Table Of Contents. Table Of Contents. OAK ASSOCIATES, ltd.

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1 Table Of Contents Table Of Contents S&P Index -1 Consumer Discretionary -3 S&P Consumer Staples - S&P Energy -7 S&P Financials -9 S&P Health Care -1 S&P Industrials -3 S&P Information Technology - S&P Materials -7 S&P Telecommunication Services -9 S&P Utilities -1 Relative Earnings: S&P Sectors -3 Relative Earnings: Consumer - Relative Earnings: Energy 7 Relative Earnings: Financials Relative Earnings: Health Care 9 Relative Earnings: Industrials 7 Relative Earnings: IT 71 Relative Earnings: Materials 7 Forward Earnings & Orders 73 Forward Earnings & Prices 7 Flow of Funds: U.S. Mutual Funds 7-7 Technical Indicators 77 U.S. Monetary Policy 7 Fed Funds Rate & S&P 79 Inflation -1 Pricing ISM Indexes 3 U.S. Consumers: Income U.S. Consumers: Confidence U.S. Consumers: Retail Sales U.S. Consumers: Assets 7 U.S. Consumers: Debt U.S. Consumers: Real Estate 9-9 U.S. Capital Spending 91 CIO Poll 9 Semiconductor Sales 93 Global Stocks: Americas 9 Global Stocks: Europe 9 Global Stocks: Asia 9 Global Earnings 97 G7 Industrial Production 9 Global Money Supply 99 China: Exports & Imports Commodity Price Indexes 1 Energy Prices World Oil Demand 3- U.S. Dollar & Gold FRODOR & Currencies FRODOR 7 U.S. Capital Inflows: Total U.S. Capital Inflows: Equities 9 U.S. Capital Inflows: Treasuries 1 U.S. Capital Inflows: Corporate Bonds 111 U.S. Capital Inflows: Agencies 1 tember, / Strategist s Handbook

2 Figure. S&P INDEX* - S&P Index - S&P is up % since low, but has lost momentum over the past year day moving average There is still plenty of momentum in S&P forward earnings, as well as in and consensus earnings estimates. The problem is that the S&P P/E is still falling * Ratio scale. Figure. S&P OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates Operating (-quarter sum) * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P VALUATION P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Aug Page / tember, / Strategist s Handbook

3 Figure 7. S&P NET REVISIONS* (% estimates up less down) - S&P Index * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. - - Figure 9. Page 1 / tember, / Strategist s Handbook

4 3 9 - Consumer Discretionary - Figure. S&P CONSUMER DISCRETIONARY INDEX* day moving average * Ratio scale. Figure 1. S&P CONSUMER DISCRETIONARY OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P CONSUMER DISCRETIONARY VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

5 Consumer Discretionary - Figure 3. S&P CONSUMER DISCRETIONARY NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. S&P CONSUMER DISCRETIONARY SALES GROWTH (annual, percent) Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure. S&P CONSUMER DISCRETIONARY PROFIT MARGIN (trailing -quarter EPS, percent) Operating Reported Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Q Page 3 / tember, / Strategist s Handbook

6 S&P Consumer Staples - Figure. S&P CONSUMER STAPLES INDEX* day moving average * Ratio scale. Figure 7. S&P CONSUMER STAPLES OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P CONSUMER STAPLES VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

7 - S&P Consumer Staples - Figure 9. S&P CONSUMER STAPLES NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure 7. S&P CONSUMER STAPLES SALES GROWTH (annual, percent) Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 71. S&P CONSUMER STAPLES PROFIT MARGIN (trailing -quarter EPS, percent) 7 Operating Reported 7 Q Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

8 - S&P Energy - 39 Figure 7. S&P ENERGY INDEX* day moving average * Ratio scale. 9 3 Figure 73. S&P ENERGY OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) 3 Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure 7. S&P ENERGY VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

9 Figure 7. - S&P Energy - S&P ENERGY NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure 7. 3 S&P ENERGY SALES GROWTH (annual, percent) Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 77. S&P ENERGY PROFIT MARGIN (trailing -quarter EPS, percent) Q Operating Reported Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. 3 1 Page 7 / tember, / Strategist s Handbook

10 - S&P Financials - 39 Figure 7. S&P FINANCIALS INDEX* day moving average * Ratio scale. 9 3 Figure 79. S&P FINANCIALS OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts 3 -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P FINANCIALS VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

