December 2013 Technical Market Outlook

Peter Lee – Chief Technical StrategistCIO Wealth Management Research

This report has been prepared by UBS Financial Services Inc. (“UBS FS”).

All charts and data are sourced from Thomson Reuters, Bloomberg, Indexindicators.com and UBS CIO WMR as of 13 December 2013

16 December 2013

1

Highlights• Equities – US Equities (SPX) – Three uptrend channels have developed over the past 4+ years. The first channel corresponds to the March

2009 uptrend channel between 1,419 and 1,791. This remains the dominant trend providing major investment term support and resistance. The height of the channel is approximately 372 points. A breakout above 1,791 renders an upside target to 2,163, longer term. On the other hand, violation of 1,419 renders a downside risk to 1,047. A positive outside month in October 2011 has led to a second and steeper uptrend channel. The top of this uptrend channel is 1,834 and the bottom of channel is 1,600. The 10-week and 30-week moving averages at 1,775 and 1,699 offer key initial support. A third uptrend has recently developed from the June 2013 low between 1,699 and 1,816. Failure to breakout above 1,816 coupled with an overbought condition and a negative outside week pattern during 12/13/13 warns of a correction. This correction may help to alleviate an overbought condition and set the stage for a year end to early 2014 rally. Initial trading support now moves up to 1,746-1,775 or to the November lows, 23.6%–38.2% retracement from the October–November rally and the 50-day moving average. Secondary support also rises to 1,695–1,699 coinciding with the bottom of the June uptrend channel and 150-day moving average. The height of the channel is 117 points. A breakout above the top of the six-month channel at 1,816 can send SPX to 1,933 possibly as early as the 1Q or 2Q 2014. However, a breakdown below 1,699 warns of a deeper correction towards 1,582.

• Currencies – The US Dollar Index has become increasingly erratic after violating its 2011 uptrend in the low 80s. This confirms a bearish rising wedge pattern. However, a large trading range has developed in the past two years as USD is confined between 78.6010–78.9980 and 84.1000–84.7530. On a near-term basis, key initial resistance is visible at 81–81.4375, corresponding to the July 2013 downtrend and 150-day moving average. Failure to breakout here coupled with violation of 78.6010 can trigger the next decline to 75.541–77.302.

• 10-year US Treasury yields – Despite worries of Fed tapering and inflationary concerns, the structural downtrend channel from the 1980s remains intact for the US 10-year Treasury yields (TNX). The top of the channel is 3.85% and the bottom of channel is 0.69%. On a near to intermediate term perspective, the sharp rally from the May 2013 low of 1.62% has stalled near 3.0% initiating a recent trading range between 2.46% and 3.0%. It appears an inflection point is near, as a breakout above 3.0% can send rates to 3.40–3.50% or possibly to the top of its long-term channel at 3.85%. However, a breech of 2.46% can also lead to a sudden decline to 1.85–1.92%.

• Commodities – Commodity prices as represented by the CRB Index remain weak heading into the end of the year as window dressing and tax loss selling can negatively impact commodities. Gold continues to struggle and may retest its July 2013 low of 1,183. Crude oil has also weakened in sympathy with other commodities but retains two important symmetrical triangle patterns. Copper may be approaching a critical stage, as it needs to maintain key support at 2.85–3.0. A breakout above 3.3–3.4 helps to sustain a major recovery.

• S&P 500 Sectors – Investors continue to favor economically leveraged sectors such as S&P Consumer Discretionary, Technology and S&P Industrials heading into the end of the year. Healthcare is overbought and vulnerable for a correction. Commodity-based sectors such as Materials and late cycle cyclical sectors such as Energy may offer technical values for a early 2014 rally. Telecom Services and Utilities continue to struggle into year end by underperforming. Consumer Staples has set new highs but may be approaching key upside targets.

2

SPX Index – Monthly Seasonality Study since 1929 - Present

As we head into another midterm election year (2014), the strong rally over the past year may begin to subside during early 2014 as evident by lower returns from Feb-Sep during Mid-term Elections setting the stage for another midterm election low.

