ned davis4.15

MARKET DIGESTNed DavisResearch

Group

PUBLISHED MONTHLY APRIL 2015

Please see important disclosures at the end of this report. www.ndr.com | Periodical | Issue #MKTDG201504131

Neil Leeson ETF StrategistTim Hayes, CMT Chief Global Investment Strategist

FOLLOW US:

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NDR Regional Allocation Recommendations 2015-04-09



U.S.Europeex. U.K.

EmergingMarkets U.K. Japan

Pacificex. Japan Canada

NDRAllocation:

BenchmarkWeight:

60.0

50.6

14.0

15.9

11.0

10.7

3.0

7.5

12.0

7.3

0.0

4.4

0.0

3.6

Source: All data from Ned Davis Research, Inc.





U.S.Europeex. U.K.

EmergingMarkets U.K. Japan

Pacificex. Japan Canada

NDRAllocation:

BenchmarkWeight:

60.0

50.6

14.0

15.9

11.0

10.7

3.0

7.5

12.0

7.3

0.0

4.4

0.0

3.6

Source: All data from Ned Davis Research, Inc.

Overweight U.S. and Japan

ECONOMY AND BONDS

` Global Economy: U.S. economy is relative outperformer.

` U.S. Economy: Moderate economic growth and subdued inflation in 2015.

` Bonds: We are slightly overweight at 105% of benchmark duration.

U.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 2-3

U.S. Market 4-5

Sectors & Industries 6-7

Global Economic Outlook 8-9

U.S. Economy and Bonds 9-10

Ned's Corner 11

Glossary of Terms 12-13

No Rate

Hike in June

Overweight Underweight

Stocks Bonds, Cash

REGIONAL

STOCKS70%

CASH 5%

BONDS25%

CASH 5%

STOCKS70%

BONDS25%

S&P 500 Sector Current View Effective DateConsumer Discretionary Overweight 2015-04-01

Consumer Staples Overweight 2015-02-05

Health Care Overweight 2013-04-10

Information Technology Overweight 2014-02-12

Financials Marketweight 2014-12-03

Industrials Marketweight 2014-03-05

Utilities Marketweight 2015-01-07

Energy Underweight 2015-01-14

Materials Underweight 2014-12-03

Telecom Services Underweight 2015-01-07

Source: Standard & Poor’s and Current View: Ned Davis Research, Inc.

Please see important disclosures at the end of this report.

NED DAVIS RESEARCH GROUP Market Digest | APRIL 2015

www.ndr.com | Periodical | Issue #MKTDG201504132

GLOBAL OVERVIEW

OVERWEIGHT U.S. AND JAPAN

Based on our new Global Regional Equity Model, we have shifted regional allocation recommendations. We have upgrad-ed the U.S. and Japan from marketweight to overweight, and down graded the U.K. and Pacific ex. Japan from marketweight to underweight. Canada is a new entry into our 7-way regional allocation and is currently recommended as underweight. It is important to understand that these recommendations are “rela-tive” to the other regions based on both internal (price-based) and external indicators. Additionally, the strategists, and model recommendations use a local currency framework, and may not be appropriate for U.S. dollar-based investors without taking the currency exposure into consideration. Therefore, if you use

dollar-based ETFs or mutual funds for implementation of the re-gional allocation, your results could vary significantly.

THE OVERWEIGHTS

The U.S. has the highest external composite. Relatively strong economic growth and resulting valuation support is re-flected by its indica tors based on the leading economic indica-tors, growth-adjusted relative valuations, and its valuation score in the ACWI Scorecard. The only negative external is the indica-tor based on the yield curve, which has flattened more than it has elsewhere as the U.S. has moved closer to tightening policy. The composite’s sentiment indicator reflects the increase in pes-simism that has accompanied this year’s underperformance.

