April 9, 2010

United States: Portfolio Strategy

US Weekly Kickstart
S&P 500 closes at YTD high ahead of 1Q 2010 earnings season that commences next week
S&P 500 has returned 7% YTD but most investors trail the index. Hedge funds have suffered from short positions and returned 2% in 1Q. Core mutual funds returned 5% reflecting underweight positions in Consumer Discretionary which surged 14% in two months, twice the market rebound. We include text from Michael Moran’s note on tax write-offs from health care reform and its implications for corporate behavior.
Performance
The S&P 500 was up 0.8%. Healthcare (-1.1%) and Consumer Staples (-0.9%) underperformed while Financials was the best sector, up 2.4%. We expect the S&P 500 to rise to 1300 by mid-year (+10%), before ending 2010 at 1250 (+5%).

Sector views and performance
Our recommended sector weightings have generated +4 bp of alpha YTD. Our overweight recommendations (Energy, Materials, Info Tech) have generated -22 bp of alpha while our underweight positions (Health Care, Consumer Staples, Utilities, Telecom.) have generated +26 bp of alpha.
David J. Kostin
(212) 902-6781 david.kostin@gs.com Goldman Sachs & Co.

Nicole Fox
(212) 357-1744 nicole.fox@gs.com Goldman Sachs & Co.

S&P 500 Earnings
Our top-down EPS forecasts of $76 and $90 for 2010 and 2011 reflect +33% and +20% growth, respectively. Our pre-provision and write-down EPS forecasts are $81 for 2010 and $91 for 2011. Bottom-up consensus forecasts a 38% increase in 2010 to $78, and a 21% increase in 2011 to $95.

Caesar Maasry
(212) 902-9693 caesar.maasry@gs.com Goldman Sachs & Co.

US Portfolio Strategy baskets
Our recommended High Sharpe Ratio trade (Long <GSTHSHRP> / Short S&P 500) was up 0.4% for the week. Our recommended Operating Leverage trade was up 0.5% (Long <GSTHOPHI> / Short <GSTHOPLO>).

Amanda Sneider
(212) 357-9860 amanda.sneider@gs.com Goldman Sachs & Co.

Valuation
Top-down the S&P 500 trades at an NTM P/E of 15.7X (14.7X on pre-provision EPS). Bottom-up, it trades at an NTM P/E of 15.1X and LTM P/B of 2.5X.

S&P 500 stock performance this week
Leaders: EK, HOG, EOG, WYNN, RF Laggards: MEE, FRX, TSO, MWW, JCP

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

Goldman Sachs Global Economics, Commodities and Strategy Research

April 9, 2010

United States: Portfolio Strategy

Conversations we are having with clients: Cyclical positioning and health care tax charges
Clients continue to express optimism regarding the trajectory of US economic activity and corporate profits heading into 1Q earnings season. However, many investors – including nearly all hedge funds –
express grave concerns regarding the long-term fiscal position of the US and its implications for interest rates and stock prices. But in the short-term they remain bullish and most are fully invested and cyclically positioned.

“Sizable tax charges from health care legislation
The federal subsidy that some companies receive for providing qualifying prescription drug coverage to retirees will no longer be tax deductible under the new health care legislation. This change will require some companies to write off a portion of their deferred tax assets related to retiree health care obligations. In accordance with US GAAP accounting rules, the deferred tax asset must be adjusted in the period of enactment for the effect of an enacted change in tax law or rates.

Most investors lagged the 5.4% total return of the S&P 500 in 1Q. Equity
long/short hedge funds returned roughly 2% while large-cap core mutual fund managers returned an average of 4.6%.

Subsidy still exists, but tax deduction is limited
Legislation introduced in 2003 provided companies with a 28% tax-free federal subsidy if they offered retiree prescription drug coverage that is at least actuarially equivalent to Medicare Part D coverage. Even though a portion of their cost was offset by the subsidy, employers were still allowed to claim a deduction for the entire cost of providing the prescription drug coverage. For example, if a company provided $100 of qualifying prescription drug coverage, it was eligible for a tax-free $28 subsidy. Nonetheless, it was still eligible to deduct the full $100 cost of the benefit. Under the new legislation the amount eligible for deduction would be $28 lower, or $72. As the amount expected to be deducted in the future will now be lower, the deferred tax asset related to the deduction will need to be lowered.

Clients we visited this week in Boston were generally receptive to our preference for global cyclical vs. domestic cyclical exposure. However,
investors expressed frustration that they had missed the rally in Consumer Discretionary stocks which have surged 14% since the market low in early February compared with 7% for the S&P 500. Consumer Discretionary bulls pointed to recent better-than-expected consumer data and positive earnings revisions. We, along with the Consumer Discretionary bears, argue that share prices in the sector already reflect the improved economic data.

We expect global cyclicals will lead S&P 500 towards 1300 as investors re-focus on better growth prospects abroad. A revaluation of the CNY
may help to expedite this shift, in our view. See our note US Sector Views: Global vs. Domestic tug-of-war within the US equity market (March 25).

Market implications of the recent health care legislation
Passage of health care reform removed some of the uncertainty surrounding health care stocks. However, the magnitude of deferred tax write-offs for some firms surprised many investors and prompted several client inquiries.

Back-of-the-envelope approach to assess materiality
The impact of this aspect of the new health care legislation will only be felt by companies that receive the federal subsidy. In other words, if a company provides retiree health care benefits but does not receive the subsidy, then its existing deferred tax assets will be unaffected and no charge should be forthcoming. Companies are required to disclose their anticipated benefit payments for retiree health care obligations as well as subsidies they expect to receive from the federal government. Investors can use this information to assess how material a charge to deferred tax assets may be for companies affected by the change. For example, Caterpillar disclosed in its 2009 10-K that over the next ten years it expects to pay out about $3.9 billion in retiree health care benefits and receive $240 million in subsidies. In other words, about 6.1% of its

Our colleague Michael Moran from the Goldman Sachs Global Market Institute (GMI) authored a recent note explaining the tax charges and the implications on corporate behavior of the new health care legislation. We publish below the text from the note Tax Time: Plenty of charges

from the health care bill, but changes in corporate behavior loom
(March 30). The full note contains a list of S&P 500 stocks with significant retiree health care obligations.

Goldman Sachs Global Economics, Commodities and Strategy Research

2

United States: Portfolio Strategy

payments are being subsidized. If we gross up CAT’s reported retiree health care obligation ($4.5 billion) to account for the roughly 6.1% subsidy, the pre-subsidy obligation is about $4.8 billion. This implies that there are $300 million of subsidies that will not be tax deductible in the future. Applying a 35% tax rate means that about $105 million of deferred tax assets would have to be written off. Caterpillar had announced that its tax-related charge would be about $100 million. This is, admittedly, a back-of-the-envelope calculation. Actual calculations required to be performed by companies will be much more involved. Even some companies have indicated that they are still trying to figure out the impact of the legislation on their deferred tax assets. Nonetheless, it provides a quick and simple way for investors or other users of financial information to assess the potential materiality of these charges.

that treatment was accepted by investors. We suspect similar scenarios will play out with these tax charges. Second, these charges are non-cash in nature. Investors focusing on cashflow and/or using pseudo-cash-EPS metrics will look past these charges. Finally, many companies are indicating that the legislation is leading them to revisit the health care benefits they provide their employees and retirees. In other words, corporate behavior with respect to benefit offerings could change as a result of the new legislation. It was interesting to note in AT&T’s 8-K filed with the SEC on March 26, 2010, in which it disclosed its $1 billion charge related to the elimination of the tax deduction for the federal subsidy, that the company devoted one of the four sentences in the filing to note that “As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company.” Some investors may be focused on the potential for employers to reduce their health care expenses as a result of the new legislation. How companies potentially adjust health care benefits being offered to current employees and retirees as a result of the new legislation is still to be seen. However, the comments of some companies seem to indicate that changes are at least being contemplated. Reducing or eliminating retiree health care benefits is nothing new for the corporate sector. US companies have been enacting such changes for the past several decades. As we noted earlier, however, many of the largest retiree health care plans today are found in highly unionized companies whose corporate managements cannot unilaterally change the benefits. We shall see how employers proceed with any potential efforts to modify these benefits going forward.

