9 rules of research - ndr
TRANSCRIPT
NDR NiNe Rules Of ReseaRchApril 3, 2009
Ned Davis Research Group
Robert C. Schuster, CFA, CMT, Chief Operating Officer
Please see important disclosures at the end of this document.Ned Davis Research Group
1
current Positions, 2009 expectations
Stocks48%Cash
23%
Bonds29%
Global allocation:
u.s. allocation:
Stocks55%
Cash10%
Bonds35%
Cash (by 13%) » Stocks (by 7%) »Bonds (by 6%) »
Japan »Europe ex. U.K. »
Pacific ex. Japan »U.S. »
Stocks »Bonds »Cash »
Overweight/Bullish: underweight/Bearish:
Marketweight:
GlOBal sTOcK MaRKeT TReND
current:• Bottoming process. 2009: Advance into Q3. Potential 1200-1300 on S&P 500.
sTYle & MaRKeT caP
current:• Growth over Value.Neutral on small vs. large •2009: Likely to favor small.
Likely to overweight stocks, overweight emerging markets.
2009:
cOMMODiTies
Gold: • Bullish.2009: Secular uptrend.commodities: • Bottoming.2009: Secular uptrend.
Please see important disclosures at the end of this document.Ned Davis Research Group
2
NDR Broad calls for 2009 (as of right now)
2009 should be a year of mean reversion �from historical extremes
Stock rallying, and outperforming bonds »
Credit Spreads narrowing »
Volatility receding »
Emerging Markets outperforming with small caps »
Gold and commodities should strengthen »
secular Themes intact �
Bear Market in US Stocks »
Bull in Gold, Commodities, and Emerging Markets »
Please see important disclosures at the end of this document.Ned Davis Research Group
3
Rule #1: Don't fight the Tape
The Trend is Your friend
(S094)
Daily Data 3/29/2007 - 3/31/2009 (Log Scale)
1539.181553.08 1565.15
1515.96
1395.42
1426.63
1305.32
1005.75
934.70
1490.72
1406.70 1407.22
1310.50
1273.37
1214.91
848.92
752.44
805.22
676.53
S&P 500 Gain/Annum When:11/11/1929 - 3/31/2009
200-Day Moving Gain/ %Average: Annum of Time
Is Rising 7. 5 67. 3* Is Falling -0. 7 32. 7
Moving average directionbased on reversalsof 0.5% or greater.
3/31/2009
S&P 500 (Solid Line) = 797.87
200-Day MA (Dashed Line) = 1011.34
200-Day MA is Falling
678696714733753773793814836858881904928953978
100410301058108611141144117412051237127013041338137414101448148615261566
678696714733753773793814836858881904928953978
100410301058108611141144117412051237127013041338137414101448148615261566
A M J J A S O N D J2008
F M A M J J A S O N D J2009
F M
S&P 500 vs. 200-Day Moving Average
Please see important disclosures at the end of this document.Ned Davis Research Group
4
Rule #1: Don't fight the Tape
Go with Mo
Weekly Data 7/19/1968 - 3/27/2009 (Log Scale)
(S108)
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
SProfitable Long Trades: 93%Gain/Annum: 10.4%Buy-Hold Gain/Annum: 5.2%Latest Signal 12/29/2006 = 1418.30S = Switch into Commercial PaperSignal Dates: 12/27/1968 - 3/27/2009
3/27/2009 = 815.94
Signals Generated When Rate of Change:Rises Above Lower Bracket = BuyFalls Below Upper Bracket = Sell
566985
105129159196242298367452557686845
1041128215791946
566985
105129159196242298367452557686845
1041128215791946
Equally Weighted 1700Stock Geometric Index
(Two-Week Front-Weighted Moving Average)Overbought
Oversold
-55-50-45-40-35-30-25-20-15-10
-505
1015202530354045505560
-55-50-45-40-35-30-25-20-15-10
-505
1015202530354045505560
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Standard & Poor's 500 Stock Index
