Navigating a Mature Bull Market - Microsoft · 2018-09-28 · Navigating a Mature Bull Market. ......

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Group

Generate Alpha. Identify Risk.Choose Ned Davis Research.

ED CLISSOLD, CFAChief U.S. Strategist

September 2018

Navigating a Mature Bull Market

Please see important disclosures at the end of this report. NED DAVIS RESEARCH GROUP i

TABLE OF CONTENTSNDR Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Fundamental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5

Macro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-12

Sentiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-15

Technical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20

Bottom Line. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-22

NDR House Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

NED DAVIS RESEARCH GROUP 1Please see important disclosures at the end of this report.

NED DAVIS RESEARCH GROUP APPROACH

EXPECTATIONS:How the market SHOULD BE acting

TIMING:How the market

IS acting

Macro

Sentiment

Fundamental

Technical

Idea


Unprecedented upward earnings revisions.FUNDAMENTAL

© Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

S677

Consensus Estimates for S&P 500 Operating Earnings per Share by Calendar YearWeekly Data 2011-07-19 to 2018-09-13


S677

Consensus Estimates for S&P 500 Operating Earnings per Share by Calendar YearWeekly Data 2011-07-19 to 2018-09-13

2011Jul Oct

2012Jan Apr Jul Oct

2013Jan Apr Jul Oct

2014Jan Apr Jul Oct

2015Jan Apr Jul Oct

2016Jan Apr Jul Oct

2017Jan Apr Jul Oct

2018Jan Apr Jul Oct

95.097.5

100.0102.5105.0107.5110.0112.5115.0117.5120.0122.5125.0127.5130.0132.5135.0137.5140.0142.5145.0147.5150.0152.5155.0157.5160.0162.5165.0167.5170.0172.5175.0177.5180.0182.5

95.097.5

100.0102.5105.0107.5110.0112.5115.0117.5120.0122.5125.0127.5130.0132.5135.0137.5140.0142.5145.0147.5150.0152.5155.0157.5160.0162.5165.0167.5170.0172.5175.0177.5180.0182.5Calendar Year 2012: 03/28/2013 = 96.83

Calendar Year 2013: 03/31/2014 = 107.30Calendar Year 2014: 03/31/2015 = 113.03Calendar Year 2015: 03/31/2016 = 100.45Calendar Year 2016: 03/31/2017 = 106.26Calendar Year 2017: 04/05/2018 = 124.51Calendar Year 2018: 09/13/2018 = 157.74Calendar Year 2019: 09/13/2018 = 177.03

Source: Standard & Poor's

2018

$145 TO $157 = +8% REVISION


FUNDAMENTAL How much are peak earnings worth?

S&P 500 INDEX VS. YEAR/YEAR EPS % GROWTH

EPS Growth: % GPA

>20% 2.6

5 to 20% 6.8

-20 to +5% 12.1

<=-20% -13.6

Based on GAAP earnings per share. 3/31/1927-3/31/2018Source: S&P Dow Jones Indices.

Ned Davis Research Group S663

CONSENSUS FOR 4Q18

RECESSION TERRITORY


FUNDAMENTAL Paying full price for strong earnings.


SMF_24.RPT

S&P 500 Price to GAAP Earnings Monthly Data 1929-02-28 to 2018-08-31 (Log Scale)

Extremely Overvalued Moderately Overvalued Fairly Valued Moderately Undervalued Extremely Undervalued


SMF_24.RPT

S&P 500 Price to GAAP Earnings Monthly Data 1929-02-28 to 2018-08-31 (Log Scale)


1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

5.7

7.2

8.9

10.9

13.1

15.5

18.2

21.3

24.7

28.6

32.9

37.8

43.2

49.3

56.2

63.9

72.5

82.2

93.1

105.3

119.0

134.4

5.7

7.2

8.9

10.9

13.1

15.5

18.2

21.3

24.7

28.6

32.9

37.8

43.2

49.3

56.2

63.9

72.5

82.2

93.1

105.3

119.0

134.4S&P 500 Price to GAAP Earnings (08/31/2018): 23.7

Valuation designations based on quintiles up to that point in history.Source: S&P Dow Jones Indices, Standard & Poor's