Largest charges to be concentrated in a handful of companies
Sizable retiree health care obligations are concentrated in a handful of companies and industries. As of the end of 2009, 55 companies in the S&P 500 accounted for over 75% of the total amount of retiree health care obligations for all companies in the index and almost half of the total reported obligations were concentrated in just two sectors – Telecommunication Services and Industrials.

Identifying the population of companies requiring further analysis
As noted previously, it is the receipt of the federal subsidy related to this obligation that will no longer be deductible and which is leading to tax charges in the current period. As investors consider where the largest charges will be found, a natural starting point would be with the companies that have the largest absolute reported obligations.

What’s next? Employer response still to come
The sizable tax-related charges already reported by some companies have generally been treated with indifference by investors. Indeed, some firms that have announced these charges have seen their share prices rise after the announcement. There can be several possible explanations for this. First, investors sometimes view tax-related charges as one-time, nonoperational in nature. Consequently, they (and companies) tend to add these incremental expenses back when deriving pro forma earnings. For historical perspective consider the sizable tax-related charges that many companies booked in 2005 when offered the opportunity to repatriate foreign profits at a favorable tax rate under the American Jobs Creation Act of 2004. Many of these charges were added back to pro forma earnings by companies and

Don’t forget about public sector employers too
Finally, we note that potential changes in behavior extend beyond corporate employers to state and local governments, despite the fact that they do not share the same tax impact from the legislation as do their corporate counterparts. Many governments have sizable retiree health care obligations that in recent years have become more transparent with the implementation of a new governmental accounting standard, GASB 45. Public sector employees tend to be more unionized and have more generous benefit packages than their private sector counterparts, further enhancing the size of these liabilities. Any potential changes in employer behavior with respect to health care benefits are unlikely to be confined only to private sector employers.”

al Economics, Commodities and Strategy Research

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April 9, 2010

United States: Portfolio Strategy

1Q 2010 Earnings Calendar (week of April 12, 2010)
Exhibit 1: 1Q 2010 Earnings Calendar
Sector Monday, April 12, 2010 Materials Tuesday, April 13, 2010 Industrials Information Technology Wednesday, April 14, 2010 Consumer Discretionary Financials Industrials Thursday, April 15, 2010 Financials Health Care Information Technology Materials Friday, April 16, 2010 Consumer Discretionary Company name Alcoa Inc CSX Corp. Fastnal Co. Intel Corp. Linear Technology Corp. Yum! Brands, Inc JPMorgan Chase & Co. Grainger (W.W.) Inc. People's United Financial Progressive Corp. Intuitive Surgical Advanced Micro Devices Google Inc. PPG Industries Gannett Co. Genuine Parts Mattel, Inc. Bank of America Corp. First Horizon National Charles Schwab General Electric Ticker
AA CSX FAST INTC LLTC YUM JPM GWW PBCT PGR ISRG

Rating Neutral Sell NC Neutral Buy Buy Buy* Neutral Neutral Buy NC

YTD Return (8)% 10 % 23 10 % (6) 15 % 10 % 18 % (0)% 9 12 % (3)% (8) 17 % 20 % 14 18 24 % 13 2 23 %

Mkt Cap ($ bil) $ 15 $ 21 7 $ 123 6 $ 19 $ 182 $7 $6 13 $ 13 $5 137 $ 11 $4 7 9 $ 187 3 19 $ 198

GS $ 0.08 $ 0.62 $ 0.37 0.37 $ 0.48 $ 0.70 $ 1.52 $ 0.08 0.36

1Q 2010 EPS Consensus Std. Dev. $ 0.11 $ 0.69 0.33 $ 0.37 0.39 $ 0.52 $ 0.64 $ 1.37 $ 0.08 0.37 $ 1.68 $ 0.05 $ 0.05 0.01 $ 0.02 0.02 $ 0.02 $ 0.06 $ 0.06 $ 0.01 0.03 $ 0.15 $ 0.08 0.20 $ 0.07 $ 0.05 0.02 0.03 $ 0.07 0.06 0.02 $ 0.02

Consensus 1Q 2010 YTD Revisions Yr/Yr Growth (46)% 0% 1 10 % 19 (1)% (2)% 6% (18)% 0 11 % 44 % 3 21 % 24 % 3 29 35 % (33) (24) 11 % 119 % 11 % 0 236 % 56 8% 60 % 10 % 0% (12) 133 % 83 % 27 237 % 68 % 9 79 (80)% 56 (32) (35)%

P/E (NTM) 20.0 x 16.4 x 33.9 13.6 x 17.6 16.7 x 15.0 x 19.1 x 43.3 x 13.6 43.8 x NM 20.8 17.5 x 8.6 x 16.1 14.4 23.5 x NM 27.5 18.5 x

Sell AMD GOOG Buy*
PPG GCI GPC MAT

$(0.16) 6.87 $ 0.70

$(0.11) 6.56 $ 0.64 $ 0.42 0.61 (0.03) $ 0.09 (0.16) 0.13 $ 0.17

Neutral NC Buy* NC

0.67 $ 0.10 (0.10) 0.11 $ 0.13

Financials

Buy* BAC Neutral FHN SCHW Neutral
GE

Industrials

Buy

Source: Factset, Bloomberg and Goldman Sachs Global ECS Research.  * - Conviction list.

Goldman Sachs Global Economics, Commodities and Strategy Research

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April 9, 2010

United States: Portfolio Strategy

S&P 500 Performance
Exhibit 2: S&P 500 sector performance over the last week
as of April 8, 2010
Financials Cons Discretionary Energy Materials Information Tech S&P 500 Industrials Telecom Services Utilities Consumer Staples Health Care
(2.0)

Exhibit 3: S&P 500 price return and daily trading volume LTM
as of April 8, 2010

2.4 1.9
S&P 500 Price Level

1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 S&P 500 daily trading volume (rhs) S&P 500 daily price level (lhs)

9 8 7 6 5 4 3 2 1 0

Shares traded (billions)

1.3 1.0 1.0 0.8 0.5 0.2 (0.0) (0.9) (1.1)
(1.0)

8-Oct-08

8-Oct-09

8-Apr-08

8-Apr-09

8-Jun-08

8-Dec-08

8-Jun-09

8-Aug-08

8-Aug-09

8-Dec-09

8-Feb-09

1-week Total Return (%)

0.0

1.0

2.0

3.0

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 4: S&P 500 sector performance over time
as of April 8, 2010
Total Return Percentage Change (%) 1-Week Financials Industrials Cons Discretionary Materials Consumer Staples Energy Information Tech Health Care Utilities Telecom Services S&P 500 2% 1 2 1 (1) 1 1 (1) (0) 0 1% 1-Month 8% 7 6 5 2 3 4 1 1 5 4% 3-Month 8% 9 11 0 5 (1) 2 1 (1) (2) 4% 6-Month 10 % 21 22 12 9 5 14 13 6 6 12 % YTD 15 % 14 13 6 5 4 3 3 (2) (3) 7% 12-Month 81 % 66 62 55 32 29 52 35 20 9 47 %