11 Figure 1. - S&P Financials - S&P FINANCIALS NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. - - Figure 3. Page 9 / tember, / Strategist s Handbook

12 3 3 Figure. - S&P Health Care - S&P HEALTH CARE INDEX* day moving average * Ratio scale. Figure. S&P HEALTH CARE OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P HEALTH CARE VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. 3 3 Page / tember, / Strategist s Handbook

13 Figure 7. - S&P Health Care - S&P HEALTH CARE NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. S&P HEALTH CARE SALES GROWTH (annual, percent) - Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 9. S&P HEALTH CARE PROFIT MARGIN (trailing -quarter EPS, percent) Operating Reported Q Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. 7 Page 1 / tember, / Strategist s Handbook

14 - S&P Industrials Figure 9. S&P INDUSTRIALS INDEX* day moving average * Ratio scale Figure 91. S&P INDUSTRIALS OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* 9 Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure 9. S&P INDUSTRIALS VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

15 Figure 93. S&P INDUSTRIALS NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure 9. S&P INDUSTRIALS SALES GROWTH (annual, percent) - S&P Industrials Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 9. S&P INDUSTRIALS PROFIT MARGIN (trailing -quarter EPS, percent) 9 Q 7 7 Operating Reported Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page 3 / tember, / Strategist s Handbook

16 - S&P Information Technology Figure 9. S&P INFORMATION TECHNOLOGY INDEX* day moving average * Ratio scale. Figure 97. S&P INFORMATION TECHNOLOGY OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure 9. S&P INFORMATION TECHNOLOGY VALUATION 3 3 P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

17 - S&P Information Technology Figure 99. S&P INFORMATION TECHNOLOGY NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. S&P INFORMATION TECHNOLOGY SALES GROWTH (annual, percent) Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 1. S&P INFORMATION TECHNOLOGY PROFIT MARGIN (trailing -quarter EPS, percent) Operating Reported Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Q Page / tember, / Strategist s Handbook

18 19 Figure. - S&P Materials - S&P MATERIALS INDEX* day moving average * Ratio scale Figure 3. S&P MATERIALS OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* 9 7 Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure. S&P MATERIALS VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

19 Figure. - S&P Materials - S&P MATERIALS NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure. S&P MATERIALS SALES GROWTH (annual, percent) Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 7. S&P MATERIALS PROFIT MARGIN (trailing -quarter EPS, percent) Operating Reported Q Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. 1 Page 7 / tember, / Strategist s Handbook

20 - S&P Telecommunication Services - Figure. S&P TELECOMMUNICATIONS SERVICES INDEX* day moving average * Ratio scale Figure 9. S&P TELECOMMUNICATIONS SERVICES OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure 1. S&P TELECOMMUNICATIONS SERVICES VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

21 - S&P Telecommunication Services Figure 111. S&P TELECOMMUNICATIONS SERVICES NET REVISIONS* (% estimates up less down) * Three-month moving average of -month forward consensus expected operating earnings per share using mid-month consensus forecast. Figure 1. S&P TELECOMMUNICATIONS SERVICES SALES GROWTH (annual, percent) - - Actual Analysts Consensus Forecast * Numbers above time line are annual growth rates. Figure 113. S&P TELECOMMUNICATIONS SERVICES PROFIT MARGIN (trailing -quarter EPS, percent) Q Operating Reported Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. - - Page 9 / tember, / Strategist s Handbook

22 Figure 1. - S&P Utilities - S&P UTILITIES INDEX* day moving average * Ratio scale. 7 Figure 1. S&P UTILITIES OPERATING EARNINGS PER SHARE (analysts average forecasts, ratio scale) Consensus Forecasts -month forward* Annual estimates * Time-weighted average of current and next year s consensus earnings estimates. Numbers above time line are annual growth rates. Figure 1. S&P UTILITIES VALUATION P/E* S&P P/E* * Price divided by -month forward consensus expected operating earnings per share using mid-month data. Sources for all charts: Standard & Poor s Corporation, Thomson Financial, and Haver Analytics. Page / tember, / Strategist s Handbook

