GLOBAL ASSET ALLOCATION U.S. ASSET ALLOCATION · market than a new bull market, the double-digit stock market rally notwithstanding. We have remained with a bullish gold position

MARKET DIGESTNed DavisResearch

Group

MARCH 2019

Please see important disclosures at the end of this report. www.ndr.com | Periodical | Issue #MKTDG201903151

Amy Lubas, CFA Advisory StrategistChad Ellis Content Specialist

FOLLOW US:

10 Years After the Secular LowU.S. ASSET ALLOCATIONGLOBAL ASSET ALLOCATION

Baseline allocation is 55% Stocks, 35% Bonds, and 10% Cash. This is considered a conservative portfolio allocation for investors who are not risk-tolerant. (This should be used for illustrative purposes only.) See Glossary for more information on Asset Allocation.

Global Overview 2-4

U.S. Market 5-7

Sectors & Industries 8-9

Global Economic Outlook 10-11

U.S. Economy and Bonds 12-16

Ned's Corner 17

Glossary of Terms 18-19

REGIONAL

STOCKS40%

CASH 5%

BONDS55%

CASH 5%

STOCKS40%

BONDS55%

UW OW

Stocks, Cash Bonds

© Copyright 2019 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/

I7000_MAP

NDR Regional Allocation Recommendations 2019-03-13


I7000_MAP


U.S.Europeex. U.K.

EmergingMarkets U.K. Japan

Pacificex. Japan Canada

NDRAllocation:

BenchmarkWeight:

55.0

54.3

12.0

14.3

15.0

11.6

4.0

5.5

7.0

7.6

4.0

3.8

3.0

3.0

Source: All data from Ned Davis Research, Inc.


I7000_MAP



I7000_MAP


U.S.Europeex. U.K.

EmergingMarkets U.K. Japan

Pacificex. Japan Canada

NDRAllocation:

BenchmarkWeight:

55.0

54.3

12.0

14.3

15.0

11.6

4.0

5.5

7.0

7.6

4.0

3.8

3.0

3.0

Source: All data from Ned Davis Research, Inc.

ECONOMY AND BONDS

` Global Economy: Expect 2019 growth to moderate to

3.5% and assumes no U.S. recession.

` U.S. Economy: Expect 2019 growth to slow to 2.50%

and CPI inflation to accelerate to 2.7%.

` Bonds: 100% duration.

S&P 500 Sector Current View Effective Date

Consumer Discretionary Overweight 2018-02-14

Energy Overweight 2019-03-14

Health Care Overweight 2018-08-16

Utilities Overweight 2018-08-16

Communication Services Marketweight 2018-10-01

Consumer Staples Marketweight 2019-03-14

Information Technology Marketweight 2018-02-14

Materials Marketweight 2019-01-03

Real Estate Marketweight 2018-08-16

Financials Underweight 2019-03-14

Industrials Underweight 2018-07-05

Source: S&P Dow Jones Indices and Current View: Ned Davis Research, Inc.

Please see important disclosures at the end of this report.

NED DAVIS RESEARCH GROUP Market Digest | MARCH 2019

www.ndr.com | Periodical | Issue #MKTDG201903152

GLOBAL OUTLOOK

SECULAR BULL MARKET APPEARS INTACT

The long-term secular bull market in stocks started 10 years ago, with the low on March 9, 2009. We featured the chart below shortly after the low explaining that the “stock market’s recovery has been consistent with the downturns in the ex tremely high volatility and credit spreads and by the upturn in the relative momen tum of stocks versus bonds.”

Since then, the secular bull has taken those indicators to the opposite ex tremes. These extremes are not enough to conclude that the secular bull is end ing, or even close to doing so. But they do suggest that as it enters its second decade, the secular bull is aging and would thus be more vulnerable to le thal doses of inflation or deflation.

We have previously noted the highest probability has been that inflationary pressures will be the bull’s undoing. But the current global economic contraction warrants attention, considering not only the cyclical (short-term) outlook, but the secular out-look as well. From today’s state of benign inflation, it could take many years to reach that point.

Less likely and more imminent secular risk would be a deflation-ary global re cession including the U.S., in which case we would not expect to see a market bottom or economic recovery any time soon. Currently with the secular reflation trend in a cool-ing phase, a worsening economic outlook is the stock market threat, not inflation.


S0237A

S&P 500, Volatility, & Credit Spread Monthly Data 1928-05-31 to 2019-02-28 (Log Scale)


S0237A

S&P 500, Volatility, & Credit Spread Monthly Data 1928-05-31 to 2019-02-28 (Log Scale)

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

510183256

100178316562

1,0001,7783,1625,623

510183256

100178316562

1,0001,7783,1625,623

S&P 500 Index

Source: S&P Dow Jones Indices

BULL BULL BULLBEAR BEAR BEAR

Dashed lines= NDR defined bear market bottomsafter ten biggest DJIA percent declines

0.30.50.60.91.11.41.72.02.42.83.3

0.30.50.60.91.11.41.72.02.42.83.3S&P 500 Volatility Index

100-Day Average of Absolute Change inS&P 500 Index (Monthly Average)

0.6

1.1

1.7

2.4

3.3

4.5

5.9

7.7

0.6

1.1

1.7

2.4

3.3

4.5

5.9

7.7Equity Risk Premium

Source: Federal Reserve Board, Ned Davis Research Calculations

(Moody Baa Bond Yield minusLong-Term Treasury Yield)




Our current focus is on the short-term, cyclical bear market in stocks that started last year, watching to see if there’s enough evidence to conclude that the bottom is in place and that a new cyclical bull market has started.

� With a positive outcome during the next few months and confirming signs of a U.S. and global economic recovery, the persistence of the reflation-driven secular bull would be supported.

� If instead the market indices descend to new lows with in-creasing evidence of a U.S.-inclusive global recession, the chances of a deflation trend will increase, as will the odds of a more imminent end to the secular bull (chart below).

But our current expectation is an outcome consistent with our 2019 Outlook, calling for a first half market recovery ahead of improving economic performance in the year’s second half. That would present an excellent opportunity to reallocate from bonds to stocks at the onset of another cyclical bull within the secular bull that started 10 years ago.

Until we can be confident that a sustainable market recovery is underway, we will recommend underweight exposure to stocks.