Exhibit 5: BEST and WORST performing S&P 500 STOCKS BY SECTOR
as of April 8, 2010
BEST STOCKS Return (%) Sector Cons Discr Consumer Staples Energy Financials Health Care Industrials Info Tech Materials Telecom Services Utilities S&P 500 Ticker EK DF EOG RF KG R ADSK IP Q EQT EK 1-week 28 % 4 12 11 3 7 7 9 4 3 28 % YTD 82 % (8) 10 63 (1) 2 22 3 31 (1) 82 % Ticker JCP ADM MEE ICE FRX IRM MWW MON VZ AEP MEE WORST STOCKS Return (%) 1-week (5)% (4) (13) (5) (11) (3) (6) (2) (2) (2) (13)% YTD 18 % (10) 10 (5) (13) 17 (9) (15) (6) (1) 10 %

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

8-Feb-10

8-Apr-10

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April 9, 2010

United States: Portfolio Strategy

S&P 500 Performance (cont’d)
Exhibit 6: TOP 10 performing SUB-SECTORS over the last week
as of April 8, 2010
Photographic Products Motorcycle Manufacturers Casinos & Gaming Trucking Paper Products Regional Banks Internet Retail Homefurnishing Retail Investment Banking & Brokerage Commercial Printing 0 5

Exhibit 7: BOTTOM 10 performing SUB-SECTORS over the last week
as of April 8, 2010
28
Property & Casualty Insurance Soft Drinks Homebuilding Electronic Components Construction Materials Fertilizers & Agricultural Chemicals Managed Health Care Diversified Support Services Agricultural Products Auto Parts & Equipment
25 30

(2) (2) (2) (2) (2) (2) (2) (2) (4) (4)
(5) (4) (3) (2) 1-week Total Return (%) (1) 0

12 9 7 6 6 5 5 5 5
10 15 20 1-week Total Return (%)

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 8: TOP 10 performing S&P 500 STOCKS over the last week
as of April 8, 2010
Return (%) Company Name Eastman Kodak Harley-Davidson EOG Resources Wynn Resorts Regions Financial Corp. American Int'l. Group Washington Post Zions Bancorp Huntington Bancshares International Paper S&P 500 Average
Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 9: BOTTOM 10 performing S&P 500 STOCKS over the last week
as of April 8, 2010
Return (%) Company Name Massey Energy Co. Forest Laboratories Tesoro Corp. Monster Worldwide Penney (J.C.) IntercontinentalExchange Inc. WellPoint Inc. D. R. Horton Johnson Controls Aetna Inc. S&P 500 Average
Source: FactSet, and Goldman Sachs Global ECS Research.

Ticker EK HOG EOG WYNN RF AIG WPO ZION HBAN IP

Sector Cons Discr Cons Discr Energy Cons Discr Financials Financials Cons Discr Financials Financials Materials

1-week 28 12 12 11 11 10 10 10 9 9 1

YTD 82 27 10 48 63 25 12 87 62 3 10

Ticker MEE FRX TSO MWW JCP ICE WLP DHI JCI AET

Sector Energy Health Care Energy Info Tech Cons Discr Financials Health Care Cons Discr Cons Discr Health Care

1-week (13) (11) (8) (6) (5) (5) (4) (4) (4) (4) 1

YTD 10 (13) (2) (9) 18 (5) 7 11 18 6 10

Goldman Sachs Global Economics, Commodities and Strategy Research

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April 9, 2010

United States: Portfolio Strategy

Earnings and Sales
Exhibit 10: EARNINGS GROWTH: S&P 500 bottom-up consensus estimates
as of April 8, 2010
2010E Earnings Per Share Growth 1QE 2QE 3QE 4QE Financials Energy Materials Consumer Discretionary Information Technology S&P 500 Utilities Health Care Consumer Staples Industrials Telecom Services S&P 500 (ex-Financials) 548 1492 164 795 82 70 8 (4) 7 (4) (11) 52 256 68 107 37 57 37 9 4 4 (3) (6) 24 181 40 30 15 36 29 6 4 4 22 3 18 171 42 33 7 11 27 24 25 4 4 12 16 Annual 2010E 2011E 232 86 68 44 39 38 11 7 5 4 (1) 25 49 27 29 18 14 21 4 10 10 18 10 16
Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 11: SALES GROWTH: S&P 500 bottom-up consensus estimates
as of April 8, 2010

2010E Sales Per Share Growth 1QE Energy Materials Information Technology S&P 500 Health Care Consumer Staples Consumer Discretionary Industrials Telecom Services 38 15 9 5 2 1 (5) (6) (3) 2QE 33 20 12 8 3 2 3 (2) (3) 3QE 27 7 9 7 0 2 3 4 (2) 4QE 24 7 5 6 4 3 1 2 (1)

Annual 2010E 30 12 9 7 2 2 0 (1) (2) 2011E 13 7 7 7 4 5 6 5 1

Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 12: TOP-DOWN vs. BOTTOM-UP: Goldman Sachs vs. Consensus
as of April 8, 2010
Contribution to EPS
GS Top-Down EPS 2010E Energy Materials Telecom Services Consumer Discretionary Utilities Information Technology Industrials Health Care Consumer Staples S&P 500 ex-Financials Financials Operating EPS S&P 500 Operating EPS + Provisions & Writedowns S&P 500 EPS ex-P&W $10 2 3 5 3 11 7 12 9 63 12 $76 5 81 2011E $15 3 3 5 4 12 8 13 9 71 19 $90 1 91 Bottom-up 2010E $10 2 2 7 3 14 7 12 9 67 12 $78 NA NA 2011E $12 3 2 8 4 16 8 13 10 77 17 $95 NA NA

Exhibit 13: REVISIONS: S&P 500 consensus EPS revisions
as of April 8, 2010

Annual earnings growth rates
GS Top-Down 2010E 93 % 69 32 5 15 7 6 10 4 18 251 33 % (63) 13 2011E 45 % 15 1 5 1 10 16 4 3 13 54 20 % (82) 13 Bottom-Up 2010E 86 % 68 (1) 44 11 39 4 7 5 25 232 38 % NA NA 2011E 27 % 29 10 18 4 14 18 10 10 16 49 21 % NA NA

80

S&P 500 2010E EPS
Consensus Bottom-Up $78

79

78

77

76

Goldman Sachs $76
31-Dec 31-Jan 28-Feb 31-Mar 30-Apr
7

75

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

April 9, 2010

United States: Portfolio Strategy

Revisions
Exhibit 14: EARNINGS and SALES REVISIONS
Aggregate dollars % change, as of April 8, 2010
EPS REVISIONS
1 month 10E 11E 3 month 10E 11E 10E

Exhibit 15: Stocks with the most POSITIVE and NEGATIVE EPS REVISIONS
as of April 8, 2010
SALES REVISIONS
1 month 11E 3 month 10E 11E

POSITIVE EPS REVISIONS
Ticker MU LEN CMA AMD CLF DHI NSM X ODP WYNN S&P 500 1 month Revis. Return 55 % 55 29 27 26 18 13 11 11 9 (0)% 10 % 0 13 9 22 (7) (1) 9 5 25 4% 3 month Revis. Return 68 % 69 65 70 100 NM 14 (63) 67 24 2% (5)% 8 26 (0) 38 (1) (4) 1 15 27 4% Ticker DFS HIG GT ETFC C COG SUN XL APC RRC

NEGATIVE EPS REVISIONS
1 month Revis. Return (27)% (24) (23) (22) (20) (18) (16) (16) (14) (12) (0)% 9% 6 (5) 2 26 (7) 5 (0) 3 (4) 4% 3 month Revis. Return (30)% (19) (61) (389) (61) (16) (39) (11) 9 (8) 2% 3% 9 (19) (6) 25 (16) 4 6 9 (10) 4%