23 Figure S&P Utilities - Figure 1. Figure 119. Page 1 / tember, / Strategist s Handbook

24 - Relative Earnings: S&P Sectors - Figure 1. S&P FORWARD EARNINGS* (1997=) Among these relatively stable earnings growers, Financials and Health Care stalled in late. Recently, Financials and Health Care are rising again. Consumer Staples forward earnings is back on uptrend since mid-3. While it is still less steep than S&P trend, it is also at record high S&P Index Consumer Staples Financials Health Care * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Figure 1. S&P FORWARD EARNINGS* (1997=) Of these two large consumer and business cyclicals, Consumer Discretionary appears to have peaked in and has been declining slightly in recent months. Tech is on a solid uptrend since 3, though it stalled for a few months last year and in April this year. Tech forward earnings at the highest level since early 1, but still % below the record high of late S&P Index Consumer Discretionary Information Technology * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial Page / tember, / Strategist s Handbook

25 It is starting to look like more than just a cyclical rebound in these three cyclicals, especially Energy. Forward earnings are at a record high in May for all three sectors. Materials rising at a slower pace in recent months. Industrials continue to rise steadily. Energy is soaring along with the price of a barrel of oil, which should stabilize around $-$ for awhile. - Relative Earnings: S&P Sectors Figure. S&P FORWARD EARNINGS* (1997=) S&P Index Energy Industrials Materials * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial Figure 3. S&P FORWARD EARNINGS* (1997=) These two beat-up sectors are making a comeback, maybe. Forward earnings for both sectors are still more than % below their record highs. Telecom stalled earlier this year but rose in May to the highest level since October 1. Utilities is crawling higher S&P Index Telecommunications Services Utilities * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 3 / tember, / Strategist s Handbook

26 - Relative Earnings: Consumer - The Autos spend lots of money on advertising. Their weak earnings could depress earnings of Publishing & Printing Figure. S&P FORWARD EARNINGS:* CONSUMER DISCRETIONARY (1997=) Consumer Discretionary Sector Advertising Automobile Manufacturers Auto Parts & Equipment Publishing & Printing * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. 7 Figure 1. S&P FORWARD EARNINGS:* CONSUMER DISCRETIONARY (1997=) 7 Entertainment and Hotels have good momentum. Restaurants do well when people go to the movies and to hotels, but have edged down in recent months Consumer Discretionary Sector Casinos & Gaming Movies & Entertainment Hotels, Resorts & Cruise Lines Restaurants * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page / tember, / Strategist s Handbook

27 - Relative Earnings: Consumer Figure. S&P FORWARD EARNINGS:* CONSUMER DISCRETIONARY (1997=) 3 3 These retailers are looking sluggish. 7 Consumer Discretionary Sector Apparel Retail Department Stores Specialty Stores * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Homebuilding is leading housing-related industries. However, Computers & Electronics retailers falling in recent months Figure 7. S&P FORWARD EARNINGS:* CONSUMER DISCRETIONARY (1997=) Consumer Discretionary Sector Computers & Electronics Retailers Home Improvement Retailers Homebuilding * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page / tember, / Strategist s Handbook

28 - Relative Earnings: Consumer - Figure. S&P FORWARD EARNINGS:* CONSUMER STAPLES (1997=) Household and Personal Products showing lots of earnings momentum. 17 Consumer Staples Sector Household Products Packaged Foods & Meats Personal Products * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Figure 9. S&P FORWARD EARNINGS:* CONSUMER STAPLES (1997=) Among drugs, cigarettes, and beer, Drug Retail has the best earnings slope. Brewers may be turning up again after declining since late. Tobacco earnings showing slow, but steady growth Consumer Staples Sector Brewers Drug Retail Soft Drinks Tobacco * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page / tember, / Strategist s Handbook

29 - Relative Earnings: Energy - Figure 1. S&P FORWARD EARNINGS:* ENERGY (1997=) Oil had been on fire both upstream and downstream. It is cooling a bit along with oil prices. Energy Sector Integrated Oil & Gas Oil & Gas Refining & Marketing * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. 7 Figure 131. S&P FORWARD EARNINGS:* ENERGY (1997=) 7 When oil prices are high, Exploration earnings jump, then the Drillers do well with more wells, and then the Equipment guys make money Energy Sector Oil & Gas Drilling Oil & Gas Equipment & Services Oil & Gas Exploration & Production * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 7 / tember, / Strategist s Handbook