The yearly returns the past few years have not been normal, as the historical average yearly returns for SPX has been closer to 7.14% each year since 1929. Will SPX begin to return to its historical average next year?

Y e a r l y %T i m e P e r io d D u r a t i o n J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c R e t u r n s

A l l1 9 2 9 - 2 0 1 3 M k t 8 4 y e a r s 1 . 3 1 - 0 . 1 7 0 . 5 8 1 . 2 5 - 0 . 1 2 0 . 7 2 1 . 5 2 0 . 6 9 - 1 . 0 7 0 . 3 8 0 . 6 0 1 . 4 5 7 . 1 4

2 . 9 3 3 . 3 60 . 4 1 0 . 4 7

B e a r1 9 2 9 - 1 9 4 9 M k t 2 0 y e a r s 1 . 8 5 - 0 . 2 8 - 1 . 8 8 0 . 4 3 - 1 . 0 6 3 . 2 3 3 . 0 9 2 . 6 6 - 3 . 0 1 - 0 . 8 1 - 2 . 6 1 0 . 7 7 2 . 3 9

8 . 9 9 0 . 0 1

B u l l1 9 4 9 - 1 9 6 6 M k t 1 7 y e a r s 1 . 0 6 - 0 . 4 2 1 . 1 6 1 . 2 0 - 0 . 2 8 - 0 . 4 0 2 . 9 3 - 0 . 5 0 - 0 . 2 0 0 . 9 7 2 . 2 7 2 . 1 7 9 . 9 6

2 . 0 3 5 . 5 1 0 . 2 0 0 . 5 5

B e a r1 9 6 6 - 1 9 8 2 M k t 1 6 y e a r s 0 . 8 8 - 0 . 7 9 0 . 7 3 1 . 2 8 - 1 . 4 4 0 . 0 6 - 0 . 2 5 0 . 2 4 - 0 . 3 6 1 . 1 7 1 . 2 9 0 . 8 4 3 . 6 5

0 . 0 6 3 . 0 00 . 0 2 0 . 8 2

B u l l1 9 8 2 - 2 0 0 0 M k t 1 8 y e a r s 2 . 3 0 0 . 9 6 1 . 4 5 1 . 3 3 1 . 3 5 1 . 1 9 0 . 5 5 0 . 7 8 - 0 . 3 5 0 . 7 8 0 . 9 9 2 . 3 9 1 3 . 7 2

2 . 5 2 5 . 6 80 . 1 8 0 . 4 1

B e a r2 0 0 0 - 2 0 1 3 M k t 1 3 y e a r s 1 . 3 1 - 0 . 1 7 0 . 5 8 1 . 2 5 - 0 . 1 2 0 . 7 2 1 . 5 2 0 . 6 9 - 1 . 0 7 1 . 0 2 0 . 6 4 1 . 1 1 7 . 4 8

2 . 9 3 3 . 0 60 . 3 9 0 . 4 1

S e c u l a r B e a r / T r a d in g M a r k e t s ( 3 ) 1 . 3 5 - 0 . 4 1 - 0 . 1 9 0 . 9 9 - 0 . 8 7 1 . 3 4 1 . 4 5 1 . 2 0 - 1 . 4 8 0 . 4 6 - 0 . 2 3 0 . 9 1 4 . 5 1A ve r a g e r e t u r n s fo r t h r e e m o n t h s 3 . 9 9 2 . 0 3( J u n , J u l & A u g vs . N o v, D e c & J a n ) 0 . 8 8 0 . 4 5

S e c u l a r B u l l / T r a d i n g M a r k e t s ( 2 ) 1 . 6 8 0 . 2 7 1 . 3 1 1 . 2 7 0 . 5 4 0 . 4 0 1 . 7 4 0 . 1 4 - 0 . 2 8 0 . 8 8 1 . 6 3 2 . 2 8 1 1 . 8 4A ve r a g e r e t u r n s fo r t h r e e m o n t h s 2 . 2 7 5 . 5 9( J u n , J u l & A u g vs . N o v, D e c & J a n ) 0 . 1 9 0 . 4 7