Information Technology Consumer Discretionary Industrials Materials Health Care Telecommunication Services Consumer Staples Utilities S&P 500 Financials Energy

1.1 % 1.2 % 0.7 0.4 0.2 (0.1) (0.1) (0.1) (0.3) (0.3) (1.8) (2.6) 0.9 0.9 (0.3) (0.1) 0.0 (0.0) (0.5) (0.1) (0.8) (2.1)

8.9 % 6.7 2.8 3.8 (0.6) (4.7) 0.0 (1.7) 1.6 (2.4) (1.3)

7.7 % 4.3 3.3 2.7 (0.6) (5.8) (0.1) (2.6) 1.0 (1.7) (2.3)

0.8 % (0.2) 0.3 0.6 0.1 0.0 0.2 NM 0.5 NM 1.9

0.9 % 0.8 0.2 0.1 (0.1) (0.1) (0.3) NM 0.4 NM 1.1

5.8 % 1.4 1.0 4.3 1.0 0.1 0.8 NM 2.0 NM 2.6

6.4 % 1.8 1.6 2.9 0.8 (0.2) 1.0 NM 0.4 NM (5.7)

Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.

Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.

Exhibit 16: S&P 500 1-Month Earnings Revisions Sentiment
as of April 8, 2010
60% 30 %

Exhibit 17: 1-Month Earnings Revision Sentiment by SECTOR
as of April 8, 2010
25 % 20 %

S&P 500
1-Month Revision Sentiment

40% 20% 0% (20)%

1-Month 2010 EPS Revision Sentiment (lhs) [(# pos. revisions - # neg. revisions)/ total revisions]

20 %
S&P 500 Monthly % Return

15 % 10 %

1-Month Earnings Revision Sentiment by Sector [(# pos. revisions - # neg. revisions)/ total revisions]

10 % 0% (10)%
Price Performance (rhs)

Earnings Sentiment

5% 0% (5)% (10)% (15)% (20)%

Materials

Info Tech

S&P 500

Telecom Services

Consumer Discr

Consumer Staples

Health Care

(60)%
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10

(30)%

Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.

Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

Industrials

Financials

Utilities

Energy

(40)%

(20)%

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United States: Portfolio Strategy

Valuation
Exhibit 18: Aggregate valuation metrics for S&P 500 and sectors
bottom-up consensus valuation, as of April 8, 2010

Exhibit 19: Standard deviation vs. 10-year history (Z-Score)
bottom-up consensus, as of April 8, 2010
EV/ EV/ Price/ Sales EBITDA Book S&P 500 Health Care Consumer Staples Telecommunication Services Information Technology Utilities Consumer Discretionary Energy Materials Industrials Financials (0.8) (1.7) 1.0 (1.2) 0.1 NM 2.3 (0.3) 1.1 0.8 NM (0.9) (1.6) (0.3) (0.8) (0.9) (0.5) 0.4 1.6 0.8 1.2 NM (0.8) (1.1) (0.7) (0.1) 0.9 (0.1) 2.6 (0.4) 1.5 1.5 (1.0) FCF Yield (1.3) (0.7) (0.1) (0.8) (0.0) NM (1.4) 1.3 0.6 0.7 NM P/E (0.7) (1.7) (0.8) (0.1) (1.3) 0.1 (0.2) 1.2 0.7 2.1 1.3 PEG Ratio 0.7 (0.5) (1.1) 1.4 (1.2) 1.3 (0.7) (0.5) 0.1 2.1 2.2 Median Z-Score (0.8) (1.3) (0.5) (0.5) (0.4) (0.0) 0.1 0.4 0.8 1.3 1.3

EV/ EV/ Price/ FCF PEG NTM Sales EBITDA Book Yield Ratio P/E S&P 500 1.5x 8.8x 2.5x 6.2 % 1.4x 15.1x Materials 1.5 10.5 3.0 4.9 1.8 17.9 Industrials 1.9 11.7 3.0 7.1 1.7 17.7 Consumer Discretionary 1.3 8.4 2.9 8.2 1.2 16.9 Financials NM NM 1.4 NM 2.0 16.8 Information Technology 2.3 10.5 4.2 6.3 1.1 15.5 Telecommunication Services 1.8 5.3 1.7 13.3 3.1 14.8 Consumer Staples 1.2 9.2 3.7 6.4 1.6 14.7 Energy 1.0 7.8 2.2 1.2 1.0 13.4 Health Care 1.2 8.2 2.9 7.7 1.3 12.1 Utilities NM 7.0 1.5 2.8 2.8 12.1
Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.

Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.

Exhibit 20: Historical NTM P/E and LTM P/B values for the S&P 500
aggregate bottom-up consensus valuation, as of April 8, 2010
6 5 4 3 2 1 0 1/76 1/79 1/82 1/85

Exhibit 21: Top stocks by fastest 2010 earnings growth and lowest NTM P/E
by sector, as of April 8, 2010
GROWTH Fastest EPS Growth (%) Ticker 2010E 2011E CBS WFMI HES HIG ESRX RHI ALTR IP FTR PPL 88 63 82 78 38 85 92 68 59 70 20 13 35 38 27 NM 7 40 1 (4) VALUE Lowest P/E (x) NTM Rel to SPX 8.6 8.4 8.3 8.2 7.7 10.3 6.5 11.0 11.1 8.2 0.6 0.6 0.6 0.5 0.5 0.7 0.4 0.7 0.7 0.5

LTM P/B (x)

P/B

2.5

Sector Cons Discr

Ticker GCI SVU CHK AIG FRX PBI WDC FCX CTL PPL

10-yr rolling avg 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09

Consumer Staples Energy Financials Health Care

30 25 20 15 10 5 0 1/76 1/79 1/82 1/85

NTM P/E (x)

P/E

15.1 10-yr rolling avg

Industrials Info Tech Materials Telecom Services

1/88

1/91

1/94

1/97

1/00

1/03

1/06

1/09

Utilities

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

9

April 9, 2010

United States: Portfolio Strategy

S&P 500 Factor Performance
Exhibit 22: S&P 500 factor return ranking for the week ended April 8, 2010 (a)
Last Week Spread (%) Last Growth Metrics EPS Growth GROWTH EBITDA Growth Sales Growth Value Metrics (b) EV/FCF VALUATION P/E P/B P/div EV/EBITDA EV/DACF Profitability Metrics(b) CROCI PROFITABILITY ROCE ROE Other Metrics (c) Short Interest Level Equity Capitalization
(a) (b)
(b)

Performance Spread of Top Quintile Less Bottom Quintile (%) Last Five Trading Days 2-Apr 0.0 0.0 (0.1) (0.2) 5-Apr 0.8 0.7 0.6 0.5 6-Apr 0.5 0.4 0.6 0.3 7-Apr (0.1) (0.3) (0.2) (0.3) 8-Apr 0.6 0.3 0.2 0.1 Last Month 2.0 1.2 1.5 0.7 Last Quarter 3.2 3.1 2.3 (0.3)
2

(1)

0

1

Week 1.8 1.1 1.1 0.4

1.4 1.1 1.1 0.9 0.6 0.2 0.1

0.5 (0.5) (0.2) (0.7) (0.1) (0.7) (0.7)

0.1 0.1 0.3 (0.1) 0.7 0.0 (0.2)

0.9 0.8 0.5 (0.1) (0.2) 0.6 0.7

(0.6) (0.0) (0.2) 0.8 0.2 (0.2) 0.0

0.5 0.8 0.6 0.9 0.1 0.5 0.3

0.6 2.7 3.3 2.9 0.8 2.5 2.7

2.8 10.1 9.1 9.8 0.9 7.6 6.4

(0.1) (0.4) (0.4) (0.7)

(0.5) (0.8) (0.8) (0.6)

0.0 0.1 0.3 (0.4)

(0.6) (0.8) (0.7) (0.9)

0.8 1.2 0.8 1.0

0.1 (0.1) (0.1) 0.3

0.4 (0.6) (0.0) (0.3)

0.9 1.3 2.3 1.2

1.7 (0.4)

0.0 0.0

1.3 (0.8)

0.5 (0.3)

0.1 0.3

(0.3) 0.5

3.7 (0.8)

6.3 (1.9)

(c)

Factor return analysis uses S&P 500 companies included in the Goldman Sachs Americas coverage universe with stock prices greater than $5 at the time of publication. Growth, Value and Profitability analysis is based on Goldman Sachs Investment Profile scores (“IP Scores”). Growth, value and profitability metrics are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region’s coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year’s estimate over current year’s estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. “Other metric” analysis based on current market prices and data sourced from NASDAQ and NYSE via FactSet.