30 - Relative Earnings: Financials Figure 13. S&P FORWARD EARNINGS:* FINANCIALS (1997=) 3 3 Consumer Finance earnings rising rapidly. Diversified Banks are growing earnings too, though at a slower pace. 7 Financial Sector Diversified Banks Regional Banks Investment Banking & Brokerage Consumer Finance Other Diversified Financial Services * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Multi-Line Insurance took a breather in April and May, but continues to lead this pack. Life & Health coming from behind at a good pace Figure 133. S&P FORWARD EARNINGS:* FINANCIALS (1997=) Financial Sector Insurance Brokers Life & Health Insurance Multi-Line Insurance Property & Casualty Insurance * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page / tember, / Strategist s Handbook

31 7 - Relative Earnings: Health Care - Figure 13. S&P FORWARD EARNINGS:* HEALTH CARE (1997=) 7 These three Health Care industries are the fast growers Health Care Biotechnology Health Care Equipment Managed Health Care Health Care Supplies * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Figure 13. S&P FORWARD EARNINGS:* HEALTH CARE (1997=) Pharmaceuticals are struggling recently, but Health Care Facilities may be turning around. 17 Health Care Health Care Facilities Pharmaceuticals Health Care Distributors & Services * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 9 / tember, / Strategist s Handbook

32 - Relative Earnings: Industrials - Industrial cyclicals remain on the upswing Figure 13. S&P FORWARD EARNINGS:* INDUSTRIALS (1997=) Industrials Sector Construction & Farm Machinery & Heavy Trucks Industrial Conglomerates Industrial Machinery * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. These Industrials are a bit more volatile, but are doing better for now. 17 Figure 137. S&P FORWARD EARNINGS:* INDUSTRIALS (1997=) Industrials Sector Aerospace & Defense Diversified Commercial Services Electrical Equipment * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 7 / tember, / Strategist s Handbook

33 - Relative Earnings: IT - Systems Software is breaking out of this pack. 3 Figure 13. S&P FORWARD EARNINGS:* INFORMATION TECHNOLOGY (1997=) Information Technology Sector Application Software Computer Hardware Data Processing/ Outsourcing Systems Software Telecom Equipment * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Semiconductor Equipment is among the most volatile of the cyclicals. 7 Figure 139. S&P FORWARD EARNINGS:* INFORMATION TECHNOLOGY (1997=) Information Technology Sector Semiconductors Semiconductor Equipment * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 71 / tember, / Strategist s Handbook

34 - Relative Earnings: Materials - Figure 1. S&P FORWARD EARNINGS:* MATERIALS (1997=) Steel continues to soar while Aluminum and Paper look toppy. 1 Materials Sector Aluminum Paper Products Steel * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Figure 1. S&P FORWARD EARNINGS:* MATERIALS (1997=) Diversified Chemicals are boiling. Specialty Chemicals are getting hotter too Materials Sector Diversified Chemicals Industrial Gases Specialty Chemicals * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus forecasts. Source: Thomson Financial. Page 7 / tember, / Strategist s Handbook

35 - Forward Earnings & Orders - Figure. S&P FORWARD EARNINGS & ORDERS 9/ S&P forward earnings is highly correlated with new factory orders. Both have recovered and are approaching long-term uptrends. 7 7 S&P Forward Earnings* (weekly) 3 3 Total New Factory Orders (billion dollars, saar) * -week forward consensus expected S&P operating earnings per share. Time-weighted average of current and next year s consensus earnings estimates. Monthly through April 199; weekly thereafter. Source: Thomson Financial and US Department of Commerce, Bureau of the Census. Figure 3. S&P FORWARD EARNINGS & SHIPMENTS: INFORMATION TECHNOLOGY 19 Tech shipments and earnings started recovering in 3 after being stuck in flat trends since 1. Both are still below peaks S&P Forward Earnings: Information Technology* Manufacturers Shipments: High Tech** (billion dollars, saar) * -month forward consensus expected operating earnings per share for the S&P Information Technology sector. ** Computers and electronic products, which include computers and related products, communications equipment, and semiconductors. Source: Thomson Financial and US Department of Commerce, Bureau of the Census. Page 73 / tember, / Strategist s Handbook

36 - Forward Earnings & Prices - 7 Figure. S&P ENERGY EARNINGS & OIL PRICE 3 3 Energy s forward earnings highly correlated with oil price. West Texas Intermediate Crude Oil Price (dollars per barrel, 13-week m.a.) S&P Forward Earnings: Energy* * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus earnings estimates. Source: Platt s "Oilgram Price Report" and Thomson Financial. 37 Figure. S&P FORWARD EARNINGS & PRICES: MATERIALS Materials forward earnings tend to move with industrial commodity prices. Both are on steep uptrends. 3 3 S&P Forward Earnings: Materials* CRB Raw Industrials Spot Price Index (weekly) 9/ * -month forward consensus expected operating earnings per share. Time-weighted average of current and next year s consensus earnings estimates. Source: Thomson Financial and Commodity Research Bureau. Page 7 / tember, / Strategist s Handbook