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MSCI U.S. Relative Strength vs. U.S. External Composite Model Daily Data 2005-04-08 to 2015-04-08 (Log Scale)

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MSCI U.S. Relative Strength vs. U.S. External Composite Model Daily Data 2005-04-08 to 2015-04-08 (Log Scale)

168

178

188

200

211

224

237

251

266

282

168

178

188

200

211

224

237

251

266

282

Source: MSCI

MSCI U.S. Total Return / MSCI ACWI ex. U.S. Total Return

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

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100U.S. External Composite Model (2015-04-08 = 80.0)

U.S. External CompositeModel

% Gain/Annum

% ofTime

* Above 75 11.34 38.26

Between 50 & 75 -1.52 28.03

Between 25 & 50 -1.68 13.06

Below 25 -7.30 20.65

Full History: 1996-04-12 to 2015-04-08U.S. External Composite

Model% Gain/Annum

% ofTime

* Above 75 7.82 39.57

Between 50 & 75 1.36 22.48

Between 25 & 50 -0.14 4.08

Below 25 -7.07 33.87

Chart View: 2005-04-08 to 2015-04-08Data Range (Years):

1 2 3 5 10 Max

Presentation Format




Japan has the highest internal composite. Following a con-solidation, Japan’s deviation from trend indicator turned bullish while longer-term trend and momentum indicators maintained favorable readings. But the Japan sentiment indicator is on a sell signal, casting a nega tive vote in the external composite. And Japan’s economic chal lenges are evident in a bearish indicator based on the relative momentum of Japan’s PMI. However, an in-dicator based on Japan’s ACWI Scorecard valuation score is close to a buy signal while bullish readings remain for indicators based on the earn ings yield and risk premium. Although the external composite is relatively low at 40%, the combined composite is still high enough to rank second, behind the U.S.

Also when considering the overweight allocation to these two markets, we consider qualitative factors. In Japan’s case, those include signs of a positive employment picture and over-all economic improvement, supported by Japan’s aggressive quantitative easing. While the jury is still out on Abenomics, especially the “third arrow” initiative for structural reform, posi-tive developments include the decline in Japan’s budget defi-cit to GDP ratio. And for Japanese equities, the weakening in-verse correlation between the yen and the Japanese market is a healthy development, suggesting that the market is becoming less de pendent on yen weakness.

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MSCI Japan Relative Strength vs. Deviation From Trend Daily Data 2005-04-06 to 2015-04-06 (Log Scale)

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MSCI Japan Relative Strength vs. Deviation From Trend Daily Data 2005-04-06 to 2015-04-06 (Log Scale)

4

5

6

7

8

9

10

11

13

14

4

5

6

7

8

9

10

11

13

14

Source: MSCI

MSCI Japan Total Return / MSCI ACWI ex. Japan Total Return

NN

N NNN

NN

N

N

Current Signal: Bullish (2015-03-10, Gain/Loss: 0.4%)

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

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

90

95

100

105

110

115

120

125

90

95

100

105

110

115

120

125MSCI Japan Price/MSCI ACWI ex. Japan Price 50-Day/250-Day Deviation from Trend (2015-04-06 = 106.2)+0.50 Rolling 60-Day Standard Deviation (2015-04-06 = 105.2)-0.50 Rolling 60-Day Standard Deviation (2015-04-06 = 104.4)

Bullish when deviation from trend crosses below lower bracket and reverses. Bearish when deviation from trend crosses above upper bracket and reverses.

Deviation FromTrend Indicator

Avg Gain/Trade

PositiveTrades

Days/Trade

Trades/Year

Bullish Signals 2.2 51.3 59.5 1.9

Bearish Signals 4.9 69.4 75.7 1.8

Full History: 1995-01-02 to 2015-04-06

Deviation FromTrend Indicator

Avg Gain/Trade

PositiveTrades

Days/Trade

Trades/Year

Bullish Signals 2.2 47.6 56.8 2.1

Bearish Signals 2.1 65.0 62.5 2.0

Chart View: 2005-04-06 to 2015-04-06




U.S. MARKET OUTLOOK

Earnings season unofficially started on April 8th when Aloca Inc. reported af ter the close. Consensus estimates are calling for single-quarter S&P 500 op erating EPS to fall 2.0% from a year ear lier. The expected decline comes on the heels of a 5.2% de-cline in 4Q14. Add 2Q15’s expected 0.5% drop and the four-quarter total through 3Q15 is expected to decline for the first time since the financial crisis.