INF19_09A_C

MSCI World Index Performance During OECD-Defined Global SlowdownsDaily Data 1969-12-31 to 2019-03-06 (Log Scale)


INF19_09A_C

MSCI World Index Performance During OECD-Defined Global SlowdownsDaily Data 1969-12-31 to 2019-03-06 (Log Scale)

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

63

79

100

126

158

200

251

316

398

501

631

794

1,000

1,259

1,585

63

79

100

126

158

200

251

316

398

501

631

794

1,000

1,259

1,585MSCI World Index (Local)

Source: National Bureau of Economic Research, MSCI, OECD, Main Economic Indicators (MEI), www.oecd.org

MSCI World Index

OECDDefinition

% Gain/Annum

% ofTime

* GlobalSlowdown

0.90 46.97

No GlobalSlowdown

10.31 53.03

Slowdownwith

% Gain/Annum

% ofTime

U.S.Recession

-4.30 31.69

* No U.S.Recession

12.60 15.28

OECD Global Slowdowns are Contractions Based on Peaks and Troughs of OECD Reference SeriesU.S. Recessions use National Bureau of Economic Research DefinitionDark Gray = OECD Slowdown and U.S. Recession, Light Gray = Global Slowdown Only, Yellow = U.S. Recession Only




BEAR MARKET MESSAGE FROM GOLD AND BONDS

We have continued to point out that in a cyclical bear market, bond prices can be expected to rise, and that can be said of gold as well.

� Bond and gold prices have both risen by a median of 4% over the course of the previous eight cyclical bear markets in global stocks.

� Since the December bottom in stocks, the Barclays Global Aggregate Bond Total Return Index has gained 1% while gold has risen by 4%.

Both gains are more consistent with a continuing cyclical bear market than a new bull market, the double-digit stock market rally notwithstanding. We have remained with a bullish gold

position and decisively overweight bond allocation since the start of the year.

Gold has benefited not only from dollar weakness and trend mo mentum, evident in the rise of its 50-day moving average above its 200-day moving average, but also from the widening U.S. budget deficit, a consequence of the Trump tax cuts. With the dollar tending to fall as the deficit has expanded, gold has tended to rise (chart below).

Our Bear Watch report has also continued to warn of unfinished business, as we have yet to see anything close to the drawdown that has followed its previous bear market signals.


I264B

Gold vs. U.S. Federal Government Budget Monthly Data 1979-12-31 to 2018-12-31


I264B

Gold vs. U.S. Federal Government Budget Monthly Data 1979-12-31 to 2018-12-31

200300400500600700800900

1,0001,1001,2001,3001,4001,5001,6001,7001,800

200300400500600700800900

1,0001,1001,2001,3001,4001,5001,6001,7001,800Gold Gain/Annum When:

Six-Month Change ofAnnualized Budget:

% Gain/Annum

% ofTime

Improving 0.08 53.23

* Worsening 4.81 46.77

Source: Commodity Systems, Inc. (CSI) www.csidata.com

Trump(R) --->Obama(D) ||Bush(R)|Clinton(D)|Bush(R)|Reagan(R)|

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

-1,400-1,300-1,200-1,100-1,000

-900-800-700-600-500-400-300-200-100

0100200300400

-1,400-1,300-1,200-1,100-1,000

-900-800-700-600-500-400-300-200-100

01002003004002018-12-31 = -873.0

Budget Deficit

Budget Surplus12-Month Total($ Billions)




U.S. MARKET

BACK TO FAVORING GROWTH

The short-term trend for Growth vs. Value has oscillated over the past six months. As a result, we have been neutral since Oc-tober 2018. On March 12, our U.S. Strategy team shifted their shortterm, tactical recommendation to favoring Growth over Value based on the following six reasons:

1. Sluggish Economic Growth. When economic growth has been scarce, investors have flocked to stocks that do not need the economy to grow to generate top-line and bottom-line growth. Almost by definition, those are Growth stocks. The chart below shows that the Russell 3000 Growth Index has

outperformed the Russell 3000 Value Index when the Citi-group U.S. Economic Surprise Index has been negative.

2. Earnings Deceleration. The growth premium is even more evident in earnings data. When earnings growth has been slower than a year ago, Growth stocks have tended to out-perform Value stocks.

3. Fed Policy. Jerome Powell’s flip from hawkish to dovish has implications for Growth versus Value. Not only has the Fed signaled that interest rate increases are on hold, it has guid-ed the market on the end of quantitative tightening.


AA76

Russell 3000 Growth/Value Total Return Index and the Citigroup US Economic Surprise IndexDaily Data 2003-01-02 to 2019-03-11 (Log Scale)


AA76

Russell 3000 Growth/Value Total Return Index and the Citigroup US Economic Surprise IndexDaily Data 2003-01-02 to 2019-03-11 (Log Scale)

Citigroup US Economic Surprise Index (21-Day Moving Average)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

60

63

67

71

75

79

84

89

94

60

63

67

71

75

79

84

89

94

Russell 3000 Growth/ValueRatio Gain/Annum When:

Citigroup US EconomicSurprise Index Is:

% Gain/Annum

% ofTime

Above 0 -0.11 52.12

* 0 and Below 3.32 47.88

Source: Russell

Russell 3000 Growth/Value Total Return Index: 94.4

-125

-100

-75

-50

-25

0

25

50

75

-125

-100

-75

-50

-25

0

25

50

75

Source: Haver Analytics, Citigroup 2019-03-11 = -20.8

Citigroup Economic Surprise Index for the USmeasures how much data from the past three months

is beating or missing median estimates in Bloomberg surveys

WEAK ECONOMIC GROWTH FAVORS GROWTH STOCKS




4. Broad Market. As discussed last month, the evidence is mounting that the U.S. stock market is reestablishing its long-term uptrend, even if overbought conditions and opti-mism could cause pullbacks over the short term. A continu-ation of the rally should favor Growth over Value.

5. Model Consistency. Our tactical models are in agreement in their preference for Growth. The flagship Growth/Value Model has favored Growth since January, and in the last two weeks it has been joined by our separate intermediate-term and long-term trend models.

6. Secular Environment. As shown in the chart below, Growth has been in a long-term, secular uptrend relative to Value since 2006. That is the longest run on record, leading to the obvious question of when will the next Value secular bull begin. The problem for Value is that the conditions that have favored Growth – sluggish economic growth, a friendly Fed, and a secular bull for the broad stock market – remain in place. The secular environment means that countertrend rallies in Value should be shorter and shallower.


AA067A

Long-Term Trends in Large-Cap Growth/Value Relative PerformanceMonthly Data 1932-12-31 to 2019-02-28 (Log Scale)


AA067A

Long-Term Trends in Large-Cap Growth/Value Relative PerformanceMonthly Data 1932-12-31 to 2019-02-28 (Log Scale)

1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

50

56

63

71

79

89

100

112

126

141

158

178

200

224

251

282

316

355

398

447

501

562

631

708

794

891

1,000

1,122

1,259

1,413

50

56

63

71

79

89

100

112

126

141

158

178

200

224

251

282

316

355

398

447

501

562

631

708

794

891

1,000

1,122

1,259

1,413

Shaded areas indicate Growth outperformance based on reversals of 20% or more in Growth/Value ratio.The Large-Cap Growth and Value indices reflect data provided by Kenneth French prior to 12/31/1978and Russell data since.