37 - Flow of Funds: U.S. Mutual Funds Figure. TOTAL EQUITY MUTUAL FUNDS* (monthly net inflows, billion dollars) GLOBAL & INTERNATIONAL GROWTH & INCOME SECTOR GROWTH EMERGING MARKETS AGGRESSIVE GROWTH REGIONAL * Total sales less redemptions plus the net result of fund switches in billions of dollars. Source: Investment Company Institute. Page 7 / tember, / Strategist s Handbook

38 - Flow of Funds: U.S. Mutual Funds - Figure 7. EQUITY MUTUAL FUNDS (cumulative gains since 199, billion dollars) Cumulative Flows Net Assets Net Inflows Capital Gains Cumulative capital gains in equity mutual funds since 199 fell to $1,73 billion in April after plunging to only $9 billion in tember from a $. trillion peak in Source: Investment Company Institute. Figure. EQUITY MUTUAL FUNDS* 1 - Gains and Inflows Equity Mutual Fund Assets (yearly change, billion dollars) Net Inflows Into Equity Mutual Funds (-month sum, billion dollars) * Figures reflect sales less redemptions, plus the net result of fund switches, plus reinvested dividends. Source: Investment Company Institute. Page 7 / tember, / Strategist s Handbook

39 Figure 9. INVESTORS INTELLIGENCE SENTIMENT INDEX FOR STOCKS Bulls-To-Bears Ratio S&P (as a percent of -day moving average) - Technical Indicators PHILADELPHIA STOCK EXCHANGE SEMICONDUCTOR INDEX (as a percent of its -day moving average) 9/ NYSE BREADTH* * Breadth is measured by subtracting the number of declines from the number of advances, and adding the result to that of the previous day. Source: Standard & Poor s Corporation, Investors Intelligence and Philadelphia Stock Exchange Page 77 / tember, / Strategist s Handbook

40 Figure 1. FEDERAL FUNDS RATE & S&P EARNINGS - U.S. Monetary Policy - 3 9/1 9/ S&P Forward Earnings* (yearly percent change) Federal Funds Rate Target (yearly change) FEDERAL FUNDS RATE & CAPACITY UTILIZATION Federal Funds Rate Target (yearly change) Capacity Utilization Rate: Total FEDERAL FUNDS RATE & ISM PRICE INDEX Federal Funds Rate Target (yearly change) ISM Price Index *-week forward consensus expected operating earnings per share. Monthly through March 199, weekly thereafter. Source: Board of Governors of the Federal Reserve System, Thomson Financial, and Institute for Supply Management. 9/1 Aug 9/ Page 7 / tember, / Strategist s Handbook

41 - Fed Funds Rate & S&P - Figure 1. T T T T T T T T T T During the inflation-challenged 19s, 197s, and 19s, S&P peaked eight months after the trough in the federal funds rate, on average. The market stalled for 11 months after the February 199 rate hike, but then soared over the rest of the decade. The late-1999 hike was followed by a crash. S&P INDEX (ratio scale) Aug T = Federal funds rate troughs. Source: Standard & Poor s Corporation. Figure. T T T T T T T T T T Market s trailing P/E often peaks either just before or just after the Fed starts to tighten. 3 TRAILING P/E RATIO FOR S&P * Q 3 9/ FORWARD P/E RATIO FOR S&P ** T = Federal funds rate troughs. * Using four-quarter trailing reported earnings. ** Using -week forward consensus expected operating earnings per share (mid-month data). Monthly through April 199, weekly thereafter. Source: Standard & Poor s Corporation and Thomson Financial. Page 79 / tember, / Strategist s Handbook

42 Figure 3. - Inflation - IMPLICIT PRICE DEFLATORS (yearly percent change) At.%, the GDP measure of inflation remains subdued. Prices are up.1% for nonfinancial corporations over the latest four-quarter period. GDP Nonfinancial Corporate Business Q Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics. Figure. GDP PRICE DEFLATORS (yearly percent change) In GDP, goods prices are flat while services remain on low inflation trend. Services Goods Q Q Source: US Department of Commerce, Bureau of Economic Analysis. Page / tember, / Strategist s Handbook

