTH VIEWDarker shading indicates a greater concentration of views within our network.“We expect the Eurozone economy to contract near term, as Europe grapples with another waveof infections and containment measures are extended and tightened.”Economic growth overseas has been bouncing back from the spring 2020 collapse (PMI), but concerns lie ahead7066.6 anufacturing surveys for the Eurozone hit arecord high for March, although the outlook hasdeteriorated relative to the United States amidCOVID-19-related challenges.35309/15 12/15 3/16 6/16 9/16 12/16 3/17 6/17 9/17 12/17 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 3/21Source: Markit, World Bank, FactSet, as of 3/31/21. The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector based on five major indicators: new orders, inventory levels, production,supplier deliveries, and the employment environment. It is not possible to invest directly in an index. Past performance does not guarantee future results.John Hancock Investment Management Market IntelligenceInternational equity: shifting toward quality, growth, and emerging markets 14
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How we formulate our 12- to 18-month outlook How to read our views We conduct a quantitative assessment of asset manager, strategist, and broker-dealer views across 17 asset classes. We analyze, evaluate, and weight these views in light of asset manager biases, market fundamentals, investor sentiment and fund flows, and global
For Reg AC certification and other important disclosures, see Disclosures, Slide 11. S&P 500 Earnings Calendar Today’s Earnings FSInsight S&P 500 1Q21 Earnings Analysis S&P 500 1Q21 Sales
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2021 Market Outlook 2021 Global Real Estate Outlook: Recovery, Re-Pricing and Reflationary Fundamentals 2021 will likely mark the beginning of the next new real estate market cycle as the pick-up in economic growth begins to flow more broadly through to real estate fundamentals, which will continue to recover at different speeds by sector.
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