Ratio:Large-Cap Growth TR Index /

Large-Cap Value TR Index( 02/28/2019 = 91.5 )

Periods of Growth OutperformanceDates Ratio GPA Growth GPA Value GPA

08/31/1933 to 03/31/1935 69.5 -0.5 -41.3

03/31/1937 to 08/31/1939 30.5 -8.2 -29.6

06/30/1955 to 12/31/1957 10.6 2.7 -7.1

01/31/1969 to 07/31/1972 8.9 9.8 0.8

03/31/1978 to 11/30/1980 10.0 31.7 19.7

08/31/1988 to 12/31/1991 9.9 24.4 13.2

09/30/1993 to 02/29/2000 9.2 25.7 15.1

07/31/2006 to 02/28/2019? 3.8 10.8 6.7

Periods of Value OutperformanceDates Ratio GPA Growth GPA Value GPA

12/31/1932 to 08/31/1933 -61.5 85.8 382.6

03/31/1935 to 03/31/1937 -28.3 39.9 95.3

08/31/1939 to 06/30/1955 -8.1 12.9 22.9

12/31/1957 to 01/31/1969 -6.4 11.3 18.9

07/31/1972 to 03/31/1978 -15.0 -4.0 12.9

11/30/1980 to 08/31/1988 -5.8 8.9 15.7

12/31/1991 to 09/30/1993 -13.7 2.3 18.4

02/29/2000 to 07/31/2006 -14.3 -7.0 8.5

G/VBull

G/VBull

G/VBull

G/VBull

G/VBull

G/VBull

G/VBull

G/VBull?

G/VBear

G/VBear

G/VBear

G/VBear

G/VBear

G/VBear

G/VBear

Source: Kenneth R. French, Russell

LONGEST ON RECORD




10 MUSINGS FOR THE 10-YEAR STOCK MARKET LOW ANNIVERSARY

March 5th marked the 10-year anniversary of the infamous 666 intra-day low in the S&P 500 Index. On a closing basis, the S&P 500 and Dow Industrials made lows on March 9. The decennial anniversary presents an opportunity to reflect on the past 10 years, what has changed, and what hasn’t. The biggest question now is what lies ahead. Our conclusion from our analysis is that the remarkable 10year run does not mean the secular bull market has run its course. We reviewed 10 charts that best describe what investors have gone through:

1. 10Year Rolling Returns. Rolling returns have swung from -30% to 364%, on a monthly basis.

2. P/E Ratio. With price collapsing more than earnings, the ratio hit a then-record high of 116 in February 2009 and is now 20.8, above the long-term average.

3. Dividend Yield and Repurchase Yield. The S&P 500 dividend yield hit 3.9% and the repurchase yield had fallen to -1.4%. Repurchases have exploded to a record $640 billion as of Q3 2018, and the net repurchase yield has climbed to 2.6%.

4. Relative Valuations. Due to depressed earnings, the S&P 500 earnings yield minus the 10-year Treasury yield was -0.9% on 2/28/2009. As of 2/28/2019, the spread was 2.1%.

5. Composition of Corporate Debt. S&P 500 corporate debt declined during the financial crisis due to deleveraging, espe-cially in the Financials sector. Companies have releveraged, but a major change is the duration of the debt.

6. Length and Strength of Economic Expansion. In February 2009, the U.S. economy was in the midst of its worst reces-sion since the Great Depression. By June 2019, this will be the longest expansion in post-war U.S. history. But with real GDP growing at a 2.3% annualized rate, it will also be the slowest expansion.

7. Unemployment Rate. The Great Recession caused the unemployment rate to skyrocket to 8.3% as of 2/28/2009, on its way to 10% in October 2009, the highest level since 1983. Thanks to steady payroll growth and a near 40-year low in the participation rate, the unemployment rate is at 4%.

8. Fed Policy. The Fed’s balance sheet stood at $863 billion as of July 2008, but QE1 pushed it to $1.9 trillion by the week of 3/6/2009. It peaked at $4.5 trillion in February 2015, and has dropped to $3.9 trillion. The Fed plans to leave about $3.5 trillion on its balance sheet and use duration as a policy tool, so this is a permanent change 10 years after the crisis.

9. Volatility. The VIX’s record high of 80.9 was made on 11/20/2008. The fact that it was “only” at 49.7 on 3/9/2009 was the type of divergence seen at major lows. Thanks to Fed policies, the improving economic environment, and the growth in algorithmic trading, the VIX fell to a record low of 9.1 on 11/3/2017. The VIX spiked to 37.3 during the Q4 2018 plunge but has returned to the 14-16 range, in-line with its long-term average.

10. Investor Sentiment. All of our sentiment charts illustrate a transition from extreme pessimism to optimism. For ex-ample, the NDR Crowd Sentiment Poll fell to a record low of 30.9 in March 2009, and swung to a record high of 78.9 in January 2018.




SECTORS AND INDUSTRIES

NOW BULLISH ON OIL

Earlier this month, the weekly oil inventory reading was the first ever +20 million barrel bullish divergence (chart below). Historically, oil is higher by almost 18%, on average, six months after such a massive total petroleum divergence. Now, with our Total Petroleum Inventory Model firmly on a buy, sentiment re-versing from a pessimistic extreme, and technicals improving, we upgraded our official crude oil stance from neutral to bullish on March 4.

To review, we downgraded oil in August 2018 when Brent crude traded in $70s. After plunging into the $40s late last year and stabilizing, we believe the odds of a run back to $80/bbl are

good. We recently highlighted three pieces of bullish evidence: 1) A rare volatility buy signal (based on oil’s 14-day Average True Range), 2) Brent term structure/leadership, and 3) Saudi Ara-bia’s (KSA) desperation. Oil imported into the U.S. from KSA has fallen to the lowest level since 1987. Due to its ambitious 2019 budget, KSA has plenty of motivation to push prices higher through the end of the year.