F i r s t Y e a r ( y e a r 1 ) 0 . 8 0 - 2 . 1 0 0 . 4 9 2 . 4 0 2 . 0 0 0 . 4 9 2 . 2 9 - 0 . 0 7 - 1 . 6 4 - 1 . 3 1 0 . 5 4 0 . 2 5 4 . 1 32 . 7 1 1 . 5 8

M i d - t e r m E l e c t i o n ( y e a r 2 ) 0 . 6 9 0 . 1 4 0 . 0 5 0 . 6 7 - 1 . 0 6 - 1 . 2 4 0 . 6 2 - 0 . 6 4 - 1 . 1 9 2 . 5 9 2 . 0 2 1 . 7 6 4 . 4 1- 1 . 2 6 4 . 4 7

P r e - e le c t i o n Y e a r ( y e a r 3 ) 3 . 3 3 1 . 2 9 0 . 6 7 2 . 2 1 0 . 0 9 1 . 3 2 0 . 5 7 0 . 4 3 - 1 . 2 5 0 . 7 4 - 1 . 4 6 2 . 4 1 1 0 . 3 52 . 3 2 4 . 2 8

E l e c t i o n Y e a r ( y e a r 4 ) 0 . 3 0 0 . 1 4 0 . 6 9 - 0 . 7 5 - 1 . 6 6 1 . 7 7 1 . 9 7 2 . 8 5 - 0 . 4 0 - 0 . 2 9 0 . 0 5 1 . 4 5 6 . 1 26 . 5 9 1 . 8 0

3

Psychology of the Stock Market – Fear, Greed and Hope

Optimism

Excitement

Thrill

Greed/Euphoria – 1st Half 2007

Anxiety

Denial

Fear – 1st Half 2008

Desperation

Panic

Capitulation

Despondency – 4th Qtr 2008

Depression – 1st Qtr 2009

Hope

Relief

Optimism – 1st Qtr 2012

Are we here?

Greed/Euphoria – 1st Qtr 2014

Excitement

Thrill

2nd Half of 2014

2nd Qtr of 2014

2016/early 2017

4

SPX Index – Secular Trends from 1900 to Present

1

10

100

1,000

10,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Secular Bear Trading Range

1906-1921

Secular Bull1982-2000

Secular Bear Trading Range

1966-1982Secular Bull

1949-1965Secular Bear Trading Range

1929-1949Secular Bull1921-1929

Secular Bear Trading Range2000-Present

For the past 200+ years, SPX has consistently alternated between periods of long-term bullishness via secular bull trends and periods of long-term bearishness via secular Bear/Trading range trends without ever missing a cycle.

7 structural bull: 1982-2000, 1949-1966, 1921-1929, 1896-1906, 1861-1881, 1843-1853, 1815-1835

8 structural bear/trading range: 2000-present, 1966-1982, 1929-1949, 1906-1921, 1881-1896, 1853-1861, 1835-1843, 1802-1815

Secular Trading Range Market 2000-2020

2014-2015

2016-2017

Final low to 2000-present structural trading range???

5

SPX Index – Longer-term, Intermediate and Short-term Trends

The March 2009 uptrend channel between 1,419 and 1,791 is the dominant trend providing major support and resistance. The height of the channel is 372 points. A breakout above 1,791 renders upside to as high as 2,163. Breakdown below 1,419 warns of a decline to as low as 1,047.

SPX has broken out of its 2000/2007 uptrend at 1,600. The 4+ year cyclical bull can sustain as long as it retains its prior breakout and 10-mo moving average (1,674). Violation of 1,600 suggests a correction to 1,411–1,460.

A positive outside month on Oct 2011 has led to a steeper uptrend channel. The top of the channel is at 1,834 and the bottom is at 1,600. Key initial support now moves up to its 10/30wk moving average at 1,775/1,699.