NED DAVIS RESEARCH 3600 VIEW OF U.S. STOCK MARKETSEPTEMBER 2018

Category Conclusion Comment

Fundamentals Neutral Good EPS growth, but mostly priced in

Macro

Sentiment

Technicals

Bottom Line


Stocks cheap relative to bonds.MACRO


SMF_24.RPT

S&P 500 GAAP Earnings Yield less 10-Year Treasury Yield Monthly Data 1966-03-31 to 2018-08-31 (Log Scale)



SMF_24.RPT

S&P 500 GAAP Earnings Yield less 10-Year Treasury Yield Monthly Data 1966-03-31 to 2018-08-31 (Log Scale)


1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

-4.8-4.7-4.6-4.5-4.3-4.2-4.0-3.9-3.7-3.5-3.3-3.1-2.9-2.6-2.4-2.1-1.8-1.6-1.2-0.9-0.6-0.20.20.61.11.52.02.53.13.74.34.95.56.26.9

-4.8-4.7-4.6-4.5-4.3-4.2-4.0-3.9-3.7-3.5-3.3-3.1-2.9-2.6-2.4-2.1-1.8-1.6-1.2-0.9-0.6-0.20.20.61.11.52.02.53.13.74.34.95.56.26.9S&P 500 GAAP Earnings Yield less 10-Year Treasury Yield (08/31/2018): 1.4

Valuation designations based on quintiles up to that point in history.Source: S&P Dow Jones Indices, Standard & Poor's


When will higher rates bite?MACRO

(S0947)

Daily 1/02/1963 - 9/14/2018 (Log Scale)

S&P 500 Index

Source: S&P Dow Jones Indices5273

101141197275383533743

1035144220102800

5273

101141197275383533743

1035144220102800

10-Year Treasury Note Yield (%)

Source: Federal Reserve Board23456789

101112131415

23456789

101112131415

9/14/2018 = 0.28

Rolling One-Year Correlation:Daily % Change in S&P 500 & 10-Year Treasury Yield

Stock Prices And Bond YieldsMove In Same Direction

Stock Prices And Bond YieldsMove In Opposite Directions

-0.8-0.6-0.4-0.20.00.20.40.60.8

-0.8-0.6-0.4-0.20.00.20.40.60.8

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

2017

Stock/Bond Rolling One-Year Correlation

Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved..www.ndr.com/vendorinfo/. For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at

�

DEFLATION FEARS

INFLATION CONCERNS


Concerns about yield curve being too flat or too steep overblown.MACRO

S894S894

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

100

158

251

398

631

1,000

1,585

2,512

100

158

251

398

631

1,000

1,585

2,512

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source:Source: S&P Dow Jones Indices

Shaded Areas Designate National Bureau of Economic Research Recession Source:Source: Federal Reserve Board

Weekly Data 1976-06-04 to 2018-09-14S&P 500 Index vs. 10-2 Treasury Yield Curve

S&P 500 Index Performance

Full History:Full History: 1976-06-04 to 2018-09-14

Yield Curve - 10-Year

Minus Two-Year Treasury

Yield

% Gain/

Annum

% of

Time

Above 1.5 5.81 28.01

0.0 - 1.5 11.04 57.58

Below 0.0 2.61 14.42

Buy/Hold = 8.31% Gain/Annum

S&P 500 Index (2018-09-14 = 2,904.98)

Yield Curve - 10-Year Minus Two-Year Treasury Yield(2018-09-14 = 0.22)


Deflationary forces have not disappeared.MACRO


Recession risks low, limiting downside risk to equities.MACRO

RECESSION WATCH REPORT

Indicator

Key Recession

LevelCurrent

Level

Median Lead Time of

Peak/ Trough to Recession

Months Since Recent Peak/

Trough in Current Cycle

NDR Recession Probability Model1 50 1.2 11 2

Breadth of Philly Fed State Leading Indexes2 70 98 13 3

NDR Economic Timing Model2 0 22 9 0

NDR Composite Leading Index2 -2.6 3.2 9 0

National Financial Conditions Index1 0.9 -0.9 8 10

Initial Claims for Unemployment Insurance (4-wk Avg)1 500 208.0 8 0

Conference Board's Consumer Confidence Index2 63.2 133.4 11 0

Conference Board's Business Confidence Index2 43 63 21 3

ISM Manufacturing Index2 48.0 61.3 11 0

ISM Non-Manufacturing Index2 51.4 58.5 16 1

1Reaching a trough before a recession2Reaching a peak before a recession

Ned Davis Research, Inc. ECON_20A.RPT

RECESSION AND NON-RECESSION CYCLICAL BEAR MARKETS

MetricRecession

BearsNon-Recession

Bears

% Change -29.7 -18.0

# Months 17.7 6.8

Ned Davis Research, Inc. T_203.RPT (excerpt)