This chart shows consensus es timates for each quarter of 2015 plus CY15. Thanks to an expected 19.7% jump in 4Q15, earnings are expected to rise 4.9% in CY15. While some of 4Q’s growth is due to easy comps, the spike suggests that fur ther downside revisions are possible.

With so much ammunition for the bears, we thought it would be useful to provide some objective analysis on how the market has reacted to earnings slow downs. On the positive side:

� The market has performed better when earnings growth has been low than when it has been high.

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S&P 500 Consensus Operating EPS Estimates (Year/Year % Change)

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S&P 500 Consensus Operating EPS Estimates (Year/Year % Change)

1Q15 2Q15 3Q15 4Q15 4Q Total Thru 4Q15

-2.0

-1.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

-2.0

-1.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0Source: S&P Dow Jones Indices

16.3

11.9

-2.0

14.2

10.0

-0.5

14.6

12.7

3.1

13.1

14.1

19.7

14.4

12.2

4.9

09/30/2014 12/31/2014 03/31/2015As of:

WATCH

� The exception has been big earnings declines, which have been associated with recessions. We continue to view reces-sion risks as low.

� Big earnings declines have been driven by falling sales. To-date, sales growth has been steady.

� The drivers of the earnings decline, the strong dollar and falling oil, have tended to be transitory.

On the negative side, stretched P/E ratios have coincided with more mut ed returns when earnings growth has slowed.

� Our conclusion is that earnings un certainty could increase volatility, so the risk of a correction remains elevated. But any corrections should be viewed in the context of a long-term uptrend.




VALUATIONS CAN’T BE IGNORED

One of the reasons that the slowdown in earnings growth has caught our atten tion is that it has started with stretched valua-tions by virtually all earnings met rics. While bullish macro, senti-ment, and technical indicators suggest that the market can work through the high valuation/earnings slowdown com bination, it does suggest that the risks of a correction are elevated.

As long as the earnings slow down remains modest, the mar ket should be able to retain its long-term uptrend. Val-uations remain a risk, suggesting that a correction within the uptrend is on the table.

(S699)

Monthly Data 3/31/1926 - 3/31/2015

M+

1+

2+

3+4+

5

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

*Earnings will reflect estimate for latest completedquarter until actual earnings are released

81219304774

115181

81219304774

115181S&P 500 P/E (GAAP) Ratio* ( ) 3/31/2015 = 20.25

M+

1+

2-1

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

81216202428

81216202428

S&P 500 Price/Operating Earnings Ratio* (Excludes Write Offs) ( ) 3/31/2015 = 18.38

M+

1+

2+

3-1

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

Source: Robert Shiller, Irrational ExuberanceSource: Ned Davis Research, Inc.

10

20

30

40

10

20

30

40S&P 500 Price/10-Year Average Earnings* (Inflation Adjusted) ( ) 3/31/2015 = 26.76

M+

1+

2+

3-1

-2

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

Source: S&P Capital IQ Compustat101520253035

101520253035S&P 500 Median P/E Ratio ( ) 3/31/2015 = 21.66

M+

1+

2+

3-1

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

Source: Ned Davis Research, Inc.101520253035404550

101520253035404550S&P 500 Cap-Adjusted* P/E Ratio ( ) 3/31/2015 = 18.29 *Earnings weighted by market cap

19

30

19

35

19

40

19

45

19

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

Comparing Different P/E Measures

Copyright 2015 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




SECTORS AND INDUSTRIES

DOLLAR RISKS

We believe the favored longer-term trend rests with con-sumer leadership, as the bear market in commodity prices adds tailwinds to consumer sectors and headwinds to commodity sectors. Risks of interim sector rotation have been increas-ing, however, as Fed rate hike expectations are being pushed out. This may introduce some short-term volatility in the U.S. dollar and commodity prices.

While we suspect such a rotation would be short-lived, and an opportunity to add to existing consumer areas or rebalance exposures, we will monitor our stop-loss levels for commodity sectors in addition to our other indicators. Longer-term, we are bullish on the U.S. dollar, although we ex pect its rate of ascent will be slower and choppier from here.

