economy and politics perspective

1. 1
Orlando’s Outlook:
Purple Reign in Washington, Main Street
& Wall Street
Philip J. Orlando, CFA
Senior Vice President
Chief Equity Strategist
April 2021
Federated Advisory Services Company
21-50089 (4/21)
Presented by:
Presented to:
First Midwest Bank

2. 2
Conclusion: We have a constructive view on economic and
corporate profit growth & financial market performance in 2021
President Biden’s fiscal-policy
honeymoon with Congress
Accelerated vaccine rollout
Zero-bound Federal Reserve
drives “TINA” trade
Easy year/year comparisons

3. 3
Purple Reign
Independents at 36% are now the largest voting block in the U.S., with Democrats and Republicans
at 31% each.
In the November 2020 election, Americans significantly split their ballots to orchestrate divided
government.
Voters wanted to reduce the chaos in the White House, but they also wanted to engineer a legislative
check-and-balance to keep fiscal policy in the middle of the fairway.
With only a slim six-seat lead at present, Democrats are holding their smallest House majority since
1880.
With a 50-50 tie, but with Vice President Kamala Harris voting to break all ties, Democrats have their
thinnest Senate majority with a Democratic president since 1884.
Americans want Washington to abandon its extreme polarization of the past 20 years, and to reach
across the aisle to solve problems, compromise, and produce legislation that is both fiscally prudent
and socially responsible.

4. 4
House could potentially flip in 2022
Source: United States Historical Midterm Results from Wikipedia as of January 21, 2021.
The White House historically loses an average of 28 seats in the first midterm election.
Democratic presidents lose an average of 40 seats.

5. 5
Congressional redistricting from the 2020 decennial census favors
republicans
Note: Some states use different procedures for drawing state legislative district boundaries.
Map: The Conversation, CC-BY-ND Source: Robin Best and Steve Lem
Source: The Conversation.com as of November 24, 2020.
Preliminary population shifts from high-tax states to low-or no-
tax states over the past decade:
• Californians migrating to Nevada and Arizona
• Illinois residents moving to Texas
• New York, New Jersey, Connecticut and Massachusetts
residents moving to Tennessee, North Carolina, South
Carolina and Florida
As a result, if these preliminary trends hold, Republicans
may pick up an estimated 10-15 net seats in the House of
Representatives in the 2022 midterm elections, due
exclusively to the Census and the subsequent
Congressional redistricting and gerrymandering process.
But President Biden signed an executive order undoing President
Trump’s plan to keep undocumented immigrants from being
included in the state-by-state Census tallies. This will likely
delay the release of the final Census data until at least
September 2021, and it potentially clouds the final results.

6. 6
Is Manchin the linchpin?
New moderate bi-partisan Senate coalition:
Joe Manchin III
(D) West Virginia
Lisa Murkowski
(R) Alaska
Susan Collins
(R) Maine
Mitt Romney
(R) Utah
Krysten Sinema
(D) Arizona
Jon Tester
(D) Montana

7. 7
Democrats could establish an outright Senate lead in the 2022
mid-term election
Source: Federated Hermes
Current Senate: 50 Republicans – 50 Democrats
In the November 2022 midterms, 34 seats are up for election:
Republicans defending 20 seats, but Democrats only defending 14 seats.
Republican Senate retirements for 2022 already announced:
Note: Sen. Chuck Grassley (IA) at 87 years old is the longest-serving
Republican Senator, and he is rumored to be considering retirement.
Conclusion: it is much easier for the Democrats to win and re-claim an open seat
than an incumbent seat.
Senator (PA)
Pat Toomey
Senator (OH)
Rob Portman
Senator (NC)
Richard Burr
Senator (AL)
Richard Shelby
Senator (MO)
Roy Blunt

8. 8
New democratic presidents have produced strong equity market
gains in their first year
Source: Strategas Research Partners. As of January 20, 2021. Past performance is no guarantee of future results.