Value Line Geometric Index 26-Week Rate of Change Source: Value Line
Bearish
momentum
Please see important disclosures at the end of this document.Ned Davis Research Group
5
Rule #2: Don't fight the fed
stay in harmony with interest Rates
Weekly Data 1/08/1965 - 3/27/2009 (Log Scale)
(S875A)
Value Line Gain/Annum When:
Gain/ %Baa Yield Momentum Is: Annum of Time* Above 6% -11. 6 24. 2
Between -3% and 6% -1. 3 43. 4-3% and Below 15. 8 32. 4
3/27/2009 = 199.8495663728293
106121138157178203231263299341388441502
495663728293
106121138157178203231263299341388441502
3/27/2009 = 11.4%
Bond Yields Rising
Yields Falling-16-12
-8-4048
12162024283236
-16-12
-8-4048
12162024283236
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
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1989
1990
1991
1992
1993
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1995
1996
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1999
2000
2001
2002
2003
2004
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2006
2007
2008
2009
Value Line Geometric Index
Moody's Baa Bond Yield (26-Week Change)
rates
that
matter
Please see important disclosures at the end of this document.Ned Davis Research Group
6
Rule #2: Don't fight the fed
Money Moves Markets - excess liquidity
Monthly Data 1/31/1960 - 2/28/2009 (Log Scale)
(S835)
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S B
S
B
S
B
S
B
Profitable Long Trades: 90%Gain/Annum: 7.4%Buy-Hold Gain/Annum: 5.4%Latest Signal 10/31/2008 = 968.75S = Switch into Commercial Paper
Signals Generated When Liquidity Growth:Rises Above 0.4 = BuyFalls Below -5.6 = Sell
S&P 500 Gain/Annum When:(1/31/1960 - 2/28/2009)
Liquidity Growth Is: Gain/ %Annum of Time
* Above 0.4 10. 6 40. 2Between -5.6 and 0.4 6. 5 40. 6-5.6 and Below -6. 8 19. 238
48597493
115144180224280349436543678846
1056131716432051
3848597493
115144180224280349436543678846
1056131716432051
Year-to-Year Change
Bearish
BullishExcess Liquidity
Economic Growth Rates ExceedLiquidity Growth Rates
2/28/2009 = 27.4-18-15-12
-9-6-30369
121518212427
-18-15-12
-9-6-30369
121518212427
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Standard & Poor's 500 Stock Index
M2 Money Supply minus Industrial Production x PPI Commodities
fuel for
stocks (and
eventually
inflation)
Please see important disclosures at the end of this document.Ned Davis Research Group
7
Rule #3: Beware of crowds at extremes
Psychology and liquidity link
(S423)
Monthly Data 10/31/1980 - 2/28/2009 (Log Scale)
NDR Total Market Value Gain/Annum When:
Money Market Fund Assets/ Gain/ %NDR Total Market Value: Annum of Time* Above 10.80 9. 6 89. 4
10.80 and Below -12. 5 10. 6
NDR Total Market Value(Billions, Scale Right)2/28/2009 = 8289.3
17102.05 18082.49
1055.64
9715.02 9322.61
11571351157618392146250529233411398146455421632673838615
1005411733136921597818646
Total Money Market Fund Assets(Scale Left In Billions)
2/28/2009 = $3906
276.66
613.84
2382.00
196.81
570.10
1862.00
Source: Investment Company Institute
101123150183223272331404492599730889
1083132016081959238629073541
Money Market Fund Assets / NDR Total Market Value(Scale Right)
2/28/2009 = 47.1%
High Liquidity
Low Liquidity
7.48.59.8
11.212.814.716.919.322.225.429.133.438.343.9
1981
1982
1983
1984
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1997