Source: NASDAQ and NYSE via FactSet, IDC, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

10

April 9, 2010

United States: Portfolio Strategy

Style and Size
Exhibit 23: Total return by style and size over time
as of April 8, 2010

Exhibit 24: Total return by SECTOR for S&P 500 vs. Russell 2000
as of April 8, 2010

Total Return Percentage Change (%) 1-Week Large Cap vs. Small Cap S&P 500 Russell 2000 Large vs. Small (bps) Growth vs. Value Russell 1000 Growth Russell 1000 Value Growth vs. Value (bps) 0 1 (72) 4 5 (172) 4 5 (128) 13 13 76 6 9 (346) 1 2 (155) 4 5 (66) 4 9 (476) 12 16 (341) 7 12 (526) 1-Month 3-Month 6-Month YTD
Sector Telecom Services Financials Utilities Information Tech Industrials Cons Discretionary Materials Health Care Consumer Staples Energy Index

Weight (%) SP500 R2000 3 17 3 19 10 10 4 12 11 11 100 1 21 3 18 15 15 5 14 3 5 100

1-Week (% Return) SP500 R2000 ∆ (bps) 0 2 (0) 1 1 2 1 (1) (1) 1 1 (0) 3 1 2 2 3 3 1 1 4 2 36 (66) (97) (118) (145) (149) (182) (184) (207) (230) (155)

YTD (% Return) SP500 R2000 ∆ (bps) (3) 15 (2) 3 14 13 6 3 5 4 7 (2) 15 4 9 9 23 11 10 10 10 12 (87) (50) (664) (604) 535 (984) (515) (664) (428) (665) (526)

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 25: GROWTH vs. VALUE relative performance over time
Russell 1000 Growth vs. Value, as of April 8, 2010
110 Value outperforming 105 100 95 90 Growth outperforming 85

Exhibit 26: LARGE CAP vs. SMALL CAP relative performance over time
S&P 500 vs. Russell, as of April 8, 2010
105 103 101 99 97 95 93 91 89 87 85 Russell 2000 outperforming S&P 500 outperforming

Nov-08

Nov-09

Jul-08

Jan-08

Sep-08

Jan-09

Jul-09

Sep-09

Mar-08

Mar-09

Jan-10

May-08

May-09

Mar-10

May-08

May-09

Source: FactSet, and Goldman Sachs Global ECS Research.

May-10

Source: FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

May-10
11

Mar-08

Mar-09

Nov-08

Nov-09

Sep-08

Sep-09

Mar-10

Jul-08

Jan-08

Jan-09

Jul-09

Jan-10

April 9, 2010

United States: Portfolio Strategy

Global Equity Market and Mutual Fund Performance
Exhibit 27: GLOBAL EQUITY MARKET performance over the past week
as of April 8, 2010
China (MSCI China) Mexico (Bolsa) Australia (ASX 200) Korea (KOSPI) U.S. (S&P 500) Japan (Nikkei) Brazil (Bovespa) UK (FTSE 100) Spain (IBEX 35) Europe (DJ Stoxx 600) Germany (Dax) France (CAC 40)

Exhibit 28: US EQUITY MUTUAL FUND performance vs. benchmark
as of April 8, 2010

2 1 1 1 1 0 0 (1) (1) (2) (2) (3)
(3) (2) (1) 0 1 2 3

Avg. Total Return (%) Lipper Indices Large-Cap Core Funds Benchmark: S&P 500 Out / (Underperformance) (bps) Large-Cap Growth Funds Benchmark: Russell 1000 Growth Out / (Underperformance) (bps) Large-Cap Value Funds Benchmark: Russell 1000 Value Out / (Underperformance) (bps) Small-Cap Core Funds Benchmark: Russell 2000 Out / (Underperformance) (bps) 1-week 0.7 0.8 (2) 0.9 0.5 41 0.8 1.2 (44) 1.7 2.3 (59) YTD 6.4 7.0 (55) 6.1 5.7 37 7.5 9.2 (168) 10.5 12.2 (172) 0.5 0.4 0.4 0.5

Stdev 1-Week YTD 1.7

No. of Funds 30

AUM $ bil 259

1.5

30

254

1.5

30

227

2.3

29

NA

% Weekly price change

Source: FactSet and Goldman Sachs Global ECS Research.

Source: Lipper, Factset, and Goldman Sachs Global ECS Research.

Exhibit 29: GLOBAL EQUITY MARKET performance over time
as of April 8, 2010
Price Return (%) USD 1-Month 3-Month 2010 YTD 7 5 4 2 4 5 5 3 1 3 (0) (2) 3 6 3 4 3 1 (1) (0) (1) (4) (5) (8) (15) (1) 11 7 6 6 4 2 2 (0) (2) (4) (6) (14) 1

Exhibit 30: International and other MUTUAL FUND performance
as of April 8, 2010
Avg. Total Return (%) Lipper Indices International Equity Global Funds International Funds European Funds Emerging Market Funds Real Estate and Natural Resources Real Estate Natural Resource Fixed Income General U.S. Government Funds Index A Rated Bond Funds Index BBB Rated Funds Index (0) 0 0 1 2 3 0.2 0.1 0.1 0.5 1.0 1.4 29 29 30 NA NA NA 2 1 12 4 0.5 0.5 1.5 1.7 30 9 39 NA (0) (1) (1) 1 4 3 1 6 0.7 0.4 0.5 0.3 2.4 2.5 2.9 1.4 30 30 10 29 183 394 19 NA 1-week YTD Stdev 1-week YTD No. of Funds AUM $ bil

1-Week Mexico (Bolsa) Korea (KOSPI) U.S. (S&P 500) Japan (Nikkei) Australia (ASX 200) Brazil (Bovespa) China (MSCI China) UK (FTSE 100) Europe (DJ Stoxx 600) Germany (Dax) France (CAC 40) Spain (IBEX 35) Average 1 1 1 0 1 0 2 (1) (2) (2) (3) (1) (0)

2009 52 62 23 16 69 144 63 37 32 28 26 34 49

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

12

April 9, 2010

United States: Portfolio Strategy

ETF Analysis: Composition, Valuation, Growth and Ownership
Exhibit 31: Selected ETF analysis for the week ended April 8, 2010 (a) (b)
ETF Description
Market Cap $ mil 77,807 2,662 21,413 2,133 873 265 1,191 2,392 6,129 671 1,809 631 2,154 7,092 1,143 128 249 3,044 898 5,890 2,928 590 639 3,279 482 4,982 277 729 314 595 2,004 6,029 973 443 No. of Stocks 500 100 100 81 25 18 62 41 40 54 131 33 16 79 24 25 24 74 50 97 51 27 16 58 20 83 51 18 50 30 31 31 25 27