Energy equities usually enjoy a boost following positive inven-tory reports as well. On average, the Energy Sector is higher by 11% six months later.


com3019b_edited

Total U.S. Petroleum Inventories - Weekly Change vs. 5-Year Average Weekly Data 2017-03-03 to 2019-02-22


com3019b_edited

Total U.S. Petroleum Inventories - Weekly Change vs. 5-Year Average Weekly Data 2017-03-03 to 2019-02-22

2017Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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

2019Jan Feb Mar

-22.5

-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

-22.5

-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.05-Year Avg Petroleum Inventory Build/Draw = 3.7Petroleum Inventory Build/Draw = -17.8*

-25

-20

-15

-10

-5

0

5

10

15

20

25

-25

-20

-15

-10

-5

0

5

10

15

20

25Actual Petroleum Inventory Change Compared To 5-Yr Avg (top clip - blue line less black line)Four-Week Simple Moving Avg

*Total crude oil and refined product inventory weekly change compared to 5-year average and range.Prior to October 2016, the EIA included lease stocks in the crude oil stocks. Source: U.S. Energy Information Administration

LAST WEEK = HISTORIC TOTAL

PETROLEUM DRAW




Our U.S. Sector Strategist followed Energy Strategist Warren Pies' upgrade of oil to bullish by lifting the Energy sector to overweight on March 14. WTI oil looks to have completed a nearly 45% plunge into December 24, 2018 and is heading higher. Seen in the chart below, the Energy sector tends to show strong outperformance the five months after oil de-clines of 30% or more when the U.S. is not in a recession, as we believe is the case now.

The increase in allocation brought our recommended weight-ing in line with our Sector Model and was funded by reducing allocation to Consumer Staples (marketweight) and Finan-cials (underweight).

It is dis turbing to us that the stock market can rise nearly 20% from the December 24 low, yet the 10-year/6-month yield curve can flatten further. The 106 yield curve is now only 8 basis points (0.08%) away from inversion adding convic-tion to our Financials under weight.

We maintain a balanced cyclical/defensive mix by having both defensive sectors (Health Care and Utilities) and cyclical sectors (Consumer Discretionary and Energy) at overweight.

This mixed approach parallels the mixed signals we are seeing at NDR. While there has been enough positive evidence in the

U.S. to upgrade the U.S. outlook to neutral, international mar-kets have been weak enough for NDR to maintain stocks at underweight in our global and U.S. asset allocation. Hang in there; we expect clarity on the direction of the market before the end of Q2.

We made a wish list of items that would contribute to sus-tained out performance for Energy.

� First things first, we would like to see rising oil prices. War-ren noted in his upgrade that Brent oil had already broken above its 2015 high ($66.3 spot) and believes it will chal-lenge 2018 highs in the mid-80s.

� Next, we would like to see S&P 500 Energy sector relative strength break above its March 15, 2018 low.

� Lastly, we would like to see a more favorable macro en-vironment. Commodity sec tors tend to outperform con-sumer sectors when macro conditions are positive for commodities. The only factor deemed favorable right now is gold outperforming bonds.

The bottom line is that without a more favorable commodity macro outlook, upgrades for commodity sectors tend to be short lived.


ESX1035E

S&P 500 Energy RS around Crude Oil Bottoms after Declines of 30% or Greater (Non-recession cases)


ESX1035E

S&P 500 Energy RS around Crude Oil Bottoms after Declines of 30% or Greater (Non-recession cases)

-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

Event Date

Months Prior | Months Post

2018-12-24 (Current) S&P 500 Energy Sector Relative StrengthAggregate: Average S&P 500 Energy Sector Relative Strength

RS line is allocated to 100 at bottoms after oil declines of 30% or greater.Excludes cases that coincided with U.S. recessions.Oil = 91-day perpetual futures contract.

Source: Commodity Systems, Inc. (CSI) www.csidata.com, Ned Davis Research, Inc., S&P Dow Jones Indices

Oil Bottom Dates:03/31/198607/14/198610/06/198803/28/199412/21/199801/16/200710/04/201101/28/201501/20/201612/24/2018

EXPECTING ENERGY TO REBOUNDAFTER LARGE OIL DECLINE




GLOBAL ECONOMYGLOBAL MANUFACTURING NEAR A STANDSTILL, BUT SOME POSITIVE SURPRISES FROM EMERGING MARKETS

The global manufacturing Purchasing Managers’ Index (PMI) edged down 0.2 points to 50.6 in February, indicating the slow-est global manufacturing growth since June 2016 (chart below). The PMI has fallen for the past 10 consecutive months, the longest losing streak since December 2008.

While not quite at our recessionary threshold of 50.0, the manu-facturing PMI is getting close. Even so, more than half of the indicators in our Global Recession Watch Report are giving negative signals, giving us high confirmation that the global economy remains in a sustained slowdown. We wouldn’t be surprised if the PMI were to confirm in the coming months.

Most component and individual indexes deteriorated. The out-put index edged down to 50.7, indicating the slowest produc-tion in 32 months, while the employment index held steady at 51.1, at the lower end of its recent range. Conditions aren’t likely to improve in the nearterm. The new orders index held at a near-stagnant 50.1, its lowest point since September 2012. Overseas demand continued to provide significant downside, as export orders contracted for a sixth straight month and at its fastest pace since May 2016.

Customized version of Customized version of IE250IE250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

30.0

32.0

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

30.0

32.0

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Manufacturing Expanding

Manufacturing Contracting Source:Source: Haver Analytics

Source:Source: Haver Analytics

Monthly Data 1998-01-31 to 2019-02-28JPMorgan Global Manufacturing PMI

Shaded Areas Represent Contractions Based on

Peaks and Troughs of OECD Reference Series

Global Manufacturing PMI (Seasonally Adjusted) (2019-02-28 = 50.64)

Monthly Point Change (2019-02-28 = -0.12)

LOWEST SINCE

6/2016

LONGEST LOSING STREAK SINCE

12/2008




More and more countries continued to succumb to the global weakness. Just 63% of individual country PMIs reported ex-panding manufacturing activity in February. This was the small-est share since September 2015 and down from a near-perfect 97% re ported a year ago.

But for the first time since April 2013, emerging markets reported a higher PMI than developed markets, ending a nearly six-year winning streak (chart below). Our analysis shows that when this has happened in the past, emerging market stocks have tended to out perform their longterm norm. This study supports our current overweight position in emerging market stocks. A few large emerging markets have reasserted them selves in recent months.

� India’s PMI, up for five of the past six months, climbed to 54.3, its highest point since December 2017.

� Political optimism may also be fueling demand in Brazil and Mexico, which each saw their PMIs climb to their highest points since early 2018.

A spot previously reserved for just emerging markets, the eurozone’s manufacturing industry slipped into negative territory in February for the first time since June 2013. The downside was led by Germany, whose index fell to a 74-month low.