9. 9
President Biden’s $1.9 Trillion American Relief Plan (ARP) Proposal
Source: Cornerstone Macro report as of January 15, 2021.
Proposal Listed in Billions

10. 10
Higher Corporate Tax Rates
Raise corporate tax rate from 21% to 28%
Create a minimum 15% book tax rate
Double the global minimum tax on offshore
profits from 10.5% to 21%
Carried interest treated as ordinary income
Introduce a financial transactions tax
Biden’s proposed fiscal policy platform
Higher Individual Tax Rates
Restore the top tax rate at 39.6%
Tax capital gains (20%) & dividends (22%) at
ordinary rates
Cap deductions at 28%
Does not fully restore the SALT deduction
Increase Social Security Benefits
Eliminate the income cap on Social Security
taxes (12.4%), currently at $142,800
Double the Federal Minimum Wage from
$7.25 to $15 per Hour
Higher consumer prices
Lower profit margins
Increased unemployment
Expand the Affordable Care Act
Higher Estate Taxes
Increase tax rate from 40% to a graduated rate
of 77%, reduce the exemption from $11.58M to
$3.5M, and eliminate the step-up basis on estate
taxes
College Education
Free two-year community college and four-year
college for families making less than 125K
Absolve $1.7 trillion student-loan debt
10k max per borrower

11. 11
Trump tax cuts in 2017 solved U.S. corporate inversion problem
Source: Organization for Economic Co-Operation and Development (OECD), as of August 2016 and August 2020.
*Combined corporate income tax rate - shows the basic combined central and sub-central (statutory) corporate income tax rate given by the adjusted central government rate plus the sub-central rate.
2020 Combined Corporate Income Tax Rate %*
Global Corporate Average
22%
2016 Combined Corporate Income Tax Rate %*

12. 12
Note: Utilities and Equity Real Estate Investment Trusts (a Real Estate industry) were excluded from the analysis.
Source: US Equity & Quant Strategy, Compustat Global Research as of July 20, 2020.
Corporate earnings would likely get hit
Estimated S&P 500 Earnings Impact Based on Biden’s Proposals

13. 13
Higher earners already paying a progressively larger share of the
federal tax burden
Source: IRS, Strategas, as of December 2020.
The “rich” are certainly
getting richer…
…but they are also paying a proportionately
larger share of federal taxes
+ 9.6%
+ 12.4%
+ 12.6%
- 5.1%
+ 14.3%
+ 17.7%
+ 16.7%
- 3.6%
2018 Income
greater than: $540K $218K $152K $87K $44K $0K
2018
1986
2018
1986
2018 Income
greater than: $540K $218K $152K $87K $44K $0K

14. 14
Current structure of the Supreme Court of the United States
Liberal
Swing
Conservative
John Roberts
Age 65
15 Years on Bench
Will the D’s fulfill their promise to introduce term limits and “Stack the Court?”
Samuel Alito
Age 70
14 Years on Bench
Clarence Thomas
Age 72
28 Years on Bench
Neil Gorsuch
Age 52
3 Years on Bench
Brett Kavanagh
Age 55
2 Years on Bench
Elena Kagan
Age 60
10 Years on Bench
Sonia Sotomayer
Age 66
11 Years on Bench
Stephen Breyer
Age 82
26 Years on Bench
Note: Gray shaded boxes indicate oldest sitting justices by age.
Amy Coney Barrett
Age 48
Just seated

15. 15
New way to measure monetary policy
The Thinking About Index
“We’re not even thinking about thinking about raising rates”
– Jerome Powell, June 10, 2020
“We’re not even thinking about thinking about thinking about raising rates”
– Jerome Powell, July 29, 2020
New Fed Chair in February 2022. Will Biden
reappoint Powell?
• Dr. Lael Brainard, Ph.D.
• Dr. Roger Ferguson, Ph.D.
• Dr. Raphael Bostic, Ph.D.
Possible third new Fed mandate: price stability, full
employment, and racial diversity