Composition
Top Stocks as % of ETF 1 5 10 3 5 17 7 5 19 2 16 17 3 7 3 15 10 10 11 8 9 3 9 14 4 26 13 12 10 8 24 9 19 10 16 4 12 11 17 34 27 22 57 9 46 47 14 29 17 54 42 37 40 35 26 13 27 44 21 79 34 43 40 35 67 36 51 45 49 22 46 19 30 46 45 43 82 17 66 62 27 42 32 83 58 60 63 59 42 25 43 60 40 95 51 70 63 54 87 56 73 66 72 43 69

Performance (%)
Price Change 1 Wk YTD 1 1 1 2 1 2 2 (1) 1 2 2 1 1 2 5 2 1 2 4 2 (1) 1 (1) 1 1 1 1 1 1 (0) 1 4 2 1
(a)

Valuation
Valuation P/E P/B Div NTM LTM Yield 15 14 18 17 46 16 16 15 14 49 16 19 15 17 71 15 13 15 41 16 12 NM 11 18 22 15 16 14 18 30 18 23 22 20 12 2.4 2.4 3.9 2.6 1.8 2.9 2.7 3.4 2.1 2.1 2.1 1.9 2.0 1.3 1.2 1.5 1.2 2.1 1.4 2.1 2.8 5.7 3.0 3.0 2.4 3.5 3.2 3.3 3.6 1.8 3.1 2.5 2.4 2.0 1.5 1.9 2.0 0.7 1.4 1.0 1.5 0.9 2.9 1.7 0.5 1.4 0.8 0.7 1.0 0.8 0.9 1.7 4.3 1.6 3.8 2.0 0.0 3.3 2.0 1.6 1.5 1.3 2.0 0.3 4.2 1.7 0.6 0.9 0.9 4.4

Growth (%)
Sales Growth 2010 2011 9 10 14 4 5 5 5 4 20 35 21 22 4 NM NM NM NM NM NM NM 10 16 17 4 8 9 28 27 7 3 15 26 23 30 NM 7 7 9 6 11 5 5 5 16 26 15 15 12 NM NM NM NM NM NM NM 4 18 4 6 8 6 9 7 9 2 8 8 14 19 NM Earnings Growth 2010 2011 29 28 24 29 NM 11 17 8 39 NM 38 45 (12) 149 NM 223 92 0 NM (2) 8 23 8 11 105 23 189 149 12 35 70 54 NM 395 2 20 21 15 18 125 14 16 9 30 75 30 41 25 51 431 27 48 6 159 6 10 NM 10 19 33 13 20 16 15 32 30 17 76 53 5

Ownership
Short Interest Days 2.1 1.5 1.9 2.8 3.4 1.8 2.8 2.5 2.3 4.0 2.3 2.5 2.6 1.5 1.1 1.7 1.7 4.2 8.0 4.3 2.1 3.4 2.0 2.6 2.7 1.7 2.3 1.6 2.1 2.8 2.0 1.2 1.8 1.9 2.8 Median Hedge Fund (c) Own (%) 3.0 1.8 3.3 4.0 4.0 3.0 6.7 2.0 3.1 4.8 4.1 4.6 3.7 2.9 3.6 4.0 4.2 2.9 2.7 2.6 4.0 9.8 3.2 1.9 3.5 3.1 3.4 2.9 3.5 4.6 2.2 4.3 4.6 1.9 2.0

Sector / sub-sector S&P 500 S&P 100 Nasdaq-100 Consumer Discretionary Homebuilders Retail Retail Consumer Staples Energy Clean Energy Natural Resources Oil & Gas E&P Oil Services Financials Banks Broker-Dealers Insurance Real Estate Regional Banks REITs Health Care Biotech Pharmaceuticals Industrials Transportation Information Technology Semiconductors Semiconductors Software Telecom Services Materials Gold Miners Metals & Mining Steel

Index SPX OEX NDX IXY SPHOME IRH SPSIRETR IXR IXE ECO SPGSSINR SPSIOP OXH IXM BKX DJSINV KIX DJUSRE KRX RMZ IXV SPSIBI IPH IXI TRAN IXT SPGSTISM XSH SPGSTISO DJSTELT IXB GDM SPSIMM STEEL

ETF SPY OEF QQQQ XLY XHB RTH XRT XLP XLE PBW IGE XOP OIH XLF KBE IAI KIE IYR KRE VNQ XLV XBI PPH XLI IYT XLK IGW SMH IGV IYZ XLB GDX XME SLX

6 5 6 13 14 10 10 5 4 (8) 4 6 6 14 29 4 21 11 24 12 2 14 (0) 13 9 2 1 1 5 1 5 4 15 15

Utilities IXU XLU 3,347 36 8 33 54 (0) (3) (a) Performance of the underlying index. (b) Valuation, growth and ownership metrics are bottom-up aggregations of consensus forecasts, except where noted. (c) Hedge Fund ownership data based on 4Q 2009 13-F filings.

Source: Compustat, First Call, Lionshare via Factset, IDC, and Goldman Sachs Global ECS Research. See our Goldman Sachs ETF Bloomberg page <GETFG> or contact the desk at 1-888-ETF-DESK for more information.

Goldman Sachs Global Economics, Commodities and Strategy Research

13

April 9, 2010

United States: Portfolio Strategy

Fund Flows
Exhibit 32: Domestic equity mutual fund flows, 4-week moving average
week ended April 7, 2010

Exhibit 33: Weekly mutual fund flows and assets tracked by AMG
Week ended April 7, 2010; excluding ETFs
AMG Weekly Mutual Fund Flows, ex-ETFs ($ billions) Weekly Flows 1-Week Flow Inflow/(Outflow) 4-Week Avg This week % of Assets (Cons. Weeks) 0.9 0.5 0.3 0.0 0.1 0.1 (27.3) 3.3 0.3 1.2 0.6 0.5 0.0 0.3 0.1 (14.3) 3.5 0.0 0.1 % 0.0 0.2 0.0 0.4 0.3 (0.5) 0.4 0.2 7 2 1 2 7 1 (13) 56 26

10.0 8.0 6.0 4.0
$ billions

Domestic Equities, 4-week moving avg
All Equity U.S. Equity Int'l Equity Global Equity Income Gold & Nat Res Money Market All Bonds

Total AMG Assets 1,745 1,311 311 123 79 28 2,690 879 18

2.0 0.0 (2.0) (4.0) (6.0) (8.0) (10.0)
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

Govt Treasury

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Exhibit 34: Average daily TRADING TURNOVER over the last week
by sector, as of April 8, 2010
Materials Cons Discr Financials Info Tech Energy S&P 500 Telecom Services Industrials Health Care Utilities Cons Staples 0.0 0.5 1.0 % Daily Avg Trading Turnover 2.0 0.7 0.7 0.7 0.7 1.0 0.9 1.0 1.2 1.1 1.9

Exhibit 35: Top ten S&P 500 STOCKS by daily average trading turnover
as of April 8, 2010
Avg Daily Trading Company Massey Energy Co. American Int'l. Group United States Steel Corp. AK Steel Eastman Kodak Tesoro Corp. Micron Technology Abercrombie & Fitch Forest Laboratories Zions Bancorp S&P 500 Average Ticker Sector MEE AIG X AKS EK TSO MU ANF FRX ZION Energy Financials Materials Materials Consumer Discretionary Energy Information Technology Consumer Discretionary Health Care Financials Turnover (%) 28.1 19.4 12.0 9.7 9.4 6.1 5.1 4.7 4.4 4.4 1.3 1-Week Total Return (%) (13) 10 1 2 28 (8) 4 1 (11) 10 1

Daily average turnover = daily avg trading value / avg market cap (over the past 5 trading days). Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Daily average turnover = daily avg trading value / avg market cap (over the past 5 trading days). Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

14

April 9, 2010

United States: Portfolio Strategy

Risk and Dispersion
Exhibit 36: Goldman Sachs Risk Barometer
Index is number of standard deviations from the average * 100
400 300 200 100 0 (100) (200) (300) Dec-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Risk Aversion Decreasing Risk Aversion Increasing

Exhibit 37: VIX Volatility Index
as of April 8, 2010
90
All time high on 20-Nov-08

81

75 60 45 30
16

8-Apr-10

15 0
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
8-Apr-10

Jan-10

Note: Metrics included are implied option volatility (S&P 500 and NASDAQ 100), normalized skew, high yield credit spreads, credit derivative swap spreads, mutual fund net flows, and cash levels.

