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1 Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: Global Equity Risk Premia Monday, June 18, 2018 Global leader-board: by equity risk premium, value, and growth Best Worst Rank Equity risk premium Forward PE ratio Fwd earnings upgrade rate Fwd sales upgrade rate By SD from crisis era mean Trailing 90 days, AR Trailing 90 days, AR By country By country By country By country 1 Turkey: Istanbul Russia: MICEX 5.8 Netherlands: AEX +3 Indonesia:JCI +9 2 Brazil: Bovespa Turkey: Istanbul 6.3 Italy: MIB +30% Netherlands: AEX +39% 3 Korea: KOSPI Korea: KOSPI 9.0 UK: FTSE +2 Russia: MICEX +3 4 Spain: IBEX Brazil: Bovespa 10.0 Russia: MICEX +2 UK: FTSE +2 5 Italy: MIB China: Shanghai SE 11.2 France: CAC +2 Turkey: Istanbul +21% 6 Japan: Nikkei HK: Hang Seng 11.3 Canada:TSX +21% India: SENSEX +19% 7 Russia: MICEX Italy: MIB 11.3 India: SENSEX +1 Brazil: Bovespa +1 8 Australia: ASE Spain: IBEX 12.3 Brazil: Bovespa +1 France: CAC +1 9 Germany: DAX Germany: DAX 12.9 US: S&P Spain: IBEX Taiwan:TWSA UK: FTSE 13.4 Turkey: Istanbul +1 Australia: ASE China: Shanghai SE Taiwan:TWSA 13.9 Spain: IBEX +1 China: Shanghai SE Indonesia:JCI France: CAC 14.1 Australia: ASE +1 Germany: DAX +11% 13 France: CAC Indonesia:JCI 14.7 Germany: DAX +1 US: S&P UK: FTSE Netherlands: AEX 14.7 Japan: Nikkei +11% Korea: KOSPI + 15 HK: Hang Seng Canada:TSX 15.0 Indonesia:JCI + Taiwan:TWSA + 16 Canada:TSX Australia: ASE 15.4 Korea: KOSPI +9% Japan: Nikkei + 17 Netherlands: AEX Japan: Nikkei 16.0 HK: Hang Seng +9% Canada:TSX -0% 18 US: S&P US: S&P Taiwan:TWSA +9% Italy: MIB - 19 India: SENSEX India: SENSEX 18.2 China: Shanghai SE + HK: Hang Seng -1 US, by style US, by style US, by style US, by style 1 S&P Midcap S&P 500 Value 14.1 S&P Smallcap +4 S&P Smallcap +7 2 S&P Smallcap S&P S&P Midcap +2 S&P 500 Growth +1 3 S&P 500 Value S&P Midcap 17.4 S&P 500 Growth +1 S&P S&P S&P Smallcap 18.7 S&P S&P 500 Value + 5 S&P 500 Growth S&P 500 Growth 19.6 S&P 500 Value +1 S&P Midcap + US, by sector US, by sector US, by sector US, by sector 1 Telecom Telecom 10.3 Energy +101% Health Care +4 2 Financial Financial 12.6 Materials +2 Materials +3 3 Consumer Stap Health Care 15.5 Info Tech +19% Energy +1 4 Materials Utilities 15.8 Industrial +1 Info Tech +1 5 Utilities Materials 15.8 Consumer Disc +1 Industrial +11% 6 Industrial Industrial 16.5 Health Care +1 Consumer Disc + 7 Health Care Consumer Stap 17.2 Financial + Financial + 8 Energy Energy 17.6 Utilities + Utilities - 9 Consumer Disc Info Tech 18.4 Telecom - Telecom -9% 10 Info Tech Consumer Disc 20.4 Consumer Stap - Consumer Stap -3 Copyright 2018 Trend Macrolytics LLC. All rights reserved. This document is not to be forwarded to individuals or organizations not authorized by Trend Macrolytics LLC to receive it. For information purposes only; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources deemed to be reliable, but no warranty is made as to accuracy.

2 Equity risk premium: forward earnings yield minus bond yield, July 2007 to current Standard deviations from crisis-era mean First, High, Low, Last US by style (vs 30y Treasury) US by S&P 500 sector Canada, Europe (vs 10y gov) Pacific/EM (vs 10y gov) S&P Consumer Disc -0.7 Canada TSX Japan: Nikkei 0.6 S&P 500 (vs 10Y) Consumer Stap 0.13 UK: FTSE 0.18 Australia: ASE 0.39 S&P 500 (vs. Corp) -0.4 Energy -0.4 Germany: DAX 0.37 China: Shanghai SE 0.23 S&P 500 Growth Financial 0.28 France: CAC 0.21 Hong Kong: Hang Seng S&P 500 Value Health Care Netherlands: AEX Korea: KOSPI 1.1 S&P Midcap 0.08 Industrial Italy: MIB 0.67 Taiwan: TWSE 0.32 S&P Smallcap 0.02 Info Tech Spain: IBEX 0.79 Indonesia: JCI 0.22 Snapple-0.53 Materials 0.06 EABank: STOXX FR10Y 0.57 India: SENSEX Brazil: Bovespa (v. 3yr) 1.23 Turkey: Istanbul (v 7yr) 1.73 Russia: MICEX