Another uptrend channel has arisen since June (1,699 and 1,816). Failure to breakout above 1,816 coupled with a negative outside week (12/13) warn of a correction to initial support at 1,746–1,775 and possibly 1,695–1,699. The height of the channel is 117 points. Breakout above 1,816 suggests upside to 1,933. Breakdown below 1,699 suggests 1,582.

6

US Equities – SPX, Russell 3000, Russell 1000 and NDX 100

The Russell 3000 Index broke out above the previous 1999/2007 highs at 961during May 2013. This breakout now suggests upside to 1,126 or to the top of its 2009 rising wedge. Key initial support is 1,000 and 949-961.

The SPX Index broke out above its 2000/2007 highs in June 2013 above 1,600. This breakout suggests higher prices possibly to 1,900+. Given the sharp rally, SPX is vulnerable for pullbacks to supports at 1,675/1,600/1,459.

The Russell 1000 Index broke out above its prior 2000/2007 highs at 885 during May 2013. This breakout renders the next upside target to 1,093 or to the top of its 2009 rising wedge. Key supports are 931/885/809.

The NASDAQ 100 cleared the top of its 2002 uptrend channel (3,180) and above its 61.8% retracement (3,280) from the 2000–2002 decline. The next upside is to the 76.4% retracement at 3,867. Supports correspond to 3,130/2,863/2,745.

7

US Equities – Dow Jones Industrial Average, Dow Jones Transportation Average, NYSE Composite and Russell 2000

The Dow Jones Transportation Index is also nearing major resistance along the top of its broadening top pattern at 7,195 (point E). A breakout can lead to a test of the top of its 2009 wedge (8,079). Key support is at 6,537–6,549 and then 5,597.

The Dow Jones Industrial Average is headed for a test of key resistance at the top of its broadening top/megaphone trend (point E – 16,490) and the top of its 2009 rising wedge (16,690). Initial support is at 15,229–15,368.

The New York Composite continues to lag its counterparts, trading below its all-time 2007 high of 10,387, the top of its uptrend channel (11,123) and broadening top (13,908). Support is at 9,540/9,127 and then 8,489–8,700.

The Russell 2000 Index has recorded new all-time highs but has now slipped below the top of its 2000 uptrend at 1,143. A broadening top and a rising wedge pattern warns of a matured rally. Key support is now at 1,034/955 and then 856–876.

8

International Equities – Nikkei 225, EAFE, Europe and EM

The MSCI EAFE has cleared 1,812–1,826 or its 2011 high and the 61.8% retracement from 2007–2009 decline. This breakout negates a head and shoulders top, suggesting upside to 2,045/2,399. Initial support is 1,760.

The Japanese Nikkei 225 is nearing its 1996 downtrend (15,734) and its May 2013 high (15,943). A confirmed breakout above 15,943 renders upside to 18,300 (2007 high) and then to 19,207 or the 38.2% retracement from the 1989–2008 decline. Key initial support is at 14,241/14,821 or 10/30-wk moving average.

MSCI Emerging Markets Index is locked within two existing trading ranges. The first is the 2008 triangle pattern between 823 and 1,111. Secondly, a 2009 head/shoulders top pattern implies a range between 882 and 1,081.

Despite near term technical improvements the Shanghai Composite SSE Index remains in a downtrend channel between 2,478 and 1,659. A breakout above 2,478 confirms a sustainable recovery to 2,717/2,930/3,368. Key support is at 1,850/1,659-1,665/1,520.

9

Currencies – US Dollar Index, Euro and Yen

For the past two years, USD has been confined to a trading range between 78.6 and 84.75. A breakdown below 78.6 renders downside to 72.5. A breakout above 84.75 suggests upside to 90.9. Initial resistance is near 81.

The US Dollar Index remains in a symmetrical triangle between 74.5 and 86. However, the recent breakdown of the 2011 rising wedge at 81 is negative. Also a head/shoulders top has developed. Neckline support is 78.6–78.72.

The 2012 symmetrical triangle breakout above 1.34 has led to a sharp rally which has stalled near 1.39 or the 10/24/13 high, the top of a 2008 triangle and the 61.8% retracement of the 2011–2012 decline. Key support is at 1.3351/1.3070.