43 - Inflation - 7 Figure. CONSUMER PRICES (yearly percent change) 7 The core CPI inflation rate fell to.% over the past months, while the core PCED rate was relatively stable around 1.%. The CPI covers just urban workers, while the PCED covers all consumers. 3 Consumer Prices Excluding Food & Energy PCED* CPI 3 Aug * Personal consumption expenditures deflator. Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics. The PCED includes government-financed health care costs. The CPI does not. The gap between these two measures is huge Figure. CONSUMER PRICES (yearly percent change) Medical Care Services CPI PCED* Aug * Personal consumption expenditures deflator. Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics. Page 1 / tember, / Strategist s Handbook

44 Figure 7. PRICE DIFFUSION INDEXES: PHILADELPHIA REGION VS NATIONAL ISM Prices-Paid Philadephia Fed s Current Prices-Paid - Pricing Source: Institute for Supply Management (ISM) and Federal Reserve Bank of Philadelphia, Business Outlook Survey. Aug PRICE DIFFUSION INDEXES: PHILADELPHIA REGION Current Prices-Paid Current Prices-Received Source: Federal Reserve Bank of Philadelphia, Business Outlook Survey NFIB SURVEY (sa) Net Percent Planning to Raise Average Selling Prices Net Percent Raising Average Selling Prices Source: National Federation of Independent Business (NFIB). Aug - - Page / tember, / Strategist s Handbook

45 1 9 Figure. ISM MANUFACTURING INDEXES - ISM Indexes Aug 7 9 Composite Index Price Index ISM ORDERS VS PRODUCTION Aug Orders Production INVENTORIES VS DELIVERIES Aug Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Institute for Supply Management. Inventories Deliveries Page 3 / tember, / Strategist s Handbook

46 9 7 Figure 9. WAGE AND PRICE INFLATION (yearly percent change) - U.S. Consumers: Income - Average Hourly Earnings Personal Consumption Deflator MEASURES OF REAL PAY PER WORKER Real Wages & Salaries Per Payroll Employee (thousands dollars, sa) Real Average Hourly Earnings (dollars, sa) SOURCES OF REAL PERSONAL INCOME (yearly percent change) Payroll Employment Real Wages & Salaries Per Payroll Employment* * Using 3-month moving average. Source: U.S. Department of Commerce, Bureau of Economic Analysis, and U.S. Department of Labor, Bureau of Labor Statistics. Aug Aug Page / tember, / Strategist s Handbook

47 - U.S. Consumers: Confidence - 1 Figure CONSUMER SURVEYS Consumer Sentiment Index Consumer Confidence Index Aug PRESENT SITUATION Consumer Sentiment Index Consumer Confidence Index 1 Aug EXPECTATIONS Consumer Sentiment Index Consumer Confidence Index Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: The Conference Board and the University of Michigan Survey Research Center. Aug Page / tember, / Strategist s Handbook

48 Figure 1. - U.S. Consumers: Retail Sales - RETAIL & FOOD SERVICES SALES (yearly percent change in 3-month moving average) Aug Retail Sales & Food Services Retail Sales & Food Services Sales Ex Motor Vehicles & Parts Dealers Building Materials Electronics & Appliance Stores Furniture & Home Furnishings Plus Furniture Stores Department Stores Total Discount Conventional & National Chain Aug - - Aug Source: US Department of Commerce, Bureau of the Census. - Page / tember, / Strategist s Handbook

49 U.S. Consumers: Assets - Figure. ASSETS & NET WORTH OF HOUSEHOLDS (trillion dollars outstanding, ratio scale) Q Household assets and net worth rose to record highs of $9. trillion and $. trillion, respectively, during the fourth quarter of this year Assets Net Worth Source: Federal Reserve Board Flow of Funds Accounts... Figure 3. ASSETS OF HOUSEHOLDS (trillion dollars outstanding).. U.S. households have relatively diversified portfolios of assets Corporate Equities: Directly Held Owners Equity in Household Real Estate Mutual Fund Shares Pension Fund Reserves Q Source: Federal Reserve Board Flow of Funds Accounts. Page 7 / tember, / Strategist s Handbook