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2006
2007
2008
2009
NDR Total Market Value vs Money Market Fund Assets / NDR Total Market Value
record
Please see important disclosures at the end of this document.Ned Davis Research Group
8
Rule #3: Beware of crowds at extremes
Relative Relationships Revert
Monthly Data 12/31/1926 - 2/28/2009 (Log Scale)
(AA032)
2/28/2009 = 9.4
Ratio:S&P 500 Total Return Index /
Barclays Capital Long-Term Treasury Bond Total Return Index*
*Ibbotson data prior to 1973.0.20.30.40.50.60.81.11.41.92.53.34.35.77.6
10.013.117.322.930.2
0.20.30.40.50.60.81.11.41.92.53.34.35.77.6
10.013.117.322.930.2
S&P 500 Total Return (Y/Y) MinusLong-Term Gov't Bond Total Return (Y/Y)
Mean
3.0 Std Dev
2.0 Std Dev
1.0 Std Dev
-1.0 Std Dev
-2.0 Std Dev
-3.0 Std Dev
Scale = % Points
2/28/2009 = -52.1%
-60
-40
-20
0
20
40
60
80
100
120
140
-60
-40
-20
0
20
40
60
80
100
120
140
Stock/Bond Relative Performance19
30
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Please see important disclosures at the end of this document.Ned Davis Research Group
9
Rule #3: Beware of crowds at extremes
Valuation = long-Term extremes in Psychology
Monthly Data 11/30/1980 - 2/28/2009 (Log Scale)
(AA348_RSL)
Russell 1000 Growth Index
2/28/2009 = 215.4
Russell 1000 Growth Gain/Annum When:(11/30/1980 - 2/28/2009)
P/B Ratio Gain/ %Dev. From Trend is: Annum of Time
Above 10% 1. 5 31. 9* Below 10% 7. 6 68. 1
3746587290
113141176221276345431539
3746587290
113141176221276345431539
Russell 1000 Growth Price/Book Value Ratio (Solid Line)
24-Month Average (Dashed Line)
2/28/2009 = 2.4 (actual)2/28/2009 = 3.8 (24-Month Average)2
3
4
5
7
9
12
2
3
4
5
7
9
12
2/28/2009 = -36.4%Russell 1000 Growth P/B Deviation from Two-Year Average (%)
-40
-30
-20
-10
0
10
20
30
40
-40
-30
-20
-10
0
10
20
30
40
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1982
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1984
1985
1986
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2001
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2007
2008
2009
Russell 1000 Growth Price/Book Value Ratio
Please see important disclosures at the end of this document.Ned Davis Research Group
10
Rule #3: Beware of crowds at extremes
General crowd Psychology impacts the Markets
(S1060A)
Monthly Data 2/28/1967 - 3/31/2009 (Log Scale)
Oct 1968 Dec 1972
Sep 1987Feb 1989
Jun 1998Jan 2000
Dec 1974
May 1980Oct 1982
Jan 1991Feb 1992
Mar 2003
Oct 2007
DJIA Gain/Annum When:(2/28/1969 - 2/28/2009)
Consumer Gain/ %Confidence is: Annum of Time
Above 110 -0. 2 22. 1Between 66 and 110 6. 3 65. 1
* 66 and Below 9. 6 12. 9
2/28/2009 = 7062.9452557687848
10461290159219632422298836864547560969208536
10530129901602519769
452557687848
10461290159219632422298836864547560969208536
10530129901602519769
Extreme Optimism = Bearish for Stocks
Extreme Pessimism = Bullish for Stocks2030405060708090
100110120130140150
2030405060708090
100110120130140150
1970 1975 1980 1985 1990 1995 2000 2005
Dow Jones Industrial Average
Consumer Confidence (Conference Board) Source: The Conference Board
Please see important disclosures at the end of this document.Ned Davis Research Group
11
Rule #4 Rely on Objective indicators
indicators are not perfect but by being objective, it gives you consistency. use observable evidence not theoretical.