LITTLE EVIDENCE

OF RECESSION


Economy needs more than the consumer.MACRO

Quarterly 3/31/1995 - 6/30/2018

(E65)

PCE 6/30/2018 = 2.55

Source: Bureau of Economic Analysis-2.0-1.00.01.02.03.04.05.0

-2.0-1.00.01.02.03.04.05.0

Gross Private Domestic Investment 6/30/2018 = 0.10

-6

-4

-2

0

2

4

-6

-4

-2

0

2

4

Net Exports 6/30/2018 = 1.17

-1.5-1.0-0.50.00.51.01.52.02.5

-1.5-1.0-0.50.00.51.01.52.02.5

Government 6/30/2018 = 0.41

-0.9-0.6-0.30.00.30.60.91.2

-0.9-0.6-0.30.00.30.60.91.2

1995 2000 2005 2010 2015

Percentage Point Contributions to GDP Growth

Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved..www.ndr.com/vendorinfo/. For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at

�

BIGGEST DRIVER

NEEDED FOR ESCAPE VELOCITY

TRADE WAR RISK

TAX CUTS





Macro Bullish Solid economy + modest inflation uptick

Sentiment

Technicals

Bottom Line


SENTIMENT Pessimism never fell to wash out levels.

S574AS574A

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

631

794

1,000

1,259

1,585

1,995

2,512

631

794

1,000

1,259

1,585

1,995

2,512

30

35

40

45

50

55

60

65

70

75

80

30

35

40

45

50

55

60

65

70

75

80


33.5 33.9

43.8

46.6

49.7

42.5

49.947.6

38.0

30.9

46.8

40.538.4

47.2

55.253.3

45.8

42.8

52.7

69.2

75.773.5

71.970.5

72.2

58.1

70.773.0

70.7 71.673.9 73.3

69.8

78.9Extreme Optimism (Bearish)

Extreme Pessimism (Bullish)Updates weekly on Wednesday mornings. Source:Source: Ned Davis Research, Inc.

Daily Data 1995-12-01 to 2018-09-13S&P 500 Index vs. NDR Crowd Sentiment Poll - Transitional Mode Basis



NDR Crowd Sentiment Poll

is

% Gain/

Annum

% of

Time

Above 66.0 -3.29 25.03

57.0 - 66.0 From Above 1.97 18.22

57.0 - 66.0 From Below 21.22 19.05

Below 57.0 10.59 37.23


S&P 500 Composite Index (2018-09-13 = 2904.18)

NDR Crowd Sentiment Poll (2018-09-13 = 67.4)



S1062

S&P 500 Index vs. Philadelphia Fed Partisan Conflict Index Monthly Data 1984-12-31 to 2018-08-31 (Log Scale)


S1062

S&P 500 Index vs. Philadelphia Fed Partisan Conflict Index Monthly Data 1984-12-31 to 2018-08-31 (Log Scale)

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

178

316

562

1,000

1,778

3,162

178

316

562

1,000

1,778

3,162S&P 500 Index (2018-08-31 = 2901.52)

S&P 500 Index Performance:

Participation IndexDeviation from Trend

% Gain/Annum

% ofTime

Above 100 16.75 50.50

* Below 100 1.32 49.50

Source: S&P Dow Jones Indices

63

79

100

126

158

200

251

63

79

100

126

158

200

251Partisan Conflict Index (2018-08-31 = 148.46)

Source: Federal Reserve Bank of Philadelphia

80

90

100

110

120

130

140

150

80

90

100

110

120

130

140

150Partisan Conflict Index Deviation from Trend (6-Month Smoothing / 48-Month Smoothing) (2018-08-31 = 88.92)

Source: Federal Reserve Bank of Philadelphia

SENTIMENT Has partisanship become the new normal?






Sentiment Neutral Pessimism not extreme

Technicals

Bottom Line


TECHNICAL Sell in May period even weaker in mid-term years.