16. 16
Hotter for longer
Core Consumer Price Index (CPI) peaked at 2.4% year-over-
year in February 2020, troughed at 1.2% in June 2020, and
has risen to 1.6% in March 2021.
Core Personal Consumption Expenditure (PCE) Index peaked
at 1.9% year-over-year in February 2020, bottomed at 0.9%
in April 2020, and has rebounded to 1.4% in February 2021.
The spread between core CPI and core PCE is typically about
0.5%.
The Federal Reserve has pledged to allow core PCE to
average 2.0% for at least a year – which means that it
could temporarily reach 2.25% to 2.50% for a period of
time – before it will begin to raise the federal funds
rate, which is currently anchored in a range of zero to
0.25%.
Over the past 25 years, core PCE has averaged 1.7% -- which
is below the Fed’s oft-stated 2.0% target -- within a range of
2.5% to 0.9%.
The Fed’s objective is to boost employment, particularly
for low-wage employees, by keeping interest rates
lower for longer to run the economy hotter for longer.
Source: Bureau of Labor Statistics (top) Bureau of Economic Analysis (bottom).
Data as of April 15, 2021.
US Core Consumer Price Index (CPI)
Year-over-Year
US Core Personal Consumption Expenditure Index (PCE)
Year-over-Year

17. 17
But nominal inflation is rising sharply
Source: Bloomberg. Data March 11, 2021.
Corn
up 70%
over the past
9 months.
Wheat up
40%
over the past
9 months.
Soybeans
up 80%
over the past
10 months.
Crude oil (WTI)
up 100%
over the past
5 months.
Lumber up
300%
over the past
12 months.
Copper
up 100%
over the past
12 months.

18. 18
Question – When will the Federal Reserve raise interest rates for
the first time this cycle?
A. The second-half of 2021
B. During 2022
C. During 2023
D. During 2024 or later

19. 19
Eliminate filibuster in Senate
Modern Monetary Theory (MMT)
Green New Deal
Statehood for Washington, D.C. & Puerto Rico
Ban fracking on federal lands
Payment of slavery reparations
Reduce defense spending (guns vs. butter)
Other possible democratic policies?

20. 20
Source: Federated Hermes and FactSet as of April 15, 2021.
Record S&P 500 decline erased by record rebound
Feb. 19
Record
S&P 500 Performance
 S&P 500 plunges by 35.4%
from a record intraday high of
3,393.52 on February 19, 2020
to an intraday low of 2,191.86
on March 23, 2020, marking
the quickest and steepest drop
from a record high to a bear
market in history.
 S&P 500 rallies by 54.9% from an
intraday low of 2,191.86 on
March 23, 2020 to a new intraday
record high of 3,395.06 on
August 18, 2020, marking the
fastest recovery from a bear
market to a new record high in
history.
 This powerful 104-day surge of
54.9% marks the S&P 500’s
single-fastest rally since 1933.
 New record high of 4,169.14 on
April 15, 2021, 90% from the
March 23rd bottom.
Mar. 23
Trough
-35%

21. 21
U.S. Labor market & stocks have rebounded from their lows
Source: Strategas Research Partners as of April 15, 2021.
S&P 500 up 90%
Initial Weekly Jobless Claims
down 91%

22. 22
• 6.0% official rate of unemployment (U-3) as of
March 2021, down from a cycle peak of 14.8% in
April 2020. Pre-pandemic unemployment was
3.5% in February 2020.
• 3.7% unemployment for those over 25 years of
age with a bachelor’s degree or higher in March
2021, down from 3.8% in February 2021 and
8.4% in April 2020. Pre-pandemic unemployment
was at 1.9% in February 2020.
K-shaped recovery in labor market improving sharply
• 8.2% unemployment for those over 25 years of
age with less than a high school diploma in
March 2021, down from 10.1% in February 2021
and 21.2% in April 2020. Pre-pandemic
unemployment was at 5.8% in February 2020.