The Japanese yen has rallied sharply from its 10/11/11 low of 75.55 but has stalled near 103.73 (May 2013 high). There is major resistance also at 102.5–105.59 or the 2008 breakdown and the 61.8% retracement of the 2008–2011 decline.

10

Commodities – CRB Index, Gold, Crude Oil and Copper

A 3-year descending triangle warns of a top. Neckline support is 2.85–3.0 or the 2007/2011 lows and the 50% retracement (2.94) from 2008–2011 rally. To negate this bearish pattern, copper needs to trade above 3.3–3.4.

The CRB Index continues to weaken into year-end as evident by the recent breakdown below its 2009 uptrend at 284. This breakdown can lead to a retest of the 1999 long-term uptrend at 253. Key resistance is at 280–300.

Gold's failure to negate a wedge during its recent Jun-Aug rally to 1,416 (key resistance) now suggests a retest of major support at 1,183 or the June low. Breakdown here suggests 1,138–1,151 or the 61.8% retracement from the 2008 to 2011 rally.

After breaking out of two triangle patterns, crude oil has slipped below its two prior key breakouts. However, the ability to retain two key up trends (92/82) and a surge above key resistance at 100–102 reaffirm breakouts.

11

Fixed Income – US 10-Year Treasury Yields (TNX)

TNX has rebounded from its key near term support at 2.48-2.56% or the 150-day ma, the 38.2% retracement from the May-Sep 2013 rally and the Oct 2013 lows. It is nearing a test of key near term resistance at 3.0%.

The downtrend channel from the 1980s remains intact. However, a golden cross buy signal (10-mo ma crossed above 30-mo ma) suggests a retest of the top of its channel (3.85%). The bottom of channel remains at 0.69%.

TNX has stalled near major resistance at 2.9-3.0% or the extension of 2009 triangle breakdown and the 61.8% retracement from the 2012-2013 rally. A breakout above 3% suggests upside to 3.4-3.5% and breakdown below 2.4% can lead to a decline towards 1.8-1.9%.

A Head and Shoulders (H/S) Top has developed over the past 6 months. Violation of neckline support at 2.42-2.46% renders downside to 1.84-1.88%. Trading above 2.76-2.84% suggests upside to 3.0% and then 3.5%.

12

S&P 500 Sectors – Consumer Staples and Telecom ServicesS&P Consumer Staples is nearing technical targets of 440-445 based on the breaking out of its 1999 uptrend channel during early 2011. In addition, it is just north of the top of its 4.5 year uptrend channel. Key support is 437/424.

Relative strength has been consolidating for the past 4+ years. However, it appears to be weakening. A decline below its 2000 uptrend confirms a major breakdown.

S&P Telecom Services remains weak as evident by a broadening top pattern since 2009. A 2012 head/shoulders top and another weekly death cross signal as the 10-wk ma (156) nears its 30-wk ma (155.5) hint of further selling pressure.

A descending triangle in the relative strength since 2001 does not bode well for the sustainability of the recent Telecom Services rally.

Broadening top pattern is negative

Descending triangle warns of further technical weakness

Key test of support

Still trending higher but is approaching target of 440-445

13

S&P 500 Sectors – Energy and FinancialsS&P Energy has completed a symmetrical triangle breakout earlier in the year via an upside gap breakout during Jan 2013. A retest of the May 2008 high (679) is now likely. Key support is at 610 or the 30-week ma and the 2012 uptrend.

Relative strength trend is not yet confirming broad participation within the Energy sector. A descending triangle pattern still suggests investors remain selective.

S&P Financials has broken out of a triangle pattern and surpassed its 38.2% retracement from the 2007-2009 decline at 240-244 rendering upside targets to the 50-61.8% retracement (295/346). Key support is 260-269 and then 243.

Since the 2009 low the relative strength trend has improved as evident by the 2009 downtrend breakout.