S01666

S&P 500 Cycle Composite for 2018 Daily Data 2017-12-29 to 2018-12-31


S01666

S&P 500 Cycle Composite for 2018 Daily Data 2017-12-29 to 2018-12-31

2018Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019Jan

-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.5

10.010.511.011.512.012.5

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

5.00

2018 Cycle CompositePlaces Equal Weight On:One-Year Seasonal CycleFour-Year Presidential Cycle10-Year Decennial Cycle

Trend Is More Important Than LevelBased on Daily Data 1/3/1928 - 12/31/2017

Lines represent cumulative year-to-date percent gains

S&P 500 Cycle Composite for 2018 (Scale Right)Actual S&P 500 Composite Through 2018-09-14 (Scale Left)


AVERAGE YEAR

2018


TECHNICAL U.S. relative strength usually leads to more U.S. strength.


BFC201808281B_C

S&P 500 Index After S&P 500 Beats MSCI ACWI ex.-U.S. by 10% Year/Year


BFC201808281B_C

S&P 500 Index After S&P 500 Beats MSCI ACWI ex.-U.S. by 10% Year/Year

-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

U.S/ACWI ex. U.S. Crosses >10%

Months Prior | Months Post


Start DatesS&P 500 Index Change (%) After:

6 MONTHS 12 MONTHS

1990-03-31 -9.97 10.38

1991-10-31 5.73 6.68

1993-01-31 2.13 9.76

1995-02-28 15.28 31.40

1996-12-31 19.49 31.01

1998-09-30 26.49 26.13

2003-04-30 14.59 20.76

2011-03-31 -14.66 6.23

2013-12-31 6.05 11.39

2016-03-31 5.27 14.71

Average 7.04 16.85


Breadth thrust elusive.TECHNICAL


S45

Standard & Poor's 500 Stock Index Daily Data 1980-10-10 to 2018-09-14 (Log Scale)


S45

Standard & Poor's 500 Stock Index Daily Data 1980-10-10 to 2018-09-14 (Log Scale)

