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6.A. - Page 16 of 44 REDWOOD CITY For the Quarter Ended June 30, 2019 Market Update Current Market Themes Capital markets — interest rates plummet • U.S. Treasury yields fell for a third consecutive quarter, with maturities beyond one year falling 40 to 50 basis points in Q2. As of June 30, yields on the majority of benchmark U.S. Treasury maturities were near 18 -month lows. The yield curve remained inverted, with the inversion having spilled into the money market space. • Equity markets climbed to new record highs upon expectations of rate cuts. S&P 500 returned 4.3% for the second quarter and 17.4% for the first half of 2019, marking its best first-half performance in over 20 years. The Fed will "act... to sustain the expansion" • The FOMC kept the fed funds rate unchanged at a target range of 2.25% to 2.50% at its May and June meetings but recently acknowledged multiple crosscurrents, such as trade tensions and slower global growth, that are likely to result in easier monetary policy. The market now widely expects multiple rate cuts in the second half of 2019. • Fed Chair Jerome Powell affirmed that the Fed will "act as appropriate to sustain the expansion." Powell also acknowledged that acting preemptively to cut rates in light of a possible slowdown may be best for the economy, stating that "an ounce of prevention is worth a pound of cure." U.S. economic growth expected to slow from faster -than -expected first quarter 12 • After GDP growth of 3.1 % in the first quarter, economists' expectations for Q2 growth are lower, with 1 1 Irr 1 1 economists projecting growth within the 1.5% to 2.0% range. Areas of weakness include recent slowdown in ISM manufacturing data and durable goods orders. 1 1 1 ■ • President Trump increased tariffs on $200 billion of Chinese imports, and China retaliated by increasing tariffs on $60 billion of U.S. imports. Although both sides agreed to a truce at the June G-20 Summit, the recent upheaval triggered market volatility. • Recent economic data has been mixed, with a 49 -year low unemployment rate and a pickup in retail sales, but a slowing of manufacturing activity and sub -target inflation. PFM Asset Management LLC 20