Source: Goldman Sachs Global ECS Research.

Source: Goldman Sachs Global ECS Research.

Exhibit 38: S&P 500 stock and sector average correlation
as of April 8, 2010
1.0

Exhibit 39: Credit Default Swaps, 5-Year On-the-run Spreads
as of April 8, 2010
300 1,800

Investment Grade CDX (bps)

0.9 0.8
Average Correlation

Average sector correlation

0.72

250 200 150 100 50 0

CDX (HY) (rhs)

1,600 1,400

Jan-12
High Yield CDX (bps)
1,200 1,000 800 600 400 200 0 (200)

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0
Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

0.37

CDX (IG) (lhs)

Dec-07

Dec-08

Dec-09

Jun-08

Aug-08

Jun-09

Aug-09

Apr-08

Apr-09

Feb-08

Feb-09

Source: Goldman Sachs Global ECS Research.

Source: Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

Feb-10

Apr-10

Oct-07

Oct-08

Oct-09

Average stock correlation

15

April 9, 2010

United States: Portfolio Strategy

Goldman Sachs Recommendations and Forecasts
Exhibit 40: Goldman Sachs Recommended Sector Weightings (a)
as of April 8, 2010
Sector Weightings Total Return YTD 3% 4 6 5 14 15 (3) 13 (2) 3 7% Underweight Neutral Goldman Sachs Recommended Sector Weightings Current S&P 500 Weight 19 % 11 4 11 10 17 3 10 3 12 100 % GS Overweight / Underweight 300 bp 300 200 0 0 0 (100) (200) (200) (300) 0 bp GS Alpha YTD (11)bp (9) (2) 0 0 0 9 (12) 17 12 4 bp

Exhibit 41: Goldman Sachs US Economics quarterly GDP forecasts
as of April 8, 2010
US GDP Growth (qoq annualized %)
4.0 % 3.5 % 3.0 % 2.5 % 2.0 % 1.5 % 1.0 % 0.5 % 0.0 % Q1E Q2E 2010
Source: Goldman Sachs Global ECS Research.

Sectors Information Technology Energy Materials Consumer Staples Industrials Financials Telecom Services Consumer Discretionary Utilities Health Care S&P 500

Overweight

2.5

2.0

2.5 1.5 1.5

3.0

3.5

3.5

Q3E

Q4E

Q1E

Q2E 2011

Q3E

Q4E

(a)

Sector weightings last rebalanced December 7, 2009.

Source: Goldman Sachs Global ECS Research.

Exhibit 42: Goldman Sachs COMMODITY and CURRENCY forecasts
as of April 8, 2010

Exhibit 43: Goldman Sachs US Economics forecasts
as of April 8, 2010

Forecasts units Energy WTI Crude Oil NYMEX Nat. Gas RBOB Gasoline Metals LME Copper London Gold London Silver Currencies Euro / US Dollar US Dollar / Yen Sterling / US Dollar EUR/$ $/¥ £/$ 1.34 93.1 1.52 1.35 92.0 1.55 1.35 94.0 1.61 1.35 98.0 1.61 $/mt $/troy oz $/troy oz 7892 1153 17.98 7850 1260 21.00 8045 1315 21.90 7825 1390 23.20 $/bbl $/mmBtu $/gal 85.39 3.91 2.32 92.00 5.50 2.44 97.00 5.50 2.50 96.50 6.00 2.39 Current 3m 6m 12m

Real GDP Consumer Spending Total Fixed Investment Business Fixed Investment Residential Investment Federal Government Spending Exports of Goods and Services Imports of Goods and Services Core CPI Unemployment Rate Fed Funds Rate 2-year Treasury Rate 10-year Treasury Rate
Source: Goldman Sachs Global ECS Research.

2009A (2.4)% (0.6) (18.4) (17.8) (20.5) 5.2 (9.6) (13.9) 1.7 9.3 0.1 0.9 3.8

% Annual Change 2010E 2.5% 1.9 (3.5) (3.5) (3.7) 5.2 12.2 7.9 0.8 9.8 0.2 0.9 3.3

2011E 2.4% 1.4 4.1 2.3 10.9 4.1 7.5 2.5 0.1 10.1 0.2 2.0 4.0

Source: Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

16

April 9, 2010

United States: Portfolio Strategy

Goldman Sachs Strategy Baskets 1
US Portfolio Strategy baskets are designed to provide portfolio managers with vehicles to monitor and implement thematic views in the U.S. equity markets. Our baskets may be found on Bloomberg by typing <GSSU5>. The Bloomberg page provides real-time basket performance and current basket constituents.

To obtain access to our baskets on Bloomberg, please contact your Goldman Sachs salesperson.
Exhibit 44: Strategy basket performance and average valuation data
as of April 8, 2010

Exhibit 45: Strategy basket total return performance over the last week
last week % total return, as of April 8, 2010

Bloomberg Ticker Macroeconomic Baskets International Sales GSTHINTL US Sales GSTHAINT Western Europe Sales GSTHWEUR BRICs Sales Weak Balance Sheet Robust Profit Margins Fragile Profit Margins High Op Leverage Low Op Leverage Hedge Fund Baskets High HF Concentration GSTHHFHI Low HF Concentration GSTHHFSL Hedge Fund VIP Valuation Baskets GARP High Sharpe Ratio Use of Cash Baskets Dividend Growth Invest for Growth S&P 500 S&P 500 Average S&P 500 Median GSTHDIVG GSTHINVG GSTHGARP GSTHSHRP GSTHHVIP GSTHBRIC GSTHWBAL GSTHRMAR GSTHFMAR GSTHOPHI GSTHOPLO Strong Balance Sheet GSTHSBAL

Total Return % 1 wk 0% 1 1 1 1 2 1 1 1 1 1 mo 3% 3 3 4 3 6 4 5 5 5 YTD 7% 6 9 9 7 10 11 10 15 6

P/E NTM 19x 17 17 20 21 19 17 17 23 17

P/B LTM 4.6x 3.6 3.8 4.0 6.2 3.5 5.6 3.1 4.7 6.1

Div Yld (%) 1.7 % 1.7 0.9 1.1 1.1 1.8 1.2 0.9 1.2 1.9

Weak B/S <GSTHWBAL> High Sharpe Ratio <GSTHSHRP> High Operating Leverage <GSTHOPHI> GARP <GSTHGARP> Western Europe Sales <GSTHWEUR> Strong B/S <GSTHSBAL> US Sales <GSTHAINT> S&P 500 Hedge Fund VIP <GSTHHVIP> Robust Profit Margins <GSTHRMAR> BRIC Sales <GSTHBRIC> Low Operating Leverage <GSTHOPLO> Fragile Profit Margins <GSTHFMAR> High HF Conc <GSTHHFHI> Dividend Growth <GSTHDIVG> Int'l Sales <GSTHINTL> Invest for Growth <GSTHINVG> Low HF Conc <GSTHHFSL> (1)

1.6 1.1 1.1 1.0 0.9 0.9 0.9 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.3 0.1 0.1 (0.0)
0 1 2

0% (0) 1

2 % 10 % 4 7 4 9

20x 15 19

4.5x 3.1 4.4

0.5 % 3.5 0.9

Source: FactSet, and Goldman Sachs Global ECS Research.