NDR Multi-Cap Equity Series % of Stocks Above Their 10-Day Moving Averages

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

25

32

40

50

63

79

100

126

158

200

251

316

398

501

631

794

1,000

1,259

1,585

1,995

2,512

25

32

40

50

63

79

100

126

158

200

251

316

398

501

631

794

1,000

1,259

1,585

1,995

2,512

Event Date% Stocks

Above MA10

Days21

Days42

Days63

Days84

Days126

Days253

Days

1982-08-23 90.93 4.5 6.8 19.8 18.0 19.4 27.5 41.5

1984-08-03 91.02 1.1 1.6 0.1 3.2 0.3 10.0 17.4

1987-01-06 90.40 6.4 10.6 15.0 19.5 16.9 21.6 2.4

1991-02-06 91.68 1.9 4.7 4.3 5.7 6.0 9.1 15.6

1997-05-05 90.97 0.4 1.2 10.4 14.5 11.8 10.2 33.1

2002-10-21 90.73 1.0 -0.3 -1.7 -2.4 -5.7 2.1 14.5

2003-03-20 91.64 0.1 1.9 5.0 13.6 11.8 18.7 25.1

2004-04-01 92.01 0.2 -1.3 -0.6 -0.6 -2.9 -0.1 4.3

2004-05-26 90.44 1.9 1.7 -1.8 -0.9 -1.0 6.0 7.5

2007-03-21 91.77 0.3 3.4 6.3 5.4 6.9 6.5 -5.9

2008-11-04 92.64 -14.6 -16.0 -7.1 -15.9 -32.7 -9.8 6.1

2008-11-28 90.28 -1.8 -0.6 -7.9 -22.3 -9.5 5.4 23.7

2009-03-13 91.98 7.9 11.2 16.8 25.1 19.7 37.8 53.3

2009-10-14 90.25 -4.5 -0.4 2.0 5.2 0.3 9.2 7.7

2010-02-17 91.81 1.8 6.0 8.9 1.9 1.5 -0.6 21.5

2010-06-15 95.15 -6.6 -1.7 -3.2 0.5 5.6 11.2 13.5

Event Date% Stocks

Above MA10

Days21

Days42

Days63

Days84

Days126

Days253

Days

2010-07-13 96.02 1.7 -0.5 1.3 6.4 10.8 15.9 20.3

2010-09-02 93.77 3.3 4.3 9.5 12.1 16.7 21.2 7.7

2011-03-30 90.40 -1.0 2.7 1.3 -1.6 -2.7 -13.3 6.0

2011-07-01 96.07 -2.6 -6.4 -9.0 -15.5 -6.4 -6.1 2.6

2011-08-29 97.41 -3.1 -4.9 6.2 -1.4 3.3 12.9 16.6

2011-10-10 92.94 5.0 6.8 3.3 8.1 13.1 14.5 19.9

2011-11-30 93.65 -2.8 0.9 6.2 9.8 13.8 2.5 12.8

2011-12-27 91.93 2.1 4.0 8.4 11.1 10.9 5.2 12.7

2012-07-03 92.46 -0.1 -0.7 2.4 5.2 2.9 6.7 20.3

2012-11-23 90.34 0.6 1.2 6.7 6.2 10.9 17.8 27.9

2013-12-24 92.38 0.3 -2.8 0.6 0.9 2.0 6.8 13.9

2014-08-19 90.65 1.0 1.5 -4.8 3.0 1.6 5.8 2.7

2014-10-21 93.23 3.6 5.5 6.7 6.3 8.7 8.8 5.7

2015-10-09 91.48 3.0 3.2 1.6 -4.5 -8.1 2.3 6.0

2016-02-22 92.38 2.9 5.4 7.5 5.5 7.4 12.3 21.5

Stats show % change in S&P 500 N-Days after event

Combined statistics for all dates

Summary Item 10Days

21Days

42Days

63Days

84Days

126Days

253Days

Mean 0.44 1.58 3.68 3.93 4.29 8.98 15.42

Median 0.96 1.56 3.30 5.22 5.64 8.84 13.93

Number Up 22 20 23 22 23 26 30

Number Down 9 11 8 9 8 5 1

All Periods Mean 0.37 0.78 1.56 2.33 3.13 4.75 9.94

Arrows show initial dates when indicator rose above90% after falling to at least 10% in between.


0

25

50

75

0

25

50

75

Source: Ned Davis Research, Inc. 2018-09-14 = 58.8

2.5 YRS W/O BREADTH THRUST


Long-term trend indicators have not broken.TECHNICAL

S61S61

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

631

794

1,000

1,259

1,585

1,995

2,512

3,162

631

794

1,000

1,259

1,585

1,995

2,512

3,162

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600


Current Signal: Bullish (2016-07-22, Gain/Loss: 33.6%)Current Signal: Bullish (2016-07-22, Gain/Loss: 33.6%)

All price, total return, and performance data are in local currency.


Daily Data 2008-09-12 to 2018-09-14S&P 500 Index vs. Moving Average Slope

Current value is 0.00% away from peak.

Bullish when 126-Day smoothing

rises by 2.5% or more.

Bearish when 126-Day smoothing

falls by 2.5% or more.



Moving Average Slope

Indicator is

% Gain/

Annum

% of

Time

Bullish 10.82 79.02

Bearish 2.22 20.98



Chart View:Chart View: 2008-09-12 to 2018-09-14

Moving Average Slope

Indicator is

% Gain/

Annum

% of

Time

Bullish 11.42 80.57

Bearish -1.55 19.43


S&P 500 Index (2018-09-14 = 2,904.98)

S&P 500 Index (126-Day Moving Averag… (2018-09-14 = 2756.24)







Technicals Bullish LT technicals positive; watch breadth for thrust

Bottom Line


Watch long-term technicals and interest rates.BOTTOM LINE

NDR U.S. STOCK MARKET MODEL

LONG TERM

SHORT TERM







Technicals Bullish LT technicals positive; watch breadth for thrust

Bottom Line Bullish Positive technicals deciding factor


Q & A

Ned DavisResearch

Group


Consistent with our Global Balanced Account Model, NDR recommends marketweight allocation to stocks, bonds and cash in balanced portfoli-os. While cyclical risks have increased, the secular bull market in equities remains intact, supported by accommodative monetary policies globally – equities have produced double-digit per annum returns since the secular bull started in 2009.

EQUITY ALLOCATION: U.S. – The U.S. is overweight in our seven-region global allocation framework. On an absolute basis, the cyclical bull remains intact, but risks have increased. We favor Growth and quality Dividend Payers, and are neutral on small/large.

