Kim Wallace – Washington & Global Policy Jeff deGraaf – Market Technicals & Strategy Neil Dutta – Economics

RenMac 2H17 Outlook Call

For a copy of the slides please email: Sales@RenMac.com

July 13, 2017

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Washington & Global Policy

Kim Wallace

2

Fiscal: let’s lay it out

Source: CBO, RenMac 3

Fiscal: Don’t mind the gap

Source: CBO, OMB, RenMac 4

Fiscal: Brooding backdrop

Source: CBO, BEA 5

Fiscal: Unpacking the enmity

Source: Pew Research (April 5-11, 2017)

What Bothers Americans about the Federal Tax System, and How Much (%)

6

Healthcare: Ranked-choice voting

Source: Kaiser Family Foundation 7

Employment: The growth imperative

Source: USA Today (BLS, CareerCast) 8

Europe: Non-performing integration

Source: European Banking Authority 9

Technical & Strategy

Jeff deGraaf

10

Market Serm

11

SERM is elevated but trend is still positive.

SERM vs PE Ratio

SERM has superior forecasting

power across all horizon lengths.

12

Non-Financial Leverage

When non-financial leverage

contracts from a level > 0,

there’s often trouble for the

market. Still ascending.

13

Credit Conditions

Despite the Fed’s tightening, credit

conditions continue to ease. This is bullish for

the market.

14

Credit Conditions vs Econ Surprises

Surprises are weakening,

while credit conditions are

in the 100th percentile.

We find stocks more

sensitive to credit

condition than economic

surprises.

15

Credit Conditions vs Econ Surprises

Note that the t-stat of the

correlation between credit

conditions and 3-month

forward returns is positive

and significant. Economic

conditions do not carry the

same predictive power.

Credit conditions are key

to this rally

16

Credit Conditions

The spread between non-investment grade

and investment grade bonds remains

contained. This will be an important

indicator for us to turn more cautious, along

with general credit conditions.

17

European Banks

18

European Banks

19

Euro/Yen

20

Industrial Metals vs Precious

21

Sector SERM/Trend Position

Momentum

Contrarian

1) Vertical axis represents momentum (higher better)

2) Horizontal axis represents SERM (left better)

3) Color equates to bullish/bearish proprietary option score (green bullish)

4) Size represents the % > 65-day moving average for the group. Big = OS Small = OB

Bubble legend in order of

importance

22

Health Care vs Tech SERM

23

Health Care vs Tech

24

GDP Factors

25

Economics

Neil Dutta

26

Labor market: Solid employment

27 Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Conference Board, NFIB

Strong growth in hours worked of late Temp help employment has picked up (% change, year-over-year)

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

07 08 09 10 11 12 13 14 15 16 17

3-month SAAR YoY % Change

-6

-4

-2

0

2

4

6

-30

-20

-10

0

10

20

30

91 93 95 97 99 01 03 05 07 09 11 13 15 17

Temp help (LHS) Private ex temp (RHS)

Housing: Taper tantrum 2.0? No.

28 Source: Renaissance Macro Research, Mortgage Bankers’ Association, Haver Analytics

Purchase applications breaking out (four-week moving average)

Home prices not rising as quickly (% change, year-over-year)

150

160

170

180

190

200

210

220

230

240

250

260

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

12 13 14 15 16 17

10 Year USTs (LHS) Mortgage Purchase Apps (RHS)

-15%

-10%

-5%

0%

5%

10%

15%

20%

11 12 13 14 15 16 17

Case-Shiller HPI New Home Median Price

Inventories: More of a boost

29 Source: Renaissance Macro Research, Bureau of Economic Analysis, Haver Analytics

Inventory corrections hurt industrials Inventory build now a tailwind Real change in private inventories (billions $)

-250

-200

-150

-100

-50

0

50

100

150

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Railcar Loadings (YoY%, LHS) Private Inventories (billions $, RHS)

-20

0

20

40

60

80

100

120

10 11 12 13 14 15 16 17

Real Change in Private Inventories

Change Consistent With Final Demand

Trade: Cyclical upswing

30 Source: Renaissance Macro Research, Haver Analytics

Signs of a rebound Structural problems to global trade (year-over-year % change)

-25

-20

-15

-10

-5

0

5

10

15

20

25

35

40

45

50

55

60

65

93 95 97 99 01 03 05 07 09 11 13 15 17

ISM New Export Orders (LHS)

Goods Exports (YoY %, three-month lag, RHS)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

92 94 96 98 00 02 04 06 08 10 12 14 16

World Trade World Industrial Production

Fed: How much tightening?

31 Source: Renaissance Macro Research, Haver Analytics, Bloomberg

Broad financial conditions remain easy Real rates have backed up (10Y UST less core CPI)

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Mar-15 Sep-15 Mar-16 Sep-16 Mar-17

Adjusted National FCI (LHS) Fed Funds Target (RHS)-1.0

-0.5

0.0

0.5

1.0

1.5

14 15 16 17

Fed: Searching for neutral

32 *Age-adjusted rate uses age distribution fixed at December 2007 weights (prior business cycle peak) Source: Haver Analytics, Bureau of Labor Statistics

Participation comeback (Labor Force Participation Rate)

Full employment helps lift productivity

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

07 08 09 10 11 12 13 14 15 16 17

Actual Age-Adjusted*

5

10

15

20

25

30

35

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Productivity (8 quarter % change, SAAR, lagged 3 years, LHS)

NFIB: Labor Quality and Costs (single-biggest problem, RHS)

RenMac 2H17 Outlook Call

For a copy of the slides please email: Sales@RenMac.com

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