50 Consumers are very liquid. Their debt is at a record high relative to their disposable personal incomes (DPI). However, their liquid assets are at an even greater record relative to their DPI. 3 Figure. - U.S. Consumers: Debt - MEASURES OF CONSUMER LIQUIDITY (as a percent of disposable personal income) Saving Deposits Plus Retail Money Market Mutual Funds Consumer Credit Plus Home Equity Loans, and Auto Loans & Leases Consumer Credit Plus Home Equity Loans Consumer Credit Source: Board of Governors of the Federal Reserve System Figure. HOUSEHOLD MORTGAGE DEBT (as a percent of total liabilities) Q 7 71 Over 7% of household debt is mortgages Source: Federal Reserve Board Flow of Funds Accounts. Page / tember, / Strategist s Handbook

51 During the fourth quarter of, household real estate was worth $17.1 trillion, with equity of $9. trillion and mortgage debt of $7. trillion. Owners equity increased to.1% during the fourth quarter U.S. Consumers: Real Estate - Figure. REAL ESTATE (trillion dollars, not seasonally adjusted) OWNERS EQUITY (as a percent of household real estate) Owners Equity in Household Real Estate Home Mortgages* Q Q * Includes home equity loans and second mortgages. Source: Federal Reserve Board Flow of Funds Accounts. Figure 7. EXISTING HOME PRICES (yearly percent change in -month average) Aug Home prices are rising between % and %. Median Price Average Price Source: National Association of Realtors. Page 9 / tember, / Strategist s Handbook

52 3. - U.S. Consumers: Real Estate - Figure. MARKET VALUE OWNER-OCCUPIED HOUSEHOLD REAL ESTATE 3.. Q. Real estate values have risen faster than disposable income over the past two decades as mortgage rates fell.... As a ratio of disposable personal income excluding personal current transfer payments and other labor income.... Q As a ratio of disposable personal income Source: Federal Reserve Board Flow of Funds Accounts and US Department of Commerce, Bureau of Economic Analysis Figure 9. HOME MORTGAGES OUTSTANDING* Q The ratio of home mortgages to disposable income is at a record high Q As a ratio of disposable personal income excluding personal current transfer payments and other labor income As a ratio of disposable personal income * Includes home equity loans and second mortgages. Source: Federal Reserve Board Flow of Funds Accounts and US Department of Commerce, Bureau of Economic Analysis. Page 9 / tember, / Strategist s Handbook

53 Figure U.S. Capital Spending - S&P EARNINGS & REAL CAPITAL SPENDING (yearly percent change) Growth rates of real capital spending and profits are highly correlated. 9/ Q S&P Forward Earnings* (weekly) Real Capital Spending** * -week forward consensus expected operating earnings. Monthly through March 199, weekly thereafter. Time-weighted average of current and next year s consensus earnings estimates. ** Nonresidential fixed investment including producers durable equipment and structures. Source: US Department of Commerce, Bureau of Economic Analysis, and Thomson Financial. Figure 171. REAL CAPITAL SPENDING IN GDP (yearly percent change) Cyclical recovery in capital spending has been led by outlays on high tech. Q Real Total Capital Spending Real High-Tech Capital Spending* Real Capital Spending Ex High-Tech * Includes computers and peripheral equipment, software, and communications equipment purchased by businesses. Source: US Department of Commerce, Bureau of Economic Analysis. Page 91 / tember, / Strategist s Handbook

54 Figure CIO Poll - CIO TECH POLL: FUTURE & CURRENT GROWTH RATES During May, CIOs planned to increase their IT spending by.% over the next months, down from 7.9% in April. 1 9 IT Budget Growth Rates Current (last months) Future (next months) 1 9 Aug Source: CIO Magazine Tech Poll. -3 Figure 173. CIO TECH POLL: FUTURE IT SPENDING PLANS ON EIGHT UNIQUE CATEGORIES* (percent of respondents planning to increase spending over next months) In May, 39.% of CIOs planned to increase future IT spending on eight unique categories. That s down from April s 3.3% reading. Aug Source: CIO Magazine Tech Poll. 3 Page 9 / tember, / Strategist s Handbook