EUROPE – We remain underweight Europe ex. U.K. based on its regional equity model weighting and its relative weakness.

EMERGING MARKETS – We are underweight Emerging Markets in our seven-region framework. As we watch China’s transition to a more mature growth profile, we are overweight select markets in emerging Asia and Europe.

MACRO: ECONOMY – The global economy is on solid footing, but is show-ing signs of being in late cycle as momentum likely peaked in late 2017. Recession probability for the U.S. remains minimal in the next six to nine months. Major risks include heightened trade war tensions, tighter monetary policy, a sharp slowdown in China, and political dysfunction in the U.S. and Europe.

FIXED INCOME – We are at 90% of benchmark duration. We main-tain our curve flatteners and remain overweight credit.

ENERGY – We believe crude oil is in a secular bull market. However, due to this summer’s soft inventory and physical market weakness, we are tactically neutral.

GOLD – Long-term outlook remains bullish, but trend has turned downward. We are neutral.

ECONOMIC SUMMARY – September 17, 2018

GLOBAL ECONOMYAbove Trend (3.7%)

U.S. ECONOMYAbove Trend (2.9%)

U.S. INFLATIONModerate (2.4%)

U.S. BONDS – 90% OF BENCHMARK DURATION

U.S. ALLOCATIONGrowth

Stocks (55%) • Bonds (35%) • Cash (10%) Large-Cap • Small-Cap

ValueBenchmark – Stocks (55%), Bonds (35%), Cash (10%)

SECTORSConsumer Staples (12%) • Health Care (17%) • Utilities (4%)

Industrials (7%) • Materials (1%)Benchmark - Technology (24.5%), Health Care (13.9%), Financials (14.1%), Consumer Discretionary (12.9%), Consumer Staples (8.4%), Industrials (9.9%), Energy (5.8%), Utilities (2.9%), Real Estate (2.8%), Materials (2.9%), Telecom Services (1.9%)

NDR HOUSE VIEWS (Updated August 16, 2018)

GLOBAL ASSET ALLOCATIONStocks (55%)

Bonds (35%)

Cash (10%)Benchmark – Stocks (55%), Bonds (35%), Cash (10%)

EQUITIES – REGIONAL RELATIVE ALLOCATIONU.S. (64%)

Canada (4%) • Pacifi c ex. Japan (3%) • Japan (7%)

U.K. (4%) • Europe ex. U.K. (9%) • Emerging Markets (9%)Benchmark – U.S. (52.7%), Europe ex. U.K. (15.0%), Emerging Markets (11.8%), Japan (7.8%), U.K. (5.7%), Pacific ex. Japan (3.9%), Canada (3.1%)

GLOBAL BOND ALLOCATIONJapan (30%)

U.K. (5%) • Europe (30%)

U.S. (35%)Benchmark – U.S. (48%), Europe (28%), Japan (18%), U.K. (6%)

Ned DavisResearch

Group

Chief U.S. Strategist

Ed Clissold, CFA, is the Chief U.S. Strategist for Ned Davis Research Group. He and his team are responsible for the firm’s U.S. equity, style, sector and equity theme analysis. They do so via a combination of a top-down analysis of the macroeconomic and fundamental environments and a bottom-up analysis of factors specific to the asset class, market cap, style, sector, or theme. He and his team also provide in-depth macro research on fundamental topics such as earnings, dividends, and cash flow.

Ed writes several U.S. Strategy publications, which provide an intermediate-term outlook on U.S. markets via a combination of top-down and bottom-up analyses. He also writes a quarterly Benchmarks report, which analyzes the attribution of returns across asset classes, sectors, market cap, and styles.

Ed’s market commentary is often quoted in The Wall Street Journal, Barron’s, and other financial publications.

Ed has held a number of other positions since joining the firm in 2002, including Global Equity Strategist, Senior Global Analyst in the Global Asset Allocation group, and Analyst in the Custom Research Services department. Previously, Ed worked at Strong Capital Management and as a Market Strategist at J.C. Bradford & Co.

Ed is a CFA charterholder, a magna cum laude graduate in Economics from Transylvania University, and has earned his Masters in Business Administration in Finance, with distinction, from Indiana University (Kelley).

ED CLISSOLD, CFA

[email protected]

@edclissold

www.linkedin.com/in/edclissold

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