Approaching initial target at 295

Relative strength breakout

Large symmetrical triangle breakout

Relative strength is still weak

14

S&P 500 Sectors – Utilities and IndustrialsS&P Utilities may be establishing a major top after failing to breakout above the top of its uptrend channel at 211. An intermediate term top is confirmed if this sector breaks support at 183-185 or the Mar 2009 uptrend and the 30-month ma.

2 longer term relative strength trend lines have been broken. These technical developments may signal a continued underperformance cycle in Utilities.

S&P Industrials has broken out of 2 key resistances (381/337) rendering upside to 435 and then to 632, longer term. However, key resistance is at the top of 2009 channel (445) and the 2000 uptrend (450). Key initial support is at 381-399.

A symmetrical triangle relative strength breakout reaffirms the start of a sustainable rotation into this cyclical sector.

Close to achieving initial target at 435-450

5-year relative strength breakout confirms a new leadership sector

Approaching the bottom of a crucial 4+ year uptrend channel and 30-mo ma at 183-185

Relative strength breakdowns hint of further weakness

15

S&P 500 Sectors – Healthcare and TechnologyS&P Healthcare has exceeded its price target of 610, which is based on the 2012 breakout above 415. An extreme overbought condition has developed. This suggests this sector is vulnerable for a pullback to the mid to high 500s.

Relative strength trend may begin to slow as it nears its 2001/2009 peaks. Failure to breakout and a violation of the 2000 uptrend warn of a correction.

S&P Technology has cleared its 38.2% retracement (483) from the 2000-2002 decline paving the way for a retest of the 50% retracement (580). Trend lines are also converging at 590/610. Key support is at 498-517 or the bottom of 2009 uptrend channel and the 10-mo ma.

Relative strength has stabilized after declining from its 2012 high. Nonetheless, it remains in a trading range over the past 12 years suggesting selective buying.

Approaching technical target at 580-610

12 year trading range

Extremely extended and likely to correct towards the mid to high 500s

Will soon test 2001/2009 highs

16

S&P 500 Sectors – Materials and Consumer DiscretionaryA symmetrical triangle breakout at 238 renders a long-term target to 420 for S&P Materials. Key resistance is the May 2008 high (289.01). Failure to breakout may lead to a pullback to its 10-mo ma (260) and the Sep breakout (257).

Although the relative strength remains weak the underperformance cycle may be subsiding. However, its still needs to breakout to confirm a recovery.

S&P Consumer Discretionary continues to set new all time highs. However, the breakout at 320-325 renders an upside target to 520-525. We believe profit taking is likely to develop into this rally. Key support is visible near the 10-week and 30-week moving averages at 506 and 478, respectively.

The relative strength trend continues to trend higher indicating relative outperformance against SPX Index and S&P sector peers.

Nearing upside targets

Relative strength remains in a rising uptrend channel

Near term overbought but more upside after a normal correction

Relative strength breakout not yet confirmed

17

% of S&P 500 Stocks at 52-wk Highs vs S&P Stocks 52-wk LowsThe % of S&P 500 Stocks at 52-wk highs indicator continues to decline from its Jun 2013 highs (41%) to a current reading of 9.26%. A series of lower highs since Jun signals a negative divergence between the indicator and the SPX price.

The % of S&P 500 stocks at 52-wk lows indicator is again trading near an extreme low of .20%. This indicates that the strong SPX rally over the past few years may have basically eliminated almost all of the sellers and the bears.

18

% of S&P 500 Stocks above 200-day Moving Avg. and SPX/VIXThe % of S&P 500 Stocks trading above its 200-day moving average (77.67%) has declined, achieving a high in the low 90s during May 2013. A violation of the recent lows of 70% may signal the start of a much needed correction.

SPX Implied Volatility Index (VIX) has entered into a 1 year trading range between 10-11 and 21-23. A breakout above 21-23 suggests higher volatility SPX correction. A breakdown below 10-11 suggest lower volatility SPX rally.

19

% of NYSE Composite and DJIA stocks > 200-day Moving Avg.This technical study suggests the % of NYSE Composite stocks above the 200-day ma (67.62) traded to a high of 82-83 earlier in the year. This is below the levels of many of the other US Indexes suggesting a potential technical call.

