Fidelity^® Wealth Services

First Quarter 2024 Review

• Market Backdrop: The U.S. economy continued to grow, and the global economy stabilized, supporting positive performance in stock markets around the world.¹
• Positioning: We increased exposure to U.S. and international stocks, and reduced money market and bond investments to take advantage of improving economic conditions.
• Performance: Stocks gained significantly during the quarter, but higher interest rates weighed on bond returns. Defensive portfolio returns were positive and delivered lower volatility compared to the broader market.
• Outlook: The U.S. economy continued to grow, and the global economy stabilized, supporting positive performance in stock markets around the world.

 A defensive approach to investing:

• A defensive approach to investing seeks to deliver less significant losses during down-markets in exchange for limited gains in up-markets compared to a total return approach.

• A stronger economic outlook raised earnings expectations, which likely helped contribute to positive stock returns for the quarter.
• The U.S. Federal Reserve (Fed) indicated it will hold off on rate cuts until it sees further declines in inflation.

U.S. stocks benefited from improved consumer confidence. This confidence may lead to continued spending on goods and services. This, coupled with a still-healthy job market, could help drive profit growth for U.S. companies. The Fed kept interest rates unchanged as it continued to battle inflation. Inflation has come down significantly from its peak of 9%, hovering just above 3% since last fall.²

International stocks rose for the quarter, supported by economic activity and improving earnings outlooks.³ Japan was the top-performing region within international developed stocks.⁴ Corporate governance changes in Japan have led to renewed focus on profit growth. Meanwhile, Hong Kong’s poor performance was likely due to sluggish economic growth in China.⁵

Taiwan and India led the way for emerging markets.⁶ Both countries benefited from improving economic backdrops. Economic challenges, including a struggling real estate sector, resulted in unimpressive stock returns in China.⁷

Bonds struggled as rising interest rates created a difficult environment for bond returns. Interest rates rose because the market lowered its expectations for Fed rate cuts. High yield bonds, bank loans, and emerging market bonds experienced gains, which helped offset negative returns from other bonds.⁸

• We increased exposure to broad-market, U.S. and international stocks, which we believe could benefit from the continued global economic expansion.
• We reduced money-market and bond investments in favor of stocks.

We continue to emphasize conservative stocks, such as low volatility and quality, since they have generally experienced more price stability than broad-market stocks during volatile periods. However, we slightly increased exposure to broad-market stocks given their greater sensitivity to increases in economic activity.

To protect against stock market volatility, we maintain a higher allocation to bonds compared to your long-term target asset allocation mix. We favor high quality, intermediate-term U.S. Treasury bonds along with U.S. Treasury Inflation Protected Securities to provide income and stability. With the uptick in rates offered across the bond market, we increased allocations to longer-term bonds and other high-quality bonds such as corporates, mortgage-backed, and securitized. We believe diversified bond holdings help position client portfolios to withstand periods of elevated stock market volatility.

We maintained positions in alternative investment strategies. These strategies remain an important part of your portfolio as they seek to reduce volatility and have shown different return patterns than broad market stocks and bonds. In addition to high-quality bonds and short-term investments, alternatives have historically provided stability during periods of stock market volatility.

As a reminder, your Defensive investment approach account seeks to temper downside risk in an effort to provide a smoother investment experience over the long term.

• Portfolio returns gained significantly during the quarter.
• Defensive portfolios tempered overall market volatility primarily due to the lower allocation to stocks compared to the long-term target mix.

• Tax-loss harvesting may be a powerful technique to generate tax savings for investors. Over time, those savings can be invested, giving them a chance to potentially grow over the long term.
• In addition to tax-loss harvesting, we seek to enhance returns on an after-tax basis using a variety of other tax-smart investing techniques.⁹
• Municipal bond securities typically generate income free from federal taxes and, in some cases, from state taxes as well. Our investment managers may add exposure to municipal bonds in an effort to take advantage of their potential tax benefits.
• Municipal bonds fell 0.4%¹⁰ for the quarter, outperforming other investment-grade bonds by 0.4%.¹¹
• We believe fundamentals within the municipal bond market remain solid for tax receipts and revenues, which may support a good outlook for returns in the coming year.

• The job market continues to show signs of strength, wages have been rising, and consumer spending has remained positive.
• Bouts of volatility may occur as the U.S. remains in late-cycle expansion.

In addition to a strong job market, rising wages, and positive consumer spending, global manufacturing activity has shown improvement. These factors have the potential to support positive earnings growth and ongoing positive stock returns.

We are closely monitoring a few key risks that could change our outlook. Inflation has been more stubborn than markets had anticipated at the end of last year. This may lead to an extended period of elevated interest rates, resulting in slow economic growth. Political news headlines may also contribute to periods of volatility in the lead up to the election this year. However, stocks have historically experienced healthy gains during election years.

We believe our current positioning will likely benefit our clients if markets continue to rise. Furthermore, we believe our positioning may help provide stability if markets experience turbulence from late-cycle volatility. If the economy shows signs of stalling, we are prepared to proactively manage for further risk.