Daily Data 6/30/2014 - 4/08/2015 (Log Scale)

F X _ U S D _ K E Y

Green = At Least 4 of 5 Indicators Above Moving AverageRed = At Least 4 of 5 Indicators Below Moving Average81

838587899193959799

81838587899193959799U.S. Dollar Index ( ) 4/08/2015=97.94

21-Day Moving Average ( ) 4/08/2015=98.26

U.S. Dollar: Key Short-Term Drivers

140

160

180

140

160

180Spread between U.S. & German 10-Year Government Yields (Basis Points) ( ) 4/08/2015=175.7021-Day Moving Average ( ) 4/08/2015=176.77

50 Basis Points

25 Basis Points20406080

20406080Difference Between December Fed Funds Contract and Target Rate (Basis Points) ( ) 4/08/2015=23.50

21-Day Moving Average ( ) 4/08/2015=31.52

Source: Haver Analytics, Citigroup-60-30

0306090

-60-30

0306090Citigroup U.S. Economic Surprise Index ( ) 4/08/2015=-55.00

21-Day Moving Average ( ) 4/08/2015=-60.98

406080

100

406080

100NDR U.S. Dollar Daily Sentiment Composite ( ) 4/08/2015=25.9321-Day Moving Average ( ) 4/08/2015=46.65

JUL A U G SEP O C T N O V D E C JAN2015

FEB M A R A P R





CONSUMER SECTORS

We are leaning bullish on consumer sectors, as defla-tionary forces exert themselves. We have been overweight Health Care and Consumer Staples, and are now “all-in” on the consumer with our recent upgrade of Consumer Discretion-ary to overweight.

The implication of the recent soft patch in economic data is that we are now not expecting a Fed rate hike until at least September. Consumer industries with an inverse correlation to 10-year yields should see a lift.

Lower 10-year yields also add conviction to our call to over-weight home-related, and we recently upgraded Homebuild-ing to overweight. New home sales have broken out. We ex-pect this trend to continue, driven by low existing-home in-ventory and rising household formation.

Within Health Care, we remain more cyclically positioned, with a strong preference for Biotech relative to Pharma.

CAPEX SECTORS

While U.S. capital spending remains weighted toward Technol ogy and Industrials, as it was at the peak of the Tech

boom, the compo sition of investment has changed over the past 15 years:

� Information processing equipment’s share has fallen dramati cally with the secular shift to cloud and mobile com-puting.

� R&D should increase further as companies continue to in-novate.

� Industrial and other equipment have both risen with the shale boom. Weaker investment from E&P companies should reduce the shares of these two categories.

� Transportation equipment should continue to surge, as the multi-year aircraft replacement cycle remains strong.

� Within structures, manufacturing facilities and mining explora tion, shafts, and wells have seen the strongest growth, driven by the manufacturing revival and strength of the shale boom. The latter will come under pressure as many oil & gas projects are being canceled or pushed out.

The biggest areas of investment going forward will likely benefit software companies, Aerospace & Defense and other transportation equipment companies, and the Building Prod ucts sub-industry.

Quarterly Data 3/31/1947 - 12/31/2014

(E0265A)

Information Processing Equipment

12/31/2014 = 29.3%1216202428323640

1216202428323640

Industrial Equipment 12/31/2014 = 23.2%

Shaded areas representNational Bureau of

Economic Research recessions22242628303234

22242628303234

Transportation Equipment 12/31/2014 = 25.7%

12162024283236

12162024283236

Other Equipment 12/31/2014 = 21.8%

(Includes furniture & fixtures, electrical equipment,and agricultural, construction, mining & oilfield,

and service industry machinery)

202224262830

202224262830

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Components of Equipment as a % of Total





GLOBAL ECONOMY OUTLOOK

Global economic expansion intact, with mixed trends by region.

We continue to maintain our view that the global economic expansion remains intact and is likely in its mid stages. Growth trends have been mixed by region, with North America a notable positive standout. Emerging economies are mixed, with strength in Asia and Europe, but weakness in much of Latin America. Trends in Europe have improved in recent months. For 2015, we expect the global economy to expand 3.6%, up from 3.3% in 2014.

