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Global Market Outlook – Cyclical Risks, Secular Potential Global Market Outlook – Cyclical Risks, Secular Potential TIM HAYES, CMT Chief Global Investment Strategist Ned Davis Research Group Generate Alpha. Identify Risk. October 2018 Choose Ned Davis Research. Secular bull market in stocks, secular turning point in bonds? Asset Classes & Secular Trends Monthly Data 1900-01-31 to 2018-09-30 (Log Scale) 10,000 BULL BEAR BULL BEAR BULL BEAR BULL BEAR BULL 10,000 Per Annum Returns: 3,162 7.6% -2.6% 21.2% -10.2% 11.0% 1.0% 16.0% -6.1% 15.1% 3,162 1,000 1,000 316 S&P 500 Monthly Average Price Index (2018-09-30 = 2902) 316 100 S&P 500 Gain/Annum 100 During Secular Trends 32 GPA %Time 32 Secular Bull 13.8 54.5 10 Secular Bear -4.0 45.3 10 Source: S&P Dow Jones Indices 15.0 BEAR BULL BEAR BULL 15.0 Per Annum Change in Yields: 2.7% -4.9% 5.0% -4.1% 12.5 12.5 Long-Term Gov't Bond Yields 10.0 During Secular Trends 10.0 Yields of Long-Term Government Bonds GPA %Time 7.5 (2018-09-30 = 3.0) Secular Bull -4.4 48.8 7.5 Secular Bear 4.2 51.2 5.0 5.0 2.5 2.5 Sources: Prior to 1919 - A History of Interest Rates by Sidney Homer & Richard Sylla (Annual Average) From 1919 to Present - Federal Reserve (Annual Close) BULL BEAR BULL BEAR BULL BEAR BULL 1,778 5.4% -7.4% 7.8% -3.2% 10.6% -3.1% 11.4% 1,778 1,000 1,000 NDR Commodity Composite* 562 (2018-09-30 = 1064) 562 NDR Commodity Index 316 During Secular Trends 316 GPA %Time 178 178 Secular Bull 8.4 52.9 Secular Bear -4.4 40.7 100 100 *Constructed using prices by George F. Warren & Frank A. Pearson, Bureau of Labor Statistics, Commodity Research Bureau(www.crbtrader.com) 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 S0202I © 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/ NED DAVIS RESEARCH GROUP Please see important disclosures at the end of this report. 1 Cyclical bull intact but extended. MEDIANS IN SECULAR BULLS DJIA Secular Bull Market Comparison CYCLICAL BULLS: 77%, 2.4 YEARS 501 501 Secular Bull Starting in 1921 398 CYCLICAL BEARS: -19%, 8 MONTHS 398 316 316 251 251 200 200 158 158 126 Secular Bull Ended in 1929 126 100 100 79 79 64.9% -18.6% 344.5% 282 Secular Bull Starting in 1942 282 251 251 224 224 200 200 178 178 158 1951 158 141 141 126 Secular Bull Ended in 1966 126 112 112 100 128.7% -23.2% 18.4% -16.3% 100 3,981 Secular Bull Starting in 1982 3,981 3,162 3,162 2,512 2,512 1,995 1,995 1992 1,585 1,585 1,259 Secular Bull Ended in 2000 1,259 1,000 1,000 65.7% -15.6% 150.6% -36.1% 72.5% -21.2% 31,623 Secular Bull Starting in 2009 31,623 25,119 25,119 19,953 19,953 15,849 15,849 2018-10-11 12,589 Shaded areas represent NDR- 12,589 10,000 defined cyclical bear markets 10,000 7,943 7,943 95.7% -16.8% 71.9% -14.5% 60.0% Source: S&P Dow Jones Indices 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 S0202A © 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/ NED DAVIS RESEARCH GROUP Please see important disclosures at the end of this report. 2 Will next move be a downgrade to underweight? NDR Global Stock/Bond/Cash Recommendations Daily Data 2005-07-29 to 2018-10-11 Equity Line Based on NDR Global Recommendations (2018-10-11 = 223.41) Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash) (2018-10-11 = 195.14) 200 200 158 158 126 126 100 100 Recommended Equity % (2018-10-11 = 55%) 60 60 40 40 20 Equity Benchmark Weight = 55% Source: Ned Davis Research, Inc. 20 Recommended Bond % (2018-10-11 = 35%) 40 40 20 20 Bond Benchmark Weight = 35% Source: Ned Davis Research, Inc. Recommended Cash % (2018-10-11 = 10%) 20 20 10 10 0 0 Cash Benchmark Weight = 10% Source: Ned Davis Research, Inc. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Model vs. Benchmark Returns Allocation recommendations follow I4000 prior Full History: 2005-07-29 - 2018-10-11 to 2008 and I04000 from 1/1/2008 to 6/4/2009. Equity Line Gain/Annum For more details clliick here.. Recommendations 6.3% Benchmark 5.2% I4001A NED DAVIS RESEARCH GROUP Please see important disclosures at the end of this report. 3 Divergent breadth consistent with past bear markets. MSCI Equal-Weighted ACWI/Cap-Weighted ACWI Daily Data 2006-12-29 to 2018-10-11 (Log Scale) Equal-Weighted MSCI ACWI* 3,981 200-Day Moving Average 3,981 3,162 3,162 2,512 2,512 1,995 1,995 1,585 1,585 1,259 1,259 * MSCI ACWI Constituents Weighted Equally With Quarterly Rebalancing 700 700 Cap-Weighted MSCI ACWI YELLOW = 200-Day Moving Average 600 CYCLICAL BEARS 600 AND SINCE 500 JANUARY HIGH 500 400 400 300 300 200 200 700 Equal-Weighted ACWI/ Cap-Weighted ACWI 700 200-Day Moving Average 675 675 650 650 625 625 600 600 575 575 550 550 525 Moving average direction based on reversals of 0.5% or greater Source: MSCI 525 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Full History Statistics Chart View Statistics from 1998-12-31 from 2006-12-29 MSCI Cap-Weighted ACWI MSCI Cap-Weighted ACWI (2nd Clip) Gain/Annum When: (2nd Clip) Gain/Annum When: EW/CW ACWI % Gain/ % EW/CW ACWI % Gain/ % 200-Day MA: Annum of Time 200-Day MA: Annum of Time Is Rising 5.72 55.78 Is Rising 6.11 35.64 * Is Falling -0.64 44.22 * Is Falling 1.17 64.36 I138E © 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/ NED DAVIS RESEARCH GROUP Please see important disclosures at the end of this report. 4 Most markets in downtrends. MSCI All Country World Index vs. 200-Day Moving Average Indicators Daily Data 2006-12-29 to 2018-10-11 MSCI ACWI (2018-10-11 = 570.52) 501 501 398 398 316 316 251 251 200 200 Source: MSCI Percentage of 47 ACWI Markets Above 200-Day Moving Averages(2018-10-11 = 10.6%) 80 80 60 60 40 40 20 20 0 0 Percentage of 47 ACWI Markets With Rising 200-Day Moving Averages(2018-10-11 = 46.8%) 80 80 60 60 40 40 20 20 0 0 Moving average direction based on reversals of 0.5% or greater Source: MSCI 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 MSCI ACWI Performance MSCI ACWI Performance Middle Clip: 2006-12-29 to 2018-10-11 YELLOW = CYCLICAL BEARS Bottom Clip: 2006-12-29 to 2018-10-11 % Above 200-Day Moving % Gain/ % of AND SINCE JANUARY HIGH % With Rising 200-Day % Gain/ % of Average is Annum Time Moving Average is Annum Time Above 50.0 4.65 67.05 Above 50.0 6.58 70.42 Below 50.0 -0.58 32.95 Below 50.0 -5.36 29.58 Buy/Hold = 2.90% Gain/Annum Buy/Hold = 2.90% Gain/Annum CI138Bustomized version of GLOBAL_INT_CHART_TEST2 NED DAVIS RESEARCH GROUP Please see important disclosures at the end of this report. 5 Rally Watch warned of weakness. Global Stocks vs. Rally Watch Indicators Daily Data 1981-07-02 to 2018-10-11 (Log Scale) Source: MSCI 631 MSCI ACWI* 631 501 501 398 398 316 316 251 251 200 200 158 158 ACWI X-Month Performance Following Initial** 126 Drop to 0% Bullish Indicators 126 3-Month 6-Month 9-Month 12-Month 100 1981-07-02 -8.5 -4.9 -9.6 -14.5 100 Full History Statistics 79 1983-10-18 4.9 4.0 -2.9 7.1 79 MSCI ACWI Performance 1987-10-23 -5.2 4.8 6.8 11.1 63 % Gain/ % of 63 % Bullish Indicators: 1990-01-26 -7.1 -2.5 -18.2 -16.8 Annum Time 1994-06-24 2.6 1.1 -3.1 3.8 50 Above 50 17.60 17.47 50 1998-07-24 -11.8 -0.4 11.4 12.0 40 Between 15 and 50 9.73 56.26 40 2000-04-12 0.6 -10.2 -12.3 -19.3 Between 7 and 15 12.85 10.40 2008-03-25 -0.4 -11.2 -35.6 -38.2 32 * 7 and Below -14.87 15.87 32 2015-06-05 -9.8 -4.0 -9.0 -6.2 25 25 2018-06-29 - - - - 20 * MSCI World Index price returns used prior to 1988, MSCI ACWI price returns used thereafter. Median -5.2 -2.5 -9.0 -6.2 20 ** First 0% reading in at least a year from previous 0% reading Percent of Bullish Rally Watch Indicators 2018-10-11 = 6% 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Source: Ned Davis Research, Inc.
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