Daily Data 3/30/2005 - 3/31/2009 (Log Scale)
(DAVIS95)
3/31/2009 = 797.87
S&P 500 Gain/Annum When:
CBOE 3-Day Equity Gain/ %Put/Call Ratio is: Annum of Time
Above Upper Band 15. 7 26. 1* Between Bands 5. 0 55. 1
Below Lower Band -6. 3 18. 8
Analysis Dates = 3/20/1986 - 3/30/2009695726759793828865904945987
1031107811261176122912841342140214651531
695726759793828865904945987
1031107811261176122912841342140214651531
Extreme Pessimism -- Bullish
Extreme Optimism -- Bearish48525660646872768084889296
100104108
48525660646872768084889296
100104108
M J S N J2006
M M J S N J2007
M M J S N J2008
M M J S N J2009
M
Standard & Poor's 500 Index
CBOE Three-Day Equity Put/Call Ratio
Please see important disclosures at the end of this document.Ned Davis Research Group
12
Rule #5 Disciplined
(I 04000)
Monthly Data 3/31/1986 - 2/28/2009 (Log Scale)
Model Equity Line3/31/1986 - 2/28/2009 GPA = 8.33%
Std. Dev. of 12-Month Returns = 9.336%
2/28/2009 = 626.7
Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash)3/31/1986 - 2/28/2009 GPA = 6.36%
Std. Dev. of 12-Month Returns = 9.987%
2/28/2009 = 411.6112135162196236285343414499601725
112135162196236285343414499601725
Model Equity % (Min = 40%, Max = 70%)
2/28/2009 = 48.1%Dashed Lines = Benchmark Weights304050607080
304050607080
Model Bond % 2/28/2009 = 28.8%
102030405060
102030405060
Model Cash %2/28/2009 = 23.1%
51015202530354045
51015202530354045
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2000
2001
2002
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2004
2005
2006
2007
2008
2009
NDR Global Balanced Account Model (Equity Allocation Constrained)
anchors One's exposure to facts Not Gut Reactions
position
anchored in
objective
evidence
Please see important disclosures at the end of this document.Ned Davis Research Group
13
Rule #6: Remain flexible
adapt to changes in data, the environment, the markets.
Weekly Data 2/02/2007 - 3/27/2009
(DAVIS98)
2/23 -- T-Bill RatesStart to Decline from
High of 5.1%
Barclays High Yield Corporate Yield ( )Moody's Baa Bond Yield ( )90-Day T-Bill Rate ( ------ )
0
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F M A M J J A S O N D J2008
F M A M J J A S O N D J2009
F M
Junk Bonds, Baa Bonds, and T-Bill Rate
don't fight fed turned into don't fight market rates
Please see important disclosures at the end of this document.Ned Davis Research Group
14
Rule #7: Risk-averse
Being Right
Daily Data 3/13/1957 - 3/31/2009 (Log Scale)
(NED_2)
S
B
S
B
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B
S
B
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B
S
B
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B
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B
S
B
S
B
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B
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B
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B
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B
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B
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B
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B
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S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
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B
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B
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S
B
S
B
S
B
S
B
S
B
S
B
S
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S
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S
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S
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B
S
B
S
B
S
B
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B
S
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B
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B
S
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B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
Profitable Trades: 74%Gain/Annum: -3.1%Overall Gain: -80.1%Latest Signal 6/17/2008 = 1350.93
(Example of a Mean Reversion Indicator)
Signals Generated When Stochastic Crosses:Above 72 = SellBelow 33 = Buy28
36476078
101130169218282365472611790
1022132217102211
2836476078
101130169218282365472611790
1022132217102211
101520253035404550556065707580859095
101520253035404550556065707580859095
Standard & Poor's 500 Index
32-Period Stochastic (19-Period Moving Average)
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Copyright 2009 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
�
right but loses
Please see important disclosures at the end of this document.Ned Davis Research Group
15
Rule #7: Risk-averse
Making Money
not right as often, but makes money
Daily Data 3/13/1957 - 3/31/2009 (Log Scale)
(NED_1)
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
Profitable Trades: 52%Gain/Annum: 5.8%Overall Gain: 1793.1%Latest Signal 12/21/2007 = 1484.46
(Example of a Trend Following Indicator)
Signals Generated When:50-Day MA Crosses Below 200-Day MA = Sell50-Day MA Crosses Above 200-Day MA = Buy29
38496381
104133171221284365469604776998
128416522124
2938496381
104133171221284365469604776998
128416522124
50-Day MA ( )3/31/2009 = 789.8
200-Day MA (------)3/31/2009 = 1011.3
45566883
101124151185226277338413505618755923
11281379
45566883
101124151185226277338413505618755923
11281379
Standard & Poor's 500 Stock Index
50-Day vs 200-Day Moving Averages
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Copyright 2009 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
�
Please see important disclosures at the end of this document.Ned Davis Research Group
16
Rule #8: Money Management Matters
Be humble and flexible -- be able to turn emotions upside down and be open minded. 9let profits run and cut losses short. 9Think in terms of risk, including opportunity risk of missing a bull market. 9Buy the rumor, sell the news. 9
(S094)
Daily Data 3/29/2007 - 3/31/2009 (Log Scale)
1539.181553.08 1565.15
1515.96
1395.42
1426.63
1305.32
1005.75
934.70
1490.72
1406.70 1407.22
1310.50
1273.37
1214.91
848.92
752.44
805.22
676.53
S&P 500 Gain/Annum When:11/11/1929 - 3/31/2009
200-Day Moving Gain/ %Average: Annum of Time
Is Rising 7. 5 67. 3* Is Falling -0. 7 32. 7
Moving average directionbased on reversalsof 0.5% or greater.