U.S.: We expect the economy to accelerate in 2015, with most GDP components growing at a robust pace. The posi-

tive performance in the U.S. should spill over to Mexico and

Canada, which will help offset head winds from lower oil prices.

See the U.S. Economics page for more information.

Europe: The eurozone economy began to flirt with reces-

sion in 2H 2014. But trends have improved modestly since late

last year. Spain and Ireland are notable stars of the region. The

ECB's latest announcement of QE, the weaker euro, lower oil

prices, and modestly improving lending environment should

help support growth. But deflation and geopolitical risks re-

main threats.

Monthly Data 3/31/1998 - 5/31/2015

(IE250C)

Industrial ProductionYear-to-Year Change

1/31/2015 = 2.5%Scale Left

( )

-16-15-14-13-12-11-10

-9-8-7-6-5-4-3-2-10123456789

1011

Purchasing Managers' Index(Moved Ahead Two Months)

Scale Right( )

Correlation Coefficient = 0.86

Shaded Areas RepresentContractions Based on Peaks and Troughs

of OECD Reference Series

Source: Haver Analytics

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Global Industrial Production vs Global Manufacturing PMI


GROWTH SHOULD

ACCELERATE




(IE2090)

Monthly Data 7/31/1994 - 4/30/2015

Shaded Areas Represent OECD-BasedAsia Recession PeriodsHigh Recession Risk

Low Recession Risk

4/30/2015 = 39.8%

Model vs. Actual Recession

Probability: Recession (% of Time) No Recession (% of Time)Above 70 76.71 23. 29Between 30 and 70 41.07 58. 93Below 30 11.57 88. 43

Source: Ned Davis Research, Inc.-15

-10

-5

0

5

10

15

20

25

30

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-10

-5

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85

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19

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01

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11

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12

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14

20

15

Asia Recession Probability ModelNew Chart


Japan: The economy fell into a technical recession last year due to the April sales tax hike. We expect the economy to grow at a faster pace in 2015, helped by accommodative mon-etary policy and the government's decision to postpone the second tranche of the sales tax increase to 2016. Minimal real wage growth and a persistent trade deficit remain longer-term concerns.

China: The current economic environment is mixed, as poor lending and real estate conditions weigh on growth. Nonethe-less, the government will likely achieve its growth goal for the year of 7%, using broad and/or targeted stimulus when need-ed. Annual growth targets will likely be lower and lower in the coming years as the government focuses on quality over quan-tity of growth.




U.S. ECONOMY AND FIXED INCOME

Global – We are initiating formal coverage with Over weights for the U.K. and Europe, a Marketweight for Japan, and an Un-derweight for the U.S.

U.S. – We remain 105% of benchmark duration. Five-year Treasurys are in the lower half of our 1.25% to 1.85% trading range. Fair value on 10-year Treasurys ranges from 2.10% to 2.60%.

The yield curve has moved into a narrow trading range. A majority of our yield curve models are in the flat tening mode. We are searching for a decent entry point to initiate flatteners.

We remain overweight spread product, particularly credit. Within domestic taxables, we are overweight invest ment

grade and high yield corporates and CMBS, neutral on agencies and ABS (up from underweight), and underweight Treasurys and agency MBS. Most munis are attractive for income-orient-ed investors in high tax brackets. We are in the latter stages of the European peripheral debt trade. Currency-hedged Aussie bonds continue to look attractive relative to the U.S.

FED POLICY

The rate normalization process won’t begin before Sep-tember. More importantly, the path of future rate hikes will be slow and the slope flat. The shrinkage of the balance sheet will likely commence six months after the first rate hike.

Daily Data 1/03/2007 - 4/08/2015

(B591)

In basis points 30-Year minus 2-Year 4/08/2015 = 199

50100150200250300350400

50100150200250300350400

10-Year minus 2-Year 4/08/2015 = 138

04080

120160200240280

04080

120160200240280

5-Year minus 2-Year 4/08/2015 = 81

0

30

60

90

120

150

0

30

60

90

120

150

3-Year minus 2-Year 4/08/2015 = 32

0102030405060

0102030405060

2007M J S D

2008M J S D

2009M J S D

2010M J S D

2011M J S D

2012M J S D

2013M J S D

2014M J S D

2015M

Treasury Yield Curve I (30-2, 10-2, 5-2, 3-2)





v NED’S CORNER Ned Davis, Senior Investment Strategist

WHAT IS THE PROBLEM WITH THE STOCK MARKET?

