JEF Macro Weekly Fiscal Dynamics STRATEGY NOTE

Equity Research USA | Equity Strategy August 15, 2026

JEF Macro Weekly—Fiscal Dynamics STRATEGY NOTE

Deteriorating, Remains Underappreciated GREED & fear watching free cash flow generation for SP500 deteriorating due to CapEx picking up. Could explain why Hyperscalers getting re-rating. Mohit has bullish bias, stay away from duration. Aniket sees market's focus shifting from cyclical questions around growth\Fed policy to structural challenge of financing deficits: Sensitivity to LT fiscal\inflation risks = higher for longer. Desh sees real yields 2.5%: favors Value, Yield, Balance-Sheet strength.

GREED & fear—The latest earnings season has been extremely positive and earnings forecasts for the current quarter also remain robust. If there is a negative to be aware of it is that the free cash flow generation of the S&P500 in aggregate has begun to deteriorate, reflecting primarily the continuing capex binge. If this explains the recent underperformance by the hyperscalers, thus recent derating in terms of their valuation, the AI capex arms race continues, and that remains for now extremely earnings-accretive as the picks and shovels plays book their profits upfront while the hyperscalers remain in no hurry to account for their capex.

Mohit Kumar—Lower oil prices and benign inflation prints have led to rally in rates and risky assets. We missed in the rally in USTs/Bunds but the returns have been more than compensated by the rally in Tech stocks and a steepening of the curve. NASDAQ has rallied by over 5% and Semis by over 10% in the last two weeks. UST 2Y10Y has steeped by about 6bp. We see no reason to change our view and are continuing with our bullish bias, but staying away from duration.

Thomas Simons—We can't blame anyone for thinking that the FOMC will decide that policy is not restrictive enough, and that they will take back the "insurance cuts" made at the end of '25. The impulse of monetary policy turned neutral at the beginning of '25, and by this model, the impulse is now contributing +187 bps to quarterly GDP growth.

Aniket Shah—We view market's focus may gradually shift from cyclical questions around growth and Fed policy to the structural challenge of financing persistent deficits. While this does not imply a fiscal crisis, it does support a higher-for-longer rates environment and highlights growing market sensitivity to long-term fiscal and inflation risks. JefMacro Strategy * | Global Macro Team | Desh Peramunetilleke—Real yields near 2.5% look durable, as fiscal risk drives up term premium, while AI-related borrowing keeps long-duration funding costs elevated. History does not support Christopher Wood ^ | Global Head of Equity Strategy a simple high-yield-equals-equity-selloff, but post-'97 evidence shows weaker global returns above | 2% TIPS. We favor value, yield, and balance-sheet strength, using quality yield in the US, revisions- Thomas Simons * | US Economist backed GARP in EM, and yield in Europe. |

Despite record setting bond issuances, high-yield spreads have stayed very tight Mohit Kumar ‡ | European Economist | High-Yield Spreads (RHS) Rolling 12-Month Bond Issuances (LHS in Billions of Dollars)

3,500 Steven G. DeSanctis, CFA * | Equity Strategist 3,000 14 | 2,500 11 2,000 Aniket Shah, PhD * | Head of Sust. & 8 1,500 Transition Strategy 1,000 5 | 500 2 Desh Peramunetilleke ^ | Head of Quantitative Strategy . Source: Bloomberg; FactSet; Jefferies |

Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 7 - 11 of this report. * Jefferies LLC / Jefferies Research Services, LLC ^ Jefferies Hong Kong Limited ‡ Jefferies International Limited

Equity Strategy Equity Research August 15, 2026

Jefferies Macro Forecasts: Equity Targets and Forecasts GDP Forecasts Index Levels '26 Target GDP 1Q26 2Q26 3Q26 4Q26 1Q27 2Q S&P 500 7,500 United States 2.2% 1.5% 3.3% 2.3% 2.6% 2.4% 2.3% 2.5% Russell 2000 3,190 Economic Forecasts JEF's Earnings Earnings (In '26) Growth (In %) Economy 1Q26 2Q26 3Q26 4Q26 1Q27 2Q S&P 500 $307.07 13.1 Average NFP Growth ( Russell 2000 $122.56 15.7 Unemployment Rate (qtr end) 4.3% 4.2% 4.3% 4.3% 4.3% 4.2% 4.3% 4.2% PCE…