3/31/2009
S&P 500 (Solid Line) = 797.87
200-Day MA (Dashed Line) = 1011.34
200-Day MA is Falling
678696714733753773793814836858881904928953978
100410301058108611141144117412051237127013041338137414101448148615261566
678696714733753773793814836858881904928953978
100410301058108611141144117412051237127013041338137414101448148615261566
A M J J A S O N D J2008
F M A M J J A S O N D J2009
F M
S&P 500 vs. 200-Day Moving Average
Please see important disclosures at the end of this document.Ned Davis Research Group
17
Rule #9: Those who do not study history are condemned to repeat its mistakes.
(HOT200812171_C)
DJIA 11/13/1929 Bear Market Low159
182
209
240
276
316
363
159
182
209
240
276
316
363
O N D J1930
F M A M J J A S O N D J1931
F M
DJIA 3/31/1938 Bear Market Low99
107
116
126
136
147
159
99
107
116
126
136
147
159
M A M J J A S O N D J1939
F M A M J J
Nikkei 225 8/18/1992 Bear Market Low14234
15085
15988
16945
17959
19034
20173
21381
14234
15085
15988
16945
17959
19034
20173
21381
J A S O N D J1993
F M A M J J A S O N D J1994
F M
Nikkei 225 7/03/1995 Bear Market Low14397
15389
16450
17583
18794
20089
21473
22953
14397
15389
16450
17583
18794
20089
21473
22953
J J A S O N D J1996
F M A M J J A S O N D J1997
Nikkei 225 10/09/1998 Bear Market Low12798135281429915115159771688917852188711994721085
12798135281429915115159771688917852188711994721085
S O N D J1999
F M A M J J A S O N D J2000
F M A M
Monster Rallies in Secular Bear Markets
48%
60%
51%
56%
62%
X
X
X
X
X
X
X
X
X
X
monster rallys
in secular bear
markets
Please see important disclosures at the end of this document.Ned Davis Research Group
18
Breaking Down stock Returns
1964
12%17%
37%32%
31%
19%
20%
32%
2007
Industry
Sector
Market
CompanySpecific
Original Studyby Benjamin King
Current Studyby Ned Davis Research
Sector &IndustryFactors
49%
51%
Breaking Down Stock returnS
Market &Company SpecificFactors
Market, Sector & Industry influences account for 2/3 of stock returns.Key PoInt:
Why Macro Market and sector analysis is so Vital
Please see important disclosures at the end of this document.Ned Davis Research Group
19
Post Waterfall Decline Performance
IF0818E_C
100.9102.4103.9105.5107.1108.7110.3112.0113.7115.4117.1118.9120.7122.5124.3126.2128.1130.0132.0
100.9102.4103.9105.5107.1108.7110.3112.0113.7115.4117.1118.9120.7122.5124.3126.2128.1130.0132.0Historical Cycle DJIA ( )
All cycles indexed to 100 at end of Waterfall Decline.