3 EPS: forward consensus, bottom-up, July 2007 to current First, High, Low, Last US by style US by S&P 500 sector Canada, Europe Pacific/EM S&P 500 Consumer Discretionary Canada: TSX Japan: Nikkei Consumer Staples UK: FTSE Australia: ASE Energy Germany: DAX China: Shanghai SE S&P 500 Growth Financial France: CAC Hong Kong: Hang Seng S&P 500 Value Health Care Netherlands: AEX Korea: KOSPI S&P Midcap Industrial Italy: MIB Taiwan: TWSE S&P Smallcap Information Technology Spain: IBEX Indonesia: JCI Snapple Materials EA Banks: STOXX India: SENSEX Brazil: Bovespa Turkey: Istanbul Russia: MICEX 3

4 P/E ratio: forward consensus, bottom-up, July 2007 to current First, High, Low, Last US by style US by S&P 500 sector Canada, Europe Pacific/EM S&P 500 Consumer Discretionary Canada: TSX Japan: Nikkei Consumer Staples UK: FTSE Australia: ASE Energy Germany: DAX China: Shanghai SE S&P 500 Growth Financial France: CAC Hong Kong: Hang Seng S&P 500 Value Health Care Netherlands: AEX Korea: KOSPI S&P Midcap Industrial Italy: MIB Taiwan: TWSE S&P Smallcap Information Technology Spain: IBEX Indonesia: JCI Snapple Materials EA Banks: STOXX India: SENSEX Brazil: Bovespa Turkey: Istanbul Russia: MICEX 4

5 Benchmark bond yields, July 2007 to current First, High, Low, Last US Canada, Europe Pacific/EM 30-year Treasury Canada 10-year govt Japan: 10-year govt 10-year Treasury UK: 10-year govt Australia: 10-year govt Moody's Corporate Avg Germany: 10-year govt China: 10-year govt France: 10-year govt Hong Kong: 10-year govt Netherlands: 10-year govt Korea: 10-year govt Italy: 10-year govt Taiwan: 10-year govt Spain: 10-year govt Indonesia: 10-year govt India: 10-year govt Brazil: 3-year govt Turkey: 7-year govt Russia: 10-year govt 5

6 Daily S&P 500 equity risk premium in the crisis era Draghi "whatever it takes", July 2012 Equity risk premium 2.9 Crisis-era mean 3.7 Aftermath mean 3.09% Ebola 10/15/ Oil $26 RMB devalue2/11/2016 Brexit 8/24/ % 6/27/ % 3.8 China tariffs 4/2/ % JPM margin call on Bear Stearns, July 2007 Versus 30-year Treasury Post-crisis tight 3/13/ % Source: Bloomberg, NBER, TrendMacro calculations A century-plus of the monthly S&P 500 equity risk premium 1 Yield-cap era Jun 27, 2016 Feb Aug Oct S&P 500 Equity Risk Premium Oct Apr Decade mean 10-year moving average Jun MA from 1900 Mar Crisis mean BushObama years Pre-crisis mean March 13, % QE era ReaganClinton years JohnsonNixonCarter years Versus 30-year Treasury Source: Various, TrendMacro calculations 6

7 Close-up: Global equity risk premia in the crisis, and its aftermath July-to-July range (left panel), daily from July 2013 (right panel) 9% 1% 11% 9% Draghi "whatever it takes", July 2012 JPM margin call on Bear Stearns, July 2007 '07 '08 '10 '11 '12 Equity risk premium 6.20% Crisis-era mean 5.1 Aftermath mean 5.70% Japan Nikkei 225 Equity risk premium 6.1 Crisis era mean Aftermath mean 5.30% UK FTSE Equity risk premium 7.3 Crisis-era mean 6.8 Aftermath mean 7.1 Germany DAX 7

8 Close-up: Global equity risk premia in the crisis, and its aftermath July-to-July range (left panel), daily form July 2013 (right panel) 9% 1% Draghi "whatever it takes", July 2012 JPM margin call on Bear Stearns, July 2007 Equity risk premium 4.4 Crisis-era mean 4.5 Aftermath mean 4.5 Canada TSE China Shanghai 0% % 9% '07 '08 '10 '11 '12 Equity risk premium 5.29% Crisis era mean Aftermath mean 5.30% Equity risk premium 6.2 Crisis-era mean 5.5 Aftermath mean 5.21% Italy MIB 8