The % of DJIA trading above its 200-day ma (83.33%) is currently showing one of the highest readings of all US indexes. Since DJIA is a narrowed based index its divergence against broader based indexes may signal a crowded trade.

20

% of S&P 100 and NASDAQ 100 stocks > 200-day Moving Avg.The % of S&P 100 Stocks or US mega cap stocks trading above its 200-day ma (81.44%) has also declined from the May highs (mid-90s%). However, it remains stronger than broader based US indexes suggesting continued strength.

NASDAQ 100 stocks trading above its 200-day ma indicator has also declined in recent months after briefly breaking out above its 2012/2013 highs. Is this then a normal correction and the resumption of the uptrend or a false breakout?

21

% of Mid Cap and Small Cap stocks > 200-day Moving Avg.Since the Midcap market has been a leader in the past 10+ years does this imply the Midcap market will also peak before other US markets. The % of S&P 400 Midcap Stocks trading above its 200-day moving average (69.60%) is approaching key support. A breakdown here warns of a potential market top.

The Small cap market has also been weaker than US peers as evident by the % of S&P 600 Small Cap stocks trading above its 200 day ma (66.44%). Similar to the Midcap markets it is also approaching key support along the low 60s.

22

Global Markets/QE Programs/9-inning Baseball Game Analogy

2nd to 3rd Inning

4th to 5th Inning European Equities – MSCI EMU IndexECB LTRO program – Long Term Refinancing Operation 2 stage program – stage 1 (12/21/11) and stage 2 (2/28/12)

Start of the Game (recovery) – (3/09)

Emerging Markets Equities - (MSCI Emerging Markets Index)

Japanese Equities - Nikkei 225 IndexBank of Japan – Kuroda and Prime Minister Abe Asset Purchase program – 4/13

US Equities - SPX IndexTARP - Troubled Asset Relief Program

(10/08), QE1 (11/08), QE2 (11/10), Operation Twist (9/11), QE3 (9/12) and QE4 (1/13)

End of the Game – Bottom of the 9th Inning – (???)

7th to 8th Inning?

1st Inning

23

US Economic/Business Cycle, Sector Rotation & Duration

Early Expansion

Middle Expansion

Late Expansion

Early Contraction

Late Contraction

Transportation

Technology

Services

Capital Goods Industrials

Basic Materials

Energy

Consumer Staples

Utilities

Financials

Consumer Cyclicals

Early Expansion – 12 to18 months

Inflation = Continue to fall

Interest Rates = Bottoming out

Middle Expansion – 12 to18 months

Inflation = Bottoming out

Interest Rates = Rising modestly

Late Expansion – 12 to18 months

Inflation = Rising

Interest Rates = Rising rapidly

Early Contraction – 6 to 9 months

Inflation = Rising less strongly

Interest Rates = Peaking

Deep Contraction – 6 to 9 months

Inflation = Flat to Declining

Interest Rates = Falling

1 complete cycle – 48 to 72 months

or 4 to 6 yearsMarch 2009 2015-2016?2013-2014

Healthcare

24

DisclaimerChief Investment Office (CIO) Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. We recommend that you obtain financial and/or tax advice as to the implications (including tax) of investing in the manner described or in any of the products mentioned herein. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/ or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are currently only as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time, investment decisions (including whether to buy or hold securities) made by UBS AG, its subsidiaries and employees thereof, may differ from or be contrary to the opinions expressed in UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. This report is for distribution only under such circumstances as may be permitted by applicable law.

Distributed to US persons by UBS Financial Services Inc., a subsidiary of UBS AG. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US persons. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate. The contents of this report have not been and will not be approved by any securities or investment authority in the United States or elsewhere.

UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.

Version as per September 2013.

UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. © 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved

25

Contact Information

UBS Financial ServicesWealth Management ResearchNY, NY 10019www.ubs.com

Peter LeeUBS Financial Services Inc.peter.lee@ubs.com212-713-8888 Ext 01