IE258

Developed Markets vs. Emerging Markets Manufacturing Purchasing Managers Index (PMI)Monthly Data 2004-04-30 to 2019-02-28


IE258

Developed Markets vs. Emerging Markets Manufacturing Purchasing Managers Index (PMI)Monthly Data 2004-04-30 to 2019-02-28

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

32.5

35.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

32.5

35.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0Developed Markets 2019-02-28 = 50.36Emerging Markets 2019-02-28 = 50.56

Source: Haver Analytics

0.800

0.825

0.850

0.875

0.900

0.925

0.950

0.975

1.000

1.025

1.050

1.075

1.100

1.125

0.800

0.825

0.850

0.875

0.900

0.925

0.950

0.975

1.000

1.025

1.050

1.075

1.100

1.125Developed/Emerging Ratio 2019-02-28 = 1.00 Developed markets outperforming

Emerging markets outperforming




U.S. ECONOMY AND FIXED INCOME

BONDS DURING FED PAUSES

We ran some studies looking at asset performance around Fed pauses. We defined a pause as a break of at least five months between rate hikes (i.e., a pause within a tightening cycle). We identified six cases since 1962, as shown in the table below. A resumption of the tightening cycle is by no means certain. In fact, the Fed is unsure as to “what adjustments to the target range for the federal funds rate may be appropriate later this year.” But with scheduled tariffs being delayed and a trade agreement with China looking more likely, the Fed may feel more confident in resuming rate hikes later this year.

If they do, here’s what we can learn from history regarding bonds:

� 10-year Treasury yields rose in all six cases by a median 0.28%, which would take us to 3.05%.

� Investment grade credit spreads narrowed in five of the six cases by a median 23 bp (0.23%), or by another 18 bp (0.18%).

� The term premium steepened in five of the six cases by a median 0.12%.

� The yield curve was mixed using the spread between the 10-year and 3-year Treasury yield.

PAUSES IN FED TIGHTENING CYCLES SINCE 196210Year Treasury Yield (%)

Start End Start Value End Value Change07/17/1963 11/24/1964 4.03 4.18 0.1511/24/1964 12/06/1965 4.18 4.61 0.4308/14/1973 04/25/1974 7.46 7.63 0.1711/01/1978 07/20/1979 8.66 8.98 0.3212/05/1980 05/05/1981 12.85 14.69 1.8412/16/2015 12/14/2016 2.30 2.54 0.24

Median 0.28103 Treasury Yield Spread (in bp)

Start End Start Value End Value Change07/17/1963 11/24/1964 23 7 -1611/24/1964 12/06/1965 7 -8 -1508/14/1973 04/25/1974 -66 -49 1711/01/1978 07/20/1979 -38 -3 3512/05/1980 05/05/1981 -104 -100 412/16/2015 12/14/2016 95 97 2

Median 3Baa/Aaa Corporate Credit Spread (in bp)

Start End Start Value End Value Change07/17/1963 11/24/1964 72 48 -2411/24/1964 12/06/1965 48 41 -708/14/1973 04/25/1974 78 56 -2211/01/1978 07/20/1979 75 115 4012/05/1980 05/05/1981 206 133 -7312/16/2015 12/14/2016 123 51 -72

Median 2310Year Treasury Term Premium (in bp)

Start End Start Value End Value Change07/17/1963 11/24/1964 7.1 -4.8 -11.911/24/1964 12/06/1965 -4.8 8.0 12.808/14/1973 04/25/1974 50.0 108.5 58.511/01/1978 07/20/1979 150.4 160.7 10.312/05/1980 05/05/1981 235.9 364.3 128.412/16/2015 12/14/2016 7.4 17.9 10.5

Median 11.6Ned Davis Research, Inc. T_CC201902261.1

TREASURY YIELDS RISE

CREDIT OUTPERFORMS




SENIOR LOANS NOT YET A PROBLEM

Our Chief Global Macro Strategist also provided some thoughts around leveraged loans, which became overvalued in December but are showing stability versus high yield at this time. We intro-duced several new charts to help navigate the tricky world of lev-eraged loans:

1. The S&P/LSTA Leveraged Loan Total Return Index. When returns begin to slow and turn negative, investors should con-sider reducing their exposure to loans. Two examples were in 2007-08 and in 2015.

2. ETF flows. These can sometimes be helpful, but are subject to false signals such as those seen in 2017.

3. Loan spreads. We would be wary of loans when loan spreads start widening relative to Libor.

4. Correlations. When correlations start to break down and high yield outperforms loans, we would switch from loans to bonds.

5. Relative strength. We can track the relative performance be-tween corporate bonds and loans daily (chart below). Bonds are favored when these ratios are in uptrends.

6. Yield spread. Bonds normally yield more than loans due to higher interest rate risk and greater credit risk. In December, the spread got to the upper end of the range it had been in for the past two years, indicating high yield was relatively at-tractive.

7. Issuance. In 2018, high yield issuance was $173 billion, the lowest since 2009. The lack of issuance in high yield compared to loans helped create a better supply/demand balance once the demand for floating rate product subsided when the Fed went on hold.


B39DF

Leveraged Loan and Corporate Bond Total Return Ratios Daily Data 2007-03-30 to 2019-03-05 (Log Scale)


B39DF

Leveraged Loan and Corporate Bond Total Return Ratios Daily Data 2007-03-30 to 2019-03-05 (Log Scale)

1,259

1,413

1,585

1,778

1,995

2,239

2,512

2,818

1,259

1,413

1,585

1,778

1,995

2,239

2,512

2,818S&P LSTA Leveraged Loan Total Return Index 2019-03-05 = 2,932.7

95

100

105

110

115

120

125

130

135

95

100

105

110

115

120

125

130

135High Yield Corporate Bond Total Return Index / S&P LSTA Leveraged Loan Total Return Index 2019-03-05 = 132.9%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

100105110115120125130135140145

100105110115120125130135140145Investment Grade Corporate Bond Total Return Index / S&P LSTA Leveraged Loan Total Return Index 2019-03-05 = 106.2%

Source: Bloomberg Barclays, S&P

LOANS OUTPERFORMED HY IN 2015-16 AND IN 2018

LOANS OUTPERFORMED IG IN A RISING RATE ENVIRONMENT




CRE SHOULD MODERATE IN 2019

Last year, investment grade commercial real estate (CRE) re-turned 6.7%, down from 2017’s pace of 7.0%, but above our projec tion of roughly 5%. One-third of the return came from capital appreciation, according to NCREIF. Although it was the worst yearly return since 2009, the NCREIF Property In dex still beat stocks and bonds (chart below). We expect little change in appreciation and a total return of less than 5% in 2019.

We expect the Industrial sector to out perform but by a smaller margin. In dustrial was the clear standout last year, gaining 14.3%, led by continuing demand for warehouse space. Retail, which gener ated its first quarterly loss since Q4 2009, gained just 2.2% on the year. We would continue to underweight Retail.

Unlike last year where we favored smaller and non-prime mar-kets, this year we would move up in quality. Tighter lending standards and waning demand have weighed on new develop-ment. Banks are expected to further restrict credit this year.