23. 23
Quarterly data. US data based on nominal dollar household gross savings. European data based on nominal euro household gross savings. UK data converted to euros based on sterling/euro rate for each year.
Source: BEA, Deutsche Bundesbank, ONS, BoE, INSEE, Berenberg calculations. Report as of January 8, 2021.
Savings surge of 2020 can fuel consumer boom in 2021
Aggregate Household Savings (Q1 to Q3 2019 = 100)

24. 24
GDP: Unprecedented V-shaped recovery
Views are as of April 19, 2021
Note: *Great Recession ended June 2009.
Source: The Commerce Department as of April 2021 and includes benchmark revisions recently made.
1Q 2Q 3Q 4Q FY
2007 0.9 2.3 2.2 2.5 1.9
2008 (2.3) 2.1 (2.1) (8.4) (0.1)
2009 (4.4)* (0.6)* 1.5 4.5 (2.5)
2010 1.5 3.7 3.0 2.0 2.6
2011 (1.0) 2.9 (0.1) 4.7 1.6
2012 3.2 1.7 0.5 0.5 2.3
2013 3.6 0.5 3.2 3.2 1.8
2014 (1.1) 5.5 5.0 2.3 2.5
2015 3.8 2.7 1.35 0.6 3.1
2016 2.3 1.3 2.2 2.5 1.7
2017 2.3 1.7 2.9 3.9 2.3
2018 3.8 2.7 2.1 1.3 3.0
2019 2.9A 1.5A 2.6A 2.4A 2.2A
2020 (5.0)A (31.4)A 33.4A 4.3A (3.5)A
2021 6.3E 8.3E 7.9E 5.9E 6.6E
2022 - - - - 4.5E

25. 25
Federated Hermes Forecast
Views are as of April 19, 2021
2016A 2017A 2018A 2019A 2020A 2021E 2022E
Real GDP 1.70% 2.30% 3.00% 2.20% (3.50)% 6.60% 4.50%
Core CPI 2.20% 1.80% 2.20% 2.30% 1.60% 2.60% 2.80%
Core PCE 1.80% 1.60% 2.00% 1.60% 1.50% 2.20% 2.40%
Benchmark 10yr
Treasury Yield
2.50% 2.40% 2.68% 1.92% 0.92% 2.25% 2.50%
Fed Funds Rate 0.75% 1.50% 2.50% 1.75% 0.25% 0.25% 0.25%
S&P 500 EPS $119 $133 $163 $167 $150E $180 $200
Target Forward P/E 16.8x 16.4x 15.0x 25.9x 20.9x 22.5x 22.7x
S&P 500 Target Price 2,239 2,674 2,507 3,231 3,756 4,500 5,000
PCE = Personal Consumption Expenditures. 2016, 2017, 2018, 2019 and 2020 are actual, except where otherwise noted.
Views are as of the date indicated and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
Source: Federated Hermes and the Commerce Department.

26. 26
Federated Hermes Investment Focus
Views are as of April 15, 2021
Recommended Sector Allocation
Overweight
• Discretionary
• Energy
• Health Care
• Industrials
• Financials
Neutral
• Comm.
Services
• Materials
• Technology
Underweight
• REITs
• Staples
• Utilities
• Equity – 6% Overweight
• Bonds – 7% Underweight
• Alternatives – 1% Overweight
• Cash – Neutral
• Fixed Income Duration – 90.0%
Asset Allocation Matrix
Equities
Overweight
• U.S. Small Cap
• U.S. Large Cap Value
• Emerging Markets
Neutral
• U.S. Large Cap
Growth
• Eurozone
• Japan
• United Kingdom
Underweight
Bonds
Overweight Neutral
• MBS
• Muni’s
• TIPS
Underweight
• Agencies
• CMBS
• Treasuries
• High Yield
• IG Corporates
• Emerging
Markets
• International
Developed
Recommended % Allocation

27. 27
Question – What is your personal vaccination status?
A. I am already fully vaccinated
B. I have already received one shot of a two-dose
regiment
C. I have an appointment to receive my first shot
D. I have chosen to opt out and I will not be
vaccinated

28. 28
Record COVID-19 levels vs. the start of vaccinations
Source: The CDC website COVID Data Tracker Weekly Review as of April 20, 2021 (left). Federated Hermes and Github Covid-19 data as of April 20, 2021 (right)
Vaccination is happening, but it must go faster to counter record cases, hospitalizations & deaths
Daily Total Doses Administered Within the US (7-Day Avg)
Daily Trends in COVID-19 Cases in the United States Reported to CDC
7-Day moving average
Daily Trends in Number of New COVID-19 Hospitalizations in the US

29. 29
Vaccinations ramping up sharply in the United States
Cumulative Count of Fully Vaccinated People Reported to CDC
Total as of April 19, 2021: 85,365,183
Cumulative Count of Total Doses Administered and Reported to CDC
Total as of April 19, 2021: 211,581,309
Source: The CDC website COVID Data Tracker Weekly Review as of April 20, 2021.