55 - Semiconductor Sales - Figure 17. SEMICONDUCTOR SALES & EARNINGS Worldwide Sales (billions of U.S. dollars, saar) Forward Earnings* SEMICONDUCTOR SALES (billions of U.S. dollars, saar) Americas 7 Europe SEMICONDUCTOR SALES (billions of U.S. dollars, saar) 1 Asian Pacific Japan * -month forward consensus expected operating earnings per share for the S&P semiconductors industry. Earnings data from 199 forward are based on the new Global Industry Classification Standard. Source: Semiconductor Industry Association. Page 93 / tember, / Strategist s Handbook

56 Figure 17. UNITED STATES Dow Jones Industrials Global Stocks: Americas - ARGENTINA Merval CANADA Toronto CHILE IGPA General MEXICO Bolsa VENEZUELA IBC BRAZIL Bovespa PERU Lima day moving average. Source: Reuters America, Inc. Page 9 / tember, / Strategist s Handbook

57 - Global Stocks: Europe - 7 Figure 17. EUROPE Dow Jones Stoxx (euro-based) ITALY Mibtel General UNITED KINGDOM FTSE NETHERLANDS Amsterdam GERMANY DAX SWEDEN AffarsvardnGen FRANCE CAC SWITZERLAND SMI day moving average. Source: Reuters America, Inc. Page 9 / tember, / Strategist s Handbook

58 - Global Stocks: Asia - Figure 177. JAPAN Nikkei 9/ MALAYSIA Kuala Lumpur SOUTH KOREA Kospi SINGAPORE Straits Times HONG KONG Hang Seng THAILAND Bangkok TAIWAN TWSE AUSTRALIA All Ordinaries day moving average. Source: Reuters America, Inc. Page 9 / tember, / Strategist s Handbook

59 - Global Earnings Figure 17. FORWARD EARNINGS* (local currencies) 7 37 US S&P Germany DAX Canada TSE France CAC UK FT * EPS are -month forward consensus expected operating earnings per share. Source: Thomson Financial Japan TOPIX Page 97 / tember, / Strategist s Handbook

60 - G7 Industrial Production Figure 179. UNITED STATES (1997=) Aug UNITED KINGDOM (=) CANADA (1997=) Jun GERMANY (=) JAPAN (=) FRANCE (=) Jun EUROZONE (=) ITALY (=) Source: Haver Analytics. Page 9 / tember, / Strategist s Handbook

61 - Global Money Supply - Figure 1. MONEY SUPPLY (yearly percent change) United States: M3 Aug United States: M EUROPE Euro Zone : M3 United Kingdom: M Aug JAPAN M Plus CDs Aug 1 CHINA M Source: Haver Analytics. Page 99 / tember, / Strategist s Handbook

62 - China: Exports & Imports Figure 1. CHINA MERCHANDISE TRADE: SELECTED CATEGORIES* (3-month sum, billion dollars, saar) Aug TELECOMMUNICATION & SOUND RECORDING EQUIPMENT Aug Exports Imports MACHINERY & TRANSPORT EQUIPMENT Aug PROFESSIONAL & SCIENTIFIC INSTRUMENTS & APPARATUS Aug ELECTRICAL MACHINERY, APPARATUS, & APPLIANCES IRON & STEEL 3 Aug Aug * Excluding Hong Kong. Source: China Customs/Haver Analytics. Page / tember, / Strategist s Handbook

63 - Commodity Price Indexes Figure. CRB FUTURES PRICE INDEX (197=) / Industrial commodity prices confirm Global Synchronized Boom is still underway Source: Commodity Research Bureau. Figure 3. CRB SPOT PRICE INDEXES (weekly, 197=) / Raw Industrials* Metals** * Includes copper scrap, lead scrap, steel scrap, tin, zinc, burlap, cotton, print cloth, wool tops, hides, rosin, rubber, and tallow. ** Includes copper scrap, lead scrap, steel scrap, tin, and zinc. Source: Commodity Research Bureau. Page 1 / tember, / Strategist s Handbook

64 Figure. CRB FUTURES PRICE: LIGHT CRUDE OIL* (weekly, dollars per barrel) Avg = $19. -day moving average -3 Avg = $ GASOLINE PUMP PRICE** (weekly, dollars per gallon) Total Ex Tax CRB FUTURES PRICE: HEATING OIL* (daily, cents per gallon) CRB FUTURES PRICE: NATURAL GAS* (daily, dollars per million BTU) - Energy Prices - -day moving average * Nearby contract, closing price. ** National average. Source: Standard & Poor s Comstock, Oil & Gas Journal, and New York Mercantile Exchange. 9/ 9/ Page / tember, / Strategist s Handbook