The U.S. stock market has basical ly made no net progress in over four months. This is despite the fact that breadth on the tape has been reasonably strong, with the NYSE Daily A/D Line im pressively making

a new record high on 4/6/2015. All the main market aver-ages are above their 200-day moving aver ages. And cen-tral banks could hardly be friendlier with global QE under-way and interest rates very low or even nega tive. So what is the problem with the U.S. stock market?

I think the answer lies in the senti ment/valuation area of supply and de mand. Investor sentiment by Advisory Services is excessively optimistic. This suggests that many investors have probably run down cash (potential de-mand) and are fairly fully invested. How much sidelined buying power is there? Admittedly, with cash yielding zero percent and corpora tions buying back stocks, there is not a lot of supply either; yet the lack of po tential demand tells me to hedge upside risks with just a mildly bullish strategy.

(S0502)

Weekly Data 9/04/1970 - 4/02/2015 (Log Scale)

4/02/2015 = 17763.24

Profitable Long Trades: 94%Gain/Annum: 10.2%Buy-Hold Gain/Annum: 7.3%Latest Signal 10/11/2013 = 15237.11S = Switch into Commercial PaperSignal Dates: 9/18/1970 - 4/02/2015

Signals Generated When Ratio:Rises Above 42% or 59% = Buy(whichever comes first)Declines Below 67% = Sell

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

DJIA Gain/Annum When:(9/04/1970 - 4/02/2015)

BULLS/(BULLS +BEARS) Gain/ %Is: Annum of Time* Above 69 1. 2 23. 7

Between 53 and 69 7. 6 47. 753 and Below 12. 0 28. 6

Source: S&P Dow Jones Indices379479606766969

122615501961248031373968501963498030

10157128471625020553

379479606766969

122615501961248031373968501963498030

10157128471625020553

Smoothed 4/10/2015 = 78.9%Extreme Optimism

ExtremePessimism

Gloom & Doom!Source: Investors Intelligence

3236404448525660646872768084

3236404448525660646872768084

19

71

19

72

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19

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00

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01

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02

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20

11

20

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20

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20

15

Dow Jones Industrial Average

BULLS / (BULLS + BEARS) (10-Week Smoothing) Copyright 2015 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




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 Mortgage-Backed 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.

Mortgage-Backed 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.

NDR-Weighted 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 Inflation-Protected 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.

DISCLAIMER

NDRG ADVISORY EDITORIAL BOARD

VENICE600 Bird Bay Drive WestVenice, FL 34285

NED DAVIS RESEARCH GROUP

[email protected](800) 241-0621(617) 279-4872

The data and analysis contained herein are provided “as is” and without warranty of any kind, either

expressed or implied. Ned Davis Research, Inc. (NDR), d.b.a. Ned Davis Research Group (NDRG), any NDRG

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 NDRG publication. NDRG disclaims any

and all express or implied warranties, including, but not limited to, any warranties of merchantability,

suitability or fi tness for a particular purpose or use.

NDRG’s past recommendations and model results are not a guarantee of future results. This

communication refl ects our analysts’ opinions as of the date of this communication and will

not necessarily be updated as views or information change. All opinions expressed herein are

subject to change without notice. NDRG 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

herein and may purchase or sell such securities without notice.

Using any graph, chart, formula 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 device.

Further distribution prohibited without prior permission. For data vendor disclaimers, refer to

www.ndr.com/vendorinfo.

Copyright 2015 (c) Ned Davis Research, Inc. All rights reserved.

Neil LeesonDirector of Advisory Services

Till Wieczorek, CFAQuantitative Analyst

Thomas Hansen, CFAMacro Analyst

Victor JessupU.S. Market Analyst

Anoop NathGlobal Analyst

John LyonSector Analyst

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solutions to the world’s leading investment

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