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Exhibit 19: US Equity Volatility Spikes in equity volatility have corresponded with major global shocks. VIX Level 30 C7) Global Financial Crisis 80.9 ® First Greek Bailout (11/20/08) @) Debt Ceiling, S&P Downgrade, 70 -| Eurozone Sovereign Debt Crisis @) Greek Default 60 + @) SIL Ebola 50 (G) Renminbi Depreciation 80 5 SPX: -42% 40 4 30 5 18.8 ie 8/22/08. E vee) (4/12/10) 0 + 2005 2006 2007 2008 2009 2010 Data through December 31, 2016. Note: The red arrows show the S&P 500's (SPX's) peak-to-trough declines around each episode. Source: Investment Strategy Group, Bloomberg. 45.8 (5/20/10) 48.0 ie 40.7 (8/24/15) 28.1 26.3 (10/15/14) 26.7 (6/1/12) 147 143 120 (s/h w/2it) (3/26/12) ey won 2011 2012 2013 2014 2015 2016 another shock to the financial markets, resulting in the tightening of financial conditions in the US in mid-2015 and early 2016, with US equities dropping by more than 10% in both periods. Exhibit 19 provides a time line of shocks, which, in all likelihood, dampened the pace of the US recovery. In Summary As we review the six theories that could account for the notably slow pace of this recovery, we believe that all have some merit. Recovering from the hangover from the deepest recession since the Great Depression took a little longer. Demographics have not been favorable. Productivity growth appears lower, but that fact does not portend weak productivity growth in the future. Productivity growth is also probably not as weak as it appears, given some mismeasurement of GDP. Fiscal and regulatory policies hampered the economic recovery. And the global backdrop provided a steady source of shocks that slowed growth in the US. That said, we feel confident that the US continues to progress on a solid footing, that the recovery is intact and, as we argued in our 2016 Outlook: The Last Innings, that this recovery and bull market have another inning or two left to run. The glass is still half-full. We now turn to our expected returns for the next one and five years. One- and Five-Year Expected Total Returns The Investment Strategy Group began producing one- and five-year annualized expected total returns for major asset classes in our 2013 Outlook. Since then, our key message has been to stay invested in US equities despite the low returns we have expected for the asset class. Our recommendation has been driven by a low probability of recession, a reasonable probability of upside for equities, zero expected returns for cash and negative expected returns for bonds. We have presented these one- and five-year annualized expected returns to: a) provide more context for our investment recommendations; b) encourage our clients to have a longer investment horizon; and c) increase the odds that our clients have greater staying power to withstand market downdrafts. Fulfilling these three priorities is even more imperative moving forward. Our return expectations are lower than in prior years after several years of outsized returns in equities and high yield, and, at the same time, we are confronted with tremendous economic policy and geopolitical uncertainty. We have been faced with such uncertainty in the past, but today (in contrast with periods such as 2008), we no longer have the wind at our back with the benefit of cheap equity and high yield valuations. In 2008, we believed that attractive valuations would eventually lead to high prospective returns in US equities and high 20 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014553