Sentiment has turned cautious. The Real Estate Roundtable’s Sentiment Index fell five points in Q1 to 45, the most pessimism since Q2 2009. Respondents viewed pric ing in most markets as around their peaks, and the greatest number of respondents since 2008 expect prices to fall in 2019. Cap rates remain low, indicating rich valuations, as investors hunt for yield. With the economy expected to slow but avoid recession, CRE returns will be subdued but competitive with other asset classes. CRE con-tinues to deserve a place in large, diversified portfolios.

(E532O)

Quarterly 12/31/1978 - 12/31/2018

NCREIF Property Index 12/31/2018 = 6.7%Gain/Annum = 9.0%

Source: NCREIF.com-20-16-12

-8-4048

12162024

-20-16-12

-8-4048

12162024

S&P 500 Total Return Index 12/31/2018 = -4.5%Gain/Annum = 11.4%

Source: Standard & Poor's-30-20-10

0102030405060

-30-20-10

0102030405060

Barclays U.S. Aggregate Total Return Index 12/31/2018 = 0.0%Gain/Annum = 7.3%

Source: Barclays-8-4048

12162024283236

-8-4048

12162024283236

1980 1985 1990 1995 2000 2005 2010 2015

NCREIF Property Index vs Stocks and Bonds (Year-to-Year Changes)

Copyright 2019 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

©

WORST RETURN SINCE 2009 BUT

STILL BEAT STOCKS AND BONDS




MIXED EMPLOYMENT REPORT

Our Senior U.S. Economist reviewed the latest U.S. employment report. Her takeaways on the very mixed report:

� Job creation fell woefully short of expectations, increasing by just 20,000 (chart below) compared to a consensus of 180,000.

� The unemployment rate fell back to 3.8% from 4.0%.

� Average hourly earnings jumped 0.4%, bringing the year/

year change to 3.4%, the highest since April 2009.

� The broadest measure of unemployment (U6), plunged a record 0.8 percentage points to 7.3%, the least since March 2001.

Reports like these argue for continued Fed patience until the underlying economic trends become clearer. It could indicate an extremely tight labor market and an inability of employers to find qualified workers, leading to slower job creation.

E0117E0117

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

-800

-600

-400

-200

0

200

400

600

800

1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

Telecommunications Strike

Source:Source: Bureau of Labor Statistics

Source:Source: Bureau of Labor Statistics

Monthly Data 1980-01-31 to 2019-02-28Monthly Change in Nonfarm and Private Nonfarm Payrolls

Shading indicates NBER-defined recessions

Monthly Change In Nonfarm Payrolls (2019-02-28 = 20 Thousand)

12-Month Smoothing (2019-02-28 = 209.1 Thousand)

Monthly Change In Private Nonfarm Payrolls (2019-02-28 = 25 Thousand)

12-Month Smoothing (2019-02-28 = 202.2 Thousand)

LEAST SINCE 9/2007




U.S. DEBT IS RISING

Our Senior U.S. Economist provided some thoughts about the overall U.S. debt situation, which has been rising this cycle. Re-garding the corporate debt market, she noted there’s no evi-dence of gross financial imbalances at the moment that could trigger a financial crisis or a recession. We expect modestly tighter financial conditions this year compared to earlier in the cycle, which supports our outlook for slower economic growth. While the corporate debt level is high (a near-record 46.4% of GDP in Q3 2018), so is the interest coverage ratio. We do not see systemic risk from leveraged loans at this time.

Federal debt keeps accumulating. It was the only major sector to post annual debt growth above its historical average. A lot

of the recent increase has to do with the 2017 tax law, where the broadening of the tax base has been insufficient to pay for the tax cuts so far. Gross federal debt as a share of GDP rose to a near-record matching 105.2% in Q4 (chart below). Market-able debt is less, but is also on a steady upward trajectory. The Congressional Budget Office (CBO) projects that debt held by the public will increase from 77.8% in 2018 to 92.7% in 2029, the highest in post-WWII history. The risk to the near-term eco-nomic growth outlook is limited, as long as demand for Trea-surys remains strong. Longer-term risks are higher, as interest payments take up a growing share of GDP.

(E0501)

Quarterly 3/31/1952 - 12/31/2018 (Log Scale)

Gross Federal Debt_______________GDP

= $21974.1 billion____________$20891.4 billion

= 105.2%

34.2

65.0

30.7 30.8

54.0

Source: Federal Reserve Board31333639424549535762677278849198

106

31333639424549535762677278849198

106

28.9

54.3

24.826.5

38.0

Publicly Held Federal Debt_____________________GDP = $17865.0 billion____________

$20891.4 billion = 85.5%

Includes marketable and nonmarketable Treasury securitiesheld by the public and Treasury securities held by federalgovernment employee retirements funds.24

283236404448525660646872768084

24283236404448525660646872768084

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Federal Debt as a % of GDP

Publicly Held Federal Debt as a % of GDP Copyright 2019 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 ©

NEAR RECORD HIGH




v NED’S CORNER Ned Davis, Senior Investment Strategist

LONG-TERM SENTIMENT SUGGESTS LIMITED UPSIDE

Recent data from the Fed's Financial Ac-counts report suggests households, for-eigners, and institutions are overweight stocks. This supports the argument that this bull market is in the mature phase.

Households, the largest holder of stocks, have $21.3 tril-lion of equity holdings. That is 35.8% of total household financial assets, and although off its peak of 40% in Sep-tember, is still comparable to the 1968 and 2007 peaks (chart below). This suggests that stocks are overweight in their portfolio. When investors are pretty fully invested in stocks, the returns looking out 10 years are generally poor.

Large institutions, the second-largest holder of stocks, are also overweight (overbought) stocks. Over the last year, I felt as if there could still be some upside potential from

foreigners. Foreign flows have been erratic and somewhat below what we saw in 2000 and 2007 in terms of dollar flows. However, in terms of assets, foreigners appear to be more than moderately overweight in U.S. stocks. We can also look at foreign-held equities as a percentage of total U.S. equities. Given this, I consider foreign allocations to be fairly neutral.

The main reason stocks have done so well this cycle—and could still have further upside potential even though they’re overweight by both the public and institutions—is that corporations continue to be huge buyers. Non-financial corporate liquidity (excluding equities) is some $2.3 trillion, meaning corporations have great potential to continue to buy back stocks, or spend on capital improvements.


S485

Stocks as a Percentage of Household Financial Assets (Adjusted for Pension Funds)Quarterly Data 1951-12-31 to 2018-12-31


S485

Stocks as a Percentage of Household Financial Assets (Adjusted for Pension Funds)Quarterly Data 1951-12-31 to 2018-12-31

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 201510111213141516171819202122232425262728293031323334353637383940414243444546

10111213141516171819202122232425262728293031323334353637383940414243444546

Mean = 27.2%

Pension Fund Entitlements have beensubtracted from the Total Financial Assets of Households

and Personal Trusts. The result helps to identify those assets thatHouseholds may have more immediate control over. Therefore,

this series is more likely to signify individual investorequity investment levels.