30. 30
.
Total vaccinations exceed the total number of confirmed cases
Source: Federated Hermes and Ourworldindata.org. as of April 20, 2021.

31. 31
Adult herd immunity by late April or early May in the US
Source: Strategas Research Partners. Report as of March 11, 2021.

32. 32
Operation Warp Speed was a huge success
Source: The New York Times as of April 15, 2021.
Oxford University/
AstraZenaca
Moderna
Johnson &
Johnson
There are currently well over 89 different vaccines with
trials ranging from pre-clinical to awaiting regulatory
approval.
 M-RNA based two-dose
vaccine.
 Received emergency approval
in the UK, currently awaiting
approval in the US, FDA
meeting is on December 10th.
 Vaccines must be transported
at -94 0F and can be kept in a
refrigerator for up to five days.
 Trial data shows effectiveness
to be over 95%.
 Pfizer & BioNTech reduced their
estimated 2020 vaccine output
from 100 million to 50 million
vaccines and expect 1.3 billion
doses worldwide in 2021.
 The FDA granted emergency
use authorization of the
vaccine on December 10, 2020
and the company plans to file
for full approval in April 2021.
Pfizer & BioNTech
 M-RNA based two-dose
vaccine.
 Vaccines must be stored
frozen at -20 0C and can be
kept in a refrigerator for up
to seven days.
 Trial data shows effectiveness
to be approximately 95%.
 On December 18, they were
granted emergency use
authorization by the FDA.
 Expected to produce between
500 million and 1 billion
vaccines in 2021.
 Adenovirus based vaccine.
 Successful trials showing a
percent effectiveness rate of
approximately 90% in one trial
and 62% in another trial.
 Can be effectively stored at
normal refrigerator
temperatures for up to 6
months.
 Total annual manufacturing
capacity of two billion doses if
approved.
 Several countries in Europe
and elsewhere halted their use
of the vaccine after a small
number of people who
received it developed blood
clots.
 On April 14th, it was reported
that the European Commission
will not renew its contract for
the vaccine, opting to focus on
mRNA technology instead.
 On April 15th, Denmark
announced that it will
permanently stop the use of
the vaccine.
 Adenovirus based vaccine.
 Targeting a single-dose vaccine
that can be effectively stored
at normal refrigerator
temperatures for at least 3
months.
 On Jan. 29, they announced
the vaccine had an efficacy of
72% in the United States.
 On Feb. 27, the F.D.A. issued
an emergency use
authorization, making it the
the first to offer just one dose.
 Merck announced that it will
help manufacture the vaccine.
 The company is aiming to
meet their deadline of 100
million doses by the end of
June and production of a billion
doses in 2021.
 On April 13th U.S. health
agencies call for a pause in
Johnson & Johnson
vaccinations due to reports of
blood clotting issues.
 On April 14th, it was reported
that the European Commission
will not renew its contracts for
the vaccine, opting to focus on
mRNA technology instead.
Novavax
 After getting promising results
from preliminary studies in
monkeys and humans, Novavax
launched a Phase 2 trial on
2,900 people in South Africa in
August, and the next month it
launched a Phase 3 trial with
up to 15,000 in the United
Kingdom.
 On Dec.28 a 30,000-person
phase 3 trial started here in the
US and is expected to deliver
results in April.
 In March, the chief executive of
Novavax said their vaccine
might get authorized by the
F.D.A. in May.
 On March 11th, Novavax
reported that their United
Kingdom trial determined an
efficacy rate of 96 percent
against the original
coronavirus.

33. 33
Biography
Philip Orlando, CFA
Chief Equity Market Strategist
Head of Client Portfolio Management
Senior Vice President
40 Years of Industry Experience

34. 34
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