Wat
erfa
ll Dec
line
Bear
Mar
ket B
otto
m
Rece
ssio
n En
d
Earn
ings
Tro
ugh
DJIA Performance Around Waterfall Declines (1929-2002)
56596367717580859095
101107113
56596367717580859095
101107113Historical Cycle 10-Day Smoothing of NYSE Volume ( )
0-21-42-63 +21 +42 +63 +84 +105 +126 +147 +168 +189 +210 +231 +252<--Days After--><--Days Before-->
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four Phases of Post Waterfall Declines
1 2 3 4
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20
sector Performance in each Phase
s&P secTOR PeRfORMaNce DuRiNG VaRiOus MaRKeT Phases
s&P 500 sectorWaterfall To Bear Market
BottomBear Market Bottom To Recession
endRecession end To earnings Growth
Troughfollowing earnings Growth
Trough
Health Care Outperform Underperform Marketperform Marketperform
Consumer Staples Outperform Marketperform Underperform Marketperform
Energy Outperform Underperform Marketperform Underperform
Telecom Services Marketperform Underperform Underperform Marketperform
Utilities Marketperform Underperform Outperform Marketperform
Financials Underperform Marketperform Marketperform Outperform
Industrials Underperform Outperform Marketperform Marketperform
Consumer Discretionary Underperform Outperform Outperform Outperform
Materials Underperform Outperform Outperform Marketperform
Information Technology Underperform Outperform Underperform Marketperform
Waterfall to Bear Market Bottom Phase: 10/4/1974 - 12/6/1974, 10/19/1987 - 12/4/1987, 7/23/2002 - 10/9/2002. Bear Market Bottom to Recession End Phase: 12/6/1974 - 3/31/1975, 4/21/1980 - 7/31/1980, 8/12/1982 - 11/30/1982, 10/11/1990 - 3/31/1991, 9/21/2001 - 11/30/2001. Recession End to Earnings Growth Trough Phase: 3/31/1975 - 9/30/1975, 7/31/1980 - 3/31/1981, 11/30/1982 - 12/31/1982, 3/31/1991 - 12/31/1991, 11/30/2001 - 12/31/2001. Post Earnings Growth Trough Phase (63 day performance following these dates): 9/30/1975, 3/31/1981, 12/31/1982, 12/31/1991, 12/31/2001. Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only. Outperform determined by either batting average of 80% or higher, or excess return of 200 bps or more. Underperform determined by either batting average of 20% or less, or excess return of -200 bps or less.
Ned Davis Research, Inc. NDH0808.8
1 2 3
2009 expected timeframe
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21
Phase One: sector Performance
s&P secTOR PeRfORMaNce fROM WaTeRfall DecliNe TO BeaR MaRKeT BOTTOM (3 cases siNce 1974)
s&P 500 sectorMean
% GainMean
# of DaysBatting
average %
Health Care 11.7 44 100
Consumer Staples 7.3 44 100
Energy 5.0 44 100
Telecommunication Services 1.9 44 67
Utilities 0.3 44 67
Financials -2.5 44 33
Industrials -4.6 44 0
Consumer Discretionary -5.0 44 0
Materials -5.3 44 0
Information Technology -6.0 44 33
s&P 500 0.4
Waterfall to Bear Market Bottom Phase: 10/4/1974 - 12/6/1974, 10/19/1987 - 12/4/1987, 7/23/2002 - 10/9/2002. Recession only really occurred with the 1974 case. Days = trading days. Batting average = % of cases outperforming the S&P 500 (Cap-Weighted). Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only.