Data subject to revisions by the Federal Reserve Board

37.1%

32.7%

11.6%

18.2%

15.5%

45.1%

36.7%

20.7%

40.0%

Equi t ies ($21,278.9 B)

Total Finl Assets ($59,375.9 B) = 3 5 . 8 %

Households & Personal Trusts(Includes Equity Mutual Funds and ETFs)

Source: Federal Reserve Board

Although off peak, still comparable to

1968 and 2007




Asset Allocation: Ned Davis Research, Inc.

constrains the recommended equity weight-

ing (which can theoretically range from zero

to 100%) to be limited to a minimum of

40% stocks and a maximum of 70% stocks.

Due to the constraint on equity weighting,

the combination of bonds and cash can be

weighted no greater than 60% and no less

than 30% in NDR’s recommendations. The

benchmark for bond allocation is 35% and

for cash is 10%.

Benchmark Duration: The most commonly

used measure of bond risk, quantifies the ef-

fect of changes in interest rates on the price

of a bond or bond portfolio. The longer the

duration, the more sensitive the bond or

portfolio should be to changes in interest

rates. Point of reference for a measurement.

Beta: A number describing the relation of an

investment return with that of the financial

market as a whole. Numbers greater than

one suggest an investment will increase

more than the broad market when it is ris-

ing, and have greater declines when the

market is falling.

Breadth: A technical term used to demon-

strate how broadly a market is moving.

Capital Market: Is a market for securities

(debt or equity), where business enterpris-

es (companies) and governments can raise

long-term funds.

Commercial MortgageBacked Securi

ties (CMBS): A type of mortgage-backed

security backed by commercial mortgages

rather than residential mortgages. When

compared to a residential mortgage-backed

security, a CMBS provides a lower degree of

prepayment risk because commercial mort-

gages are most often set for a fixed term.

Core Inflation: Is a measure of inflation which

excludes certain items that face volatile price

movements, notably: food and energy.

Cyclical Bear: Cyclical swings in the mar-

ket can last from several months to a few

years, and are designed to be in line with

the primary trend. A cyclical bear market

is a cyclical swing when the market is in a

downtrend.

Cyclical Bull: Cyclical swings in the market

can last from several months to a few years,

and are designed to be in line with the pri-

mary trend. A cyclical bull market is a cycli-

cal swing when the market is in an uptrend.

Deflation: Is a slight decrease in the general

price level of goods and services. Deflation

occurs when the annual inflation rate falls

but stays above 0%.

Demographics: Studies of population

based on factors such as age, race, sex, eco-

nomic status, level of education, income

level, and employment.

Echo Bull/Bear: An echo bear market is a

shallower correction which occurs in the eq-

uity market that does not coincide with an

economic recession. An echo bull market is

one that follows and echo bear market.

European Central Bank (ECB): Is the insti-

tution of the European Union (EU) which

administers the monetary policy of the EU

Eurozone member states. It is thus one of

the world’s most important central banks.

The bank was established by the Treaty of

Amsterdam in 1998, and is headquartered in

Frankfurt, Germany.

Eurozone/European Union: Is an economic

and monetary union (EMU) of the European

Union (EU) member states which have ad-

opted the euro currency as their sole legal

tender. It currently consists of Austria, Bel-

gium, Cyprus, Finland, France, Germany,

Greece, Ireland, Italy, Luxembourg, Malta,

the Netherlands, Portugal, Slovakia, Slove-

nia, and Spain.

Federal Open Market Committee (FOMC):

A component of the Federal Reserve Sys-

tem, is charged under United States law

with overseeing the nation’s open market

operations. It is the Federal Reserve com-

mittee that makes key decisions about in-

terest rates and the growth of the United

States money supply.

Gross Domestic Product (GDP): The total

output of goods and services produced in a

given country during a given period.

Lagging Indicator: An economic factor

that changes after the economy has al-

ready begun to follow a particular pattern

or trend; used to confirm long-term trends.

Leading Indicator: An economic factor

that changes before the economy starts to

follow a particular pattern or trend; used to

predict changes in the economy.

Median P/E: Numeric value separating the

higher half of a sample, a population, or

a probability distribution, from the lower

half. This is the middle price-to-earnings

ratio of a series.

MortgageBacked Securities (MBS): A

type of asset-backed security that is secured

by a mortgage or collection of mortgages.

These securities must also be grouped

in one of the top two ratings as determined

by an accredited credit rating agency.

MSCI Emerging Market Index: An index

developed by Morgan Stanley Capital Inter-

national, Inc. (MSCI) as an equity benchmark

for emerging market stock performance. It

is a capitalization-weighted index that aims

to capture 85% of publicly available total

market capitalization. Component compa-

nies are adjusted for available float.

GLOSSARY OF TERMS




NDR Global Equity Allocation Model: The

model is dynamic, using panel regression to

rank six regional and country indices. The

weight of the evidence is assessed based

on external and internal factors, with 60%

of the weight on the externals (non-price-

based) and 40% on the internals (price-

based). A factor used for one index is also

used for the other five, with data unique to

that region or country.

NDRWeighted Foreign Market Indexes:

These are capitalization-weighted indexes

constructed by Ned Davis Research, Inc. to

reflect the overall trend in a global market

sector or region.

Optimistic: A sentiment term, investors are

said to be optimistic if they think the market

will rise. We find that it is best to go with the

flow of sentiment until it reaches an extreme

and reverses, at which point we take a con-

trary position.

Overvaluation: A stock is said to be overval-

ued when its current price is not justified by its

earnings outlook or price/earnings (P/E) ratio

and, therefore, is expected to drop in price.

P/E: Is a measure of the price paid for a share

relative to the annual net income or profit

earned by the firm per share.

Personal Consumption Expenditures

(PCE): A measure of price changes in con-

sumer goods and services.

Pessimistic: A sentiment term, investors are

said to be pessimistic if they think the mar-

ket will fall. We find that it is best to go with

the flow of sentiment until it reaches an ex-

treme and reverses, at which point we take a

contrary position.

Quantitative Easing: A government mon-

etary policy occasionally used to increase

the money supply by buying government

securities or other securities from the

market. Quantitative easing increases the

money supply by flooding financial institu-

tions with capital in an effort to promote

increased lending and liquidity.

Relative Strength: Is the ratio of a stock

price to a market average.

