Today’s economic landscape may challenge the performance of traditional investments going forward. Recent positive cyclical momentum looks set to continue for some time, but long-term structural headwinds remain firmly entrenched. Despite strong growth, low interest rates could challenge investors in 2018.

10-year treasury yield Source: Macrobond, as of December 29, 2017. 1960 1970 1980 1990 2000 2010 2017 0% 2% 4% 6% 8% 10% 12% 14% 16% HISTORICAL YIELD ON 10-YEAR TREASURY NOTE

Economic indicators

We expect interest rates to remain relatively low for some time, particularly by historical standards. To monitor markets going forward, we are watching:

Slowing growth

Real GDP growth has trended lower over the last 50 years, caused primarily by slowing labor force growth and productivity. Positive cyclical momentum has caused growth to pick up in the second half of 2017, and 2018 could see a further boost from pro-growth policies and improved optimism. Yet the gravitational pull of structural headwinds is powerful, and we believe investors may need to prepare their portfolios for a lower-for-longer growth environment.

Real gdp growth values Sources: U.S. Bureau of Economic Analysis, FS Investments, as of January 10, 2018. -6% -4% -2% 0% 2% 4% 6% GROWTH OF GDP Real GDP growth 1985 1991 1997 2003 2009 2015

Economic indicators

To gauge whether the recent state of positive growth data is cyclical or structural in nature, we are monitoring the following:

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