Ned Davis Research, Inc. NDH0808.3
sort criteria
defensiveness
works
high beta
lags
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22
Phase Two: sector Performance
s&P secTOR PeRfORMaNce fROM BeaR MaRKeT BOTTOM TO RecessiON eND (5 cases siNce 1974)
s&P 500 sectorMean
% GainMean
# of DaysBatting
average %
Consumer Discretionary 39.5 78 100
Information Technology 38.9 78 100
Industrials 31.2 78 100
Materials 29.6 78 80
Consumer Staples 25.8 78 60
Financials 32.2 78 40
Health Care 23.8 78 20
Telecommunication Services 12.3 78 20
Energy 12.4 78 0
Utilities 7.6 78 0
s&P 500 26.1
Bear Market Bottom to Recession End Phase: 12/6/1974 - 3/31/1975, 4/21/1980 - 7/31/1980, 8/12/1982 - 11/30/1982, 10/11/1990 - 3/31/1991, 9/21/2001 - 11/30/2001. Recession only really occurred with the 1974 case.Days = trading days. Batting average = % of cases outperforming the S&P 500 (Cap-Weighted).Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only.
Ned Davis Research, Inc. NDH0808.5
defensives
flip over
high beta
moves up
sort criteria
1.18
5-year beta
0.82
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23
Phase Three: sector Performance
s&P secTOR PeRfORMaNce fROM RecessiON eND TO eaRNiNGs GROWTh TROuGh
(5 cases siNce 1974)
s&P 500 sectorMean
% GainMean
# of DaysBatting
average %Consumer Discretionary 7.0 106 80Materials 6.9 106 80Utilities 4.1 106 80Energy 6.4 106 60Financials 2.8 106 60Industrials 6.0 106 40Health Care 5.7 106 40Consumer Staples 3.8 106 20Telecommunication Services 1.0 106 20Information Technology -1.3 106 20s&P 500 5.2Recession End to Earnings Growth Trough Phase: 3/31/1975 - 9/30/1975, 7/31/1980 - 3/31/1981, 11/30/1982 - 12/31/1982, 3/31/1991 - 12/31/1991, 11/30/2001 - 12/31/2001. Days = trading days. Batting average = % of cases outperforming the S&P 500 (Cap-Weighted). Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only.Ned Davis Research, Inc. NDH0808.6
sort
criteria
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24
NDR Guess for first half of 2009
1sT half 2009 s&P 500 secTOR OuTlOOK (uPDaTe 2/6/2009)
s&P 500 sectorTotal
Performance score
Financials 30.00
Materials 22.50
Information Technology 22.00
Industrials 21.00
Consumer Discretionary 20.50
Energy 14.50
Telecommunication Services 14.00
Health Care 7.50
Utilities 7.00
Consumer Staples 6.00
High #s = best. Total Performance Score based on 2x ranking of Beta factor, 0.5x ranking of 44-day mean reversion factor,and 0.5x ranking of 1-year mean reversion factor.
Ned Davis Research, Inc. T_TNT0903.1
UPSIDE MEAN REVERSION POTENTIAL (EXPECTED
OUTPERFORMERS)
downSIDE MEAN REVERSION POTENTIAL (EXPECTED
underPERFORMERS)
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25
NDR Nine Rules of Research
Don't fight the tape1.
Don't fight the fed2.
Beware of crowds at extremes3.
Rely on objective indicators4.
Disciplined5.
Remain flexible6.
Risk-averse7.
Money management matters8.
Those who do not study history are 9. condemned to repeat mistakes
Robert c. schuster, CFA, CMT, is the Chief Operating Officer. As Chief Operating Officer, Robert manages all operational departments, including the Research departments and Information Technology departments; in doing so Robert is responsible for the implementation of NDR strategy and allocation of resources. Robert is the chair of the Leadership Council, whose primary responsibility is to set the direction for NDR strategy.
Since joining the firm in 1989, Robert has held the positions of Managing Director of Custom Research Services (1995 - 2004), and Analyst for the Bond/Economic and Custom Research Services Departments (1989 -1995).
Robert graduated with honors from the University of Illinois with a Bachelor of Science in Finance. Robert has earned the Chartered Financial Analyst and Chartered Market Technician designations. He is also a member of the CFA Institute, CFA Tampa Bay, and the Market Technicians Association. His paper on “S&P Group Lead Time Analysis” was published in the Market Technicians Association Journal.
Robert c. schuster, cfa, cMTChief Operating Officer
Biographical Sketch
Ned Davis Research Group
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