S&P 500 Index Equally Weighted Geomet

ric Index: An index constructed of the 500

stocks in the S&P 500 index on an equally

weighted geometric average basis (see geo-

metric average).

Secular Bear: Secular moves in the mar-

ket can last from several years to decades,

and are designed to call overriding trends

through several cyclical cycles. A secular

bear is a downward-trending secular move

in the market.

Secular Bull: Secular moves in the mar-

ket can last from several years to decades,

and are designed to call overriding trends

through several cyclical cycles. A secular

bull is an upward-trending secular move in

the market.

Sovereign Debt: Is money (or credit) owed

by a central government.

Spread Product: Favoring not only invest-

ment-grade corporate debt, but also asset-

backed and commercial mortgage-backed

securities, as well as senior secured loans,

sectors over Treasury securities.

Standard and Poor’s 500 Sectors: Stocks

in the S&P 500 index are classified into one

of 10 sectors/industries using the Standard

and Poor’s Global Index Classification Sys-

tem (GICS).

Standard and Poor’s 500 Stock Index: An

index of 500 stocks chosen for market size,

liquidity, and industry grouping, among

other factors. The S&P 500 is designed to

be a leading indicator of U.S. equities and is

meant to reflect the risk/return characteris-

tics of the large-cap universe.

Treasury InflationProtected Securities

(or TIPS): Are the inflation-indexed bonds

issued by the U.S. Treasury. The principal is

adjusted to the Consumer Price Index, the

commonly used measure of inflation. The

coupon rate is constant, but generates a dif-

ferent amount of interest when multiplied

by the inflation-adjusted principal, thus pro-

tecting the holder against inflation.

Value: A stock that tends to trade at a lower

price relative to its fundamentals (i.e., divi-

dends, earnings, sales, etc.) and thus consid-

ered undervalued.

VIX Index: A popular measure of the implied

volatility of S&P 500 index options. Often re-

ferred to as the fear index or the fear gauge,

it represents one measure of the market’s

expectation of stock market volatility over

the next 30-day period.

Volatility: A statistical measure of the dis-

persion of returns for a given security or

market index. Commonly, the higher the

volatility, the riskier the security.

VENICE600 Bird Bay Drive WestVenice, FL 34285

NED DAVIS RESEARCH GROUP

[email protected](617) 279-4860

Ned DavisResearch

Advisory

Founded in 1980, Ned Davis Research Group is a leading independent

research fi rm with clients around the globe. With a range of products

and services utilizing a 360° methodology, we deliver award-

winning solutions to the world’s leading investment management

companies. Our clients include professionals from global investment

fi rms, banks, insurance companies, mutual funds, hedge funds,

pension and endowment funds, and registered investment advisors.

Generate alpha. Identify risk. Choose Ned Davis Research.Macro

Sentiment

Fundamental

Technical

Idea

360° APPROACH

Important Information and DisclaimersNed Davis Research, Inc. (NDR), any NDR affi liates or employees, or any third-party data provider, shall not have any liability for any

loss sustained by anyone who has relied on the information contained in any NDR publication. In no event shall NDR, any NDR affi liates

or employees, or any third-party data provider, be liable to any party for any direct, indirect, incidental, exemplary, compensatory,

punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profi ts

and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of

such damages.

The data and analysis contained in NDR’s publications are provided “as is” and without warranty of any kind, either expressed or

implied. The information is based on data believed to be reliable, but it is not guaranteed. NDR DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.

NDR’s reports refl ect opinions of our analysts as of the date of each report, and they will not necessarily be updated as views or

information change. All opinions expressed therein are subject to change without notice, and you should always obtain current

information and perform due diligence before trading. NDR or its affi liated companies or their respective shareholders, directors, offi cers

and/or employees, may have long or short positions in the securities discussed in NDR’s publications and may purchase or sell such

securities without notice.

NDR uses and has historically used various methods to evaluate investments which may, at times, produce contradictory

recommendations with respect to the same securities. When evaluating the results of prior NDR recommendations or NDR performance

rankings, one should also consider that NDR may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse eff ect of transaction costs or management fees or refl ect actual investment results, that other less successful recommendations made by NDR are not included with these model performance reports, that some model results do not refl ect actual historical recommendations, and that investment models are necessarily constructed with the benefi t of hindsight. Unless specifi cally noted on a chart, report, or other device, all performance measures are purely hypothetical, and are the results of back-tested methodologies using data and analysis over time periods that pre-dated the creation of the analysis and do not refl ect tax consequences, execution, commissions, and other trading costs. For these and for many other reasons, the performance of NDR’s past recommendations and model results are not a guarantee of future results.

Using any graph, chart, formula, model, or other device to assist in deciding which securities to trade or when to trade them presents

many diffi culties and their eff ectiveness has signifi cant limitations, including that prior patterns may not repeat themselves continuously

or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the

eff ectiveness of such devices. NDR believes no individual graph, chart, formula, model, or other device should be used as the sole basis

for any investment decision and suggests that all market participants consider diff ering viewpoints and use a weight of the evidence

approach that fi ts their investment needs. Any particular piece of content or commentary may or may not be representative of the NDR

House View, and may not align with any of the other content or commentary that is provided in the service. Performance measures on

any chart or report are not intended to represent the performance of an investment account or portfolio, as some formulas or models

may have superior or inferior results over diff ering time periods based upon macro-economic or investment market regimes. NDR

generally provides a full history of a formula or model’s hypothetical performance, which often refl ects an “all in” investment of the

represented market or security during “buy”, “bullish”, or similar recommendations. This approach is not indicative of the intended usage

of the recommendation in a client’s portfolio, and for this reason NDR does not typically display returns as would be commonly stated

when reporting portfolio performance. Clients seeking the usage of any NDR content in a simulated portfolio back-test should contact

their account representative to discuss testing that NDR can perform using the client’s specifi c risk tolerances, fees, and other constraints.

NDR’s reports are not intended to be the primary basis for investment decisions and are not designed to meet the particular

investment needs of any investor. The reports do not address the suitability of any particular investment for any particular investor. The

reports do not address the tax consequences of securities, investments, or strategies, and investors should consult their tax advisors

before making investment decisions. Investors should seek professional advice before making investment decisions. The reports are

not an off er or the solicitation of an off er to buy or to sell a security.

Further distribution prohibited without prior permission. Full terms of service, including copyrights, terms of use, and disclaimers are

available at https://www.ndr.com/web/ndr/terms-of-service. For data vendor disclaimers, refer to www.ndr.com/vendorinfo.

Copyright 2019 (c) Ned Davis Research, Inc. All rights reserved.

Documents

GLOBAL ASSET ALLOCATION U.S. ASSET ALLOCATION · market than a new bull market, the double-digit stock market rally notwithstanding. We have remained with a bullish gold position