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DISCUSSION HIGHLIGHTS Economic and Market Review Amid a back drop of robust economic data and strong corporate earnings, U.S. investors overcame concerns about an escalating trade war with China, an increasingly hawkish Fed, and a flattening yield curve to drive the U.S. equity market, as measured by the S&P 500 Index, to its best quarter since 2013. But with positive economic momentum in question outside of the U.S., equity markets overseas did not enjoy the same fate. The MSCI All Country World ex USA Index managed a modest total return of 0.7% for the third quarter, which was 7 percentage points behind the S&P 500. Further U.S. dollar strength contributed to the continuation of a streak of four consecutive quarters where the domestic equity market outpaced its foreign counterparts. Fiscal stimulus in the form of tax cuts to individuals and corporations has allowed the U.S. economy to heat up while most international economies are cooling off. Consensus economic forecasts expect the domestic economy to reaccelerate to 2.9% real growth this year from 1.5% and 2.2% in 2016 and 2017 respectively. Meanwhile, China's economy, which accounts for roughly a third of global economic growth, is expected to slow from 6.9% in 2017 to 6.6% in 2018 — its slowest pace since 1990. In reaction to the ongoing trade dispute with the U.S. and upward dollar momentum, investors fled China's local, domestic-oriented stock market (known as "A-shares"), pushing it into bear market territory this year after falling over 24%. International stocks were not the only asset class that lagged U.S. stock prices. Commodities, as measured by the Bloomberg Commodity Index, were another casualty of the strong U.S. dollar and trade turmoil, falling -2% during the third quarter. Despite a stable oil market, falling prices for agricultural products and metals weighed on returns, continuing a longer-term trend of negative performance from the asset class. After a difficult start to the year and despite help from narrowing credit spreads, domestic investment grade bonds were unable to reclaim lost ground during the third quarter as the yield curve flattened and moved higher. The yield on the bellwether 10-year Treasury Note closed in on the recent highs set earlier in the year, settling up 0.20% for the quarter. Meanwhile, yield on the 2-year Note continued its seemingly relentless assent this year, rising 29 basis points to 2.81%. A HIGHMARK® City of Pleasanton 2 CAPITAL MANAGEMENT