Exhibit 46: US Portfolio Strategy thematic trade recommendations
as of April 8, 2010

1% 1

4% 4

7% 7

17x 16

4.5x 3.5

1.1 % 1.2

Thematic Trade Recommendations
Initiation Date Return BUY High Sharpe Ratio Basket (GSTHSHRP); SELL S&P 500
See 2010 Outlook: Cyclical start; defensive finish (7-Dec-09).

0% 0 1%

4% 3 4%

6% 6 7%

14x 16 15x 18 16

5.3x 4.5 2.5x 3.6 2.5

3.4 % 1.5 1.9 % 1.6 1.2

8-Dec-09

3.8 %

BUY High Oper. Leverage (GSTHOPHI); SELL Low Oper. Leverage (GSTHOPLO) See Macro to Micro Shift Part II: 2H 2009 Update (20-Jul-09). 20-Jul-09 10.6 % BUY BRICs Sales Basket (GSTHBRIC); SELL S&P 500
See Portfolio Passport: Coming to America (5-Nov-08).

4-May-09

13.9 %

Source: FactSet, and Goldman Sachs Global ECS Research.

Source: FactSet, and Goldman Sachs Global ECS Research.

1

The ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of the trade.

Goldman Sachs Global Economics, Commodities and Strategy Research

17

April 9, 2010

United States: Portfolio Strategy

Constituents of High Sharpe Ratio Basket <GSTHSHRP>
Exhibit 47: High Sharpe Ratio Basket
as of April 8, 2010
6-Mo Current Expected Implied Price Return Vol Expected Return / Implied Vol 6-Mo Current Expected Implied Price Return Vol Expected Return / Implied Vol

Rating

Rating

Consumer Discretionary Apollo Group Kohl's Corp. Gannett Co. Target Corp. Comcast Corp.

APOL NC KSS Buy GCI NC TGT Neutral CMCSA Not Rated

$63.00 56.63 17.79 55.64 18.43

26 % 15 23 8 6

38 % 25 43 23 27

0.67 0.58 0.52 0.36 0.21

Industrials Iron Mountain Inc. Donnelley (R.R.) & Sons Snap-On Inc. Fluor Corp. Equifax Inc.

IRM RRD SNA FLR EFX

NC NC NC Neutral NC

$26.52 22.54 44.58 49.74 35.60

29 % 20 16 8 2

24 % 27 27 30 23

1.23 0.74 0.60 0.27 0.09

Consumer Staples Wal-Mart Stores WMT Altria Group, Inc. MO Molson Coors Brewing Co. TAP Kroger Co. KR Dean Foods DF Coca-Cola Enterprises CCE Energy Chesapeake Energy Corp. Southwestern Energy Range Resources Corp Halliburton Co. El Paso Corp. XTO Energy Financials Chubb Corp. State Street Corp. JPMorgan Chase & Co. Marsh & McLennan NASDAQ OMX Group Allstate Corp. Northern Trust Corp. Health Care Gilead Sciences Baxter International Inc. Cephalon Inc Tenet Healthcare Corp. Amgen Boston Scientific

Buy Neutral Neutral CS Neutral Not Rated

$55.38 20.68 43.05 22.38 16.66 28.03

12 % 10 12 10 8 (5)

17 % 16 23 23 30 20

0.72 0.63 0.53 0.44 0.25 (0.27)

CHK SWN RRC HAL EP XTO

Neutral Buy* NC Buy* Neutral Neutral

$24.11 40.74 48.33 31.66 11.43 47.75

43 % 39 33 30 25 10

36 % 39 36 34 33 19

1.19 1.00 0.93 0.89 0.76 0.53

Information Technology McAfee Inc. MFE Compuware Corp. CPWR Intel Corp. INTC Hewlett-Packard HPQ Yahoo Inc. YHOO Novell Inc. NOVL Xerox Corp. XRX MEMC Electronic MaterialsWFR Electronic Arts ERTS Materials Pactiv Corp. Owens-Illinois Inc

Neutral NC Neutral Buy Neutral NC NC NC CS

$39.74 8.50 22.31 53.63 17.35 5.86 10.42 15.64 19.19

21 % 21 15 11 10 8 6 6 (3)

26 % 34 27 23 27 31 31 46 35

0.78 0.61 0.56 0.48 0.36 0.25 0.18 0.13 (0.07)

PTV OI

Buy Buy

$25.69 37.59

21 % 6

28 % 34

0.74 0.18

CB STT JPM MMC NDAQ ALL NTRS

Neutral Neutral Buy* Neutral Buy* Sell Neutral

$51.67 46.38 45.76 24.21 21.71 33.10 57.82

15 % 20 16 9 11 6 3

20 % 30 27 21 28 23 24

0.77 0.68 0.58 0.43 0.38 0.28 0.12

Telecommunication Services AT & T Inc. T MetroPCS CommunicationsPCS Utilities AES Corp. Allegheny Energy

Buy Neutral

$26.02 7.40

13 % 8

19 % 49

0.70 0.17

AES AYE

NC Not Rated

$11.28 23.02

54 % 11

39 % 20

1.37 0.57

GILD BAX CEPH THC AMGN BSX

Neutral Neutral Buy Buy* Buy Sell*

$45.82 57.70 66.78 5.95 60.52 6.98

21 % 15 16 24 13 13

25 % 20 27 48 27 45

0.83 0.75 0.58 0.51 0.49 0.30

Basket Median S&P 500 Median

13 % 7%

27 % 28 %

0.55 0.26

Source: Compustat, FactSet and Goldman Sachs Global ECS Research.

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Recent US Portfolio Strategy
Please contact your Goldman Sachs salesperson for access to additional research or if you wish to be added to the US Portfolio Strategy research distribution list. Exhibit 48: Recent research from US Portfolio Strategy

Latest Market Research
US Thematic Views: GARP Update US Sector Views: Global vs. Domestic tug-of-war within the US equity market US Portfolio Strategy: Using Sharpe Ratios to enhance fund returns US Equity Views: 4Q Earnings preview: Earnings rise, sales trough, margins expand US Portfolio Strategy 2010 Outlook: Cyclical start; defensive finish

Publication Date April 1, 2010 March 25, 2010 March 19, 2010 January 19, 2010 December 7, 2009 Publication Date April 1, 2010 February 12, 2010 November 4, 2009 Frequency Quarterly Quarterly Quarterly Monthly Weekly Monthly Timing / Recent Release February 22, 2010 February 5, 2010 August 19, 2009 April 6, 2010 Friday PM March 5, 2010

Franchise Research
Global Dividend Swap Monitor: Updating our bottom-up dividend forecasts following the results season Global Portfolio Strategy: Macro Conference - Asia 2010: Takeaways Global Portfolio Strategy: The New BRICS Nifty 50 - EM and DM Baskets

Periodical Research
Hedge Fund Trend Monitor S&P 500 Beige Book Strategy Baskets US Monthly Chartbook US Weekly Kickstart Where to Invest Now
Source: Goldman Sachs Global ECS Research.

Description Analysis of hedge fund holdings and positioning Qualitative assessment of S&P 500 quarterly earnings reports Overview of US Portfolio Strategy thematic baskets Monthly report on where to invest in the S&P 500 Five minute guide to the US equity market Marketing presentation highlighting recent research and best trade ideas

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United States: Portfolio Strategy

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