TAKING EXCEPTION TO THE LONGEST BULL MARKET STORY

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1 Technical Strategy Daily Report Wednesday, August 22, 2018 Strategas Technical Strategy Team Chris Verrone, CMT (212) Todd Sohn, CMT (646) Thomas DiFazio (646) TAKING EXCEPTION TO THE LONGEST BULL MARKET STORY 54% 72% S&P & 200-Day MA % of Stocks Down -20% 63% Both 2011 and 2015 saw deep drawdowns for individual stocks. We believe both periods were bear markets given the bulk of stocks were down -20%. The most popular headlines we have seen over recent days are celebrating the current bull market as the longest in history. We take exception to this idea. Both 2011 and 2015 saw deep drawdowns at the individual stock level with over 70% of issues down -20% during the former and 63% during the latter. The Russell 2000 index was cut by roughly -30% in 2011, -27% in 2015, and also it s important to note that global equities endured severe drawdowns too (e.g. DAX down -30%, E.M. down -38%). Ultimately, while the S&P may have not reached the -20% threshold during these examples, in many cases the bar was reset around the globe. It s also worth considering the relative standing of an asset class when measuring bull markets. The S&P 500 did not decisively breakout relative to Bonds until late By that measurement, the current bull market is barely 2 years old. As for yesterday s action, Small-Caps decisively broke out to fresh highs and the Industrials continue to assume leadership. We also have our eye on the Banks for signs of reacceleration. They re still a timely long to us. Please See Appendix for Important Disclosures

2 SMALL-CAPS HAVE SEEN 2 MAJOR CORRECTIONS RECENTLY Russell & 200-Day MA Down roughly -30% in 2011 and -27% in 2015, the correction in Small-Caps certainly reset the bar. 2

3 GLOBAL EQUITY MARKET BAR WAS ALSO RESET % Drawdown from mid-2014 to mid-2016 Shanghai Composite -49% Portugal PSI20-46% Brazil BOVESPA -41% Emerging Markets -38% Italy FTSE MIB -38% Spain IBEX -36% Hong Kong Hang Seng -36% Germany DAX -30% Japan Nikkei -29% Singapore STI -29% Taiwan TWSE -28% Sweden OMX -28% EuroStoxx % Canada TSX -27% France CAC -26% Netherlands AEX -26% India SENSEX -25% U.K. FTSE -23% Swiss Market Index -22% Australia ASX % Korea KOSPI -18% It s important to recognize that a majority of global equity markets endured severe drawdowns from mid-2014 to mid The bar was reset. 3

4 1990 CORRECTION SAW 80% OF STOCKS DROP -20% S&P to & 200-Day MA 79% % of Stocks Down -20% The 1990 correction saw 80% of stocks drop -20%, though the index did not hit the typical threshold. This still seems like a bear market to us. 4

5 ALTERNATIVE VIEW NEW BULL CYCLE STARTED IN 2013 S&P 500 Since 1927 Breakout to new highs: April 2013 Breakout to new highs: September 1954 Breakout to new highs: November 1982 As an alternative, we can measure the length of bull markets by when equities breakout to new all-time highs. By this method, the current secular breakout did not occur until April

6 STOCKS DIDN T BREAKOUT RELATIVE TO BONDS UNTIL 2016 S&P & 200-Day MA S&P 500 Relative to Treasury Bonds (TLT) Another important distinction we should consider. Equities did not breakout on a relative basis to Bonds until late By this measure, the current bull market is barely 2 years old! 6

7 STOCKS VS. GOLD ALSO A HELPFUL CYCLE INDICATOR S&P 500 Since 1974 S&P 500 Relative to Gold Equities outperforming Gold is another important input in determining the strength of a secular bull market. So far, so good. 7

8 S&P NOW VS. JANUARY HIGHS S&P Day MA With the S&P back to the January highs, it s worth noting that the index is just 5% above the 200-day moving average. The reading at the prior highs was roughly 14% which is in the 95 th percentile of historical readings. The punchline: there s room to run here. % Above / Below 200-Day Average 95th Percentile 5 th Percentile 8

9 INDUSTRIALS LEADERSHIP IMPROVING S&P Industrials Sector Equal-Weight 50 & 200-Day MA Industrials Relative to S&P 500 Equal-Weight 65-Day High Line Continued improvement from the average Industrial stock is a positive. 9

10 BANKS NEXT TO MOVE? KBW Bank Index 50 & 200-Day MA Subtle signs of acceleration for the bellwether Banks. They remain a timely long here. KBW Regional Bank Index 50 & 200-Day MA Regional Banks are also showing signs of reaccelerating. 10

11 ATTRACTIVE REGIONAL BANKS 11

12 AMEX BREAKING OUT 12

13 EQUIPMENT BELLWETHER BREAKOUT 13

14 EMERSON ACTS WELL 14

15 APPENDIX IMPORTANT DISCLOSURES This communication was prepared by Strategas Securities, LLC ( we or us ) and is intended for institutional investors only. Recipients of this communication may not distribute it to others without our express prior consent. This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security. This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. The intended recipients of this communication are presumed to be capable of conducting their own analysis, risk evaluation, and decision-making regarding their investments. For investors subject to MiFID II (European Directive 2014/65/EU and related Delegated Directives): We classify the intended recipients of this communication as professional clients or eligible counterparties with the meaning of MiFID II and the rules of the UK Financial Conduct Authority. The contents of this report are not provided on an independent basis and are not investment advice or personal recommendations within the meaning of MiFID II and the rules of the UK Financial Conduct Authority. The information in this communication has been obtained from sources we consider to be reliable, but we cannot guarantee its accuracy. The information is current only as of the date of this communication and we do not undertake to update or revise such information following such date. To the extent that any securities or their issuers are included in this communication, we do not undertake to provide any information about such securities or their issuers in the future. We do not follow, cover or provide any fundamental or technical analyses, investment ratings, price targets, financial models or other guidance on any particular securities or companies. Further, to the extent that any securities or their issuers are included in this communication, each person responsible for the content included in this communication certifies that any views expressed with respect to such securities or their issuers accurately reflect his or her personal views about the same and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this communication. This communication is provided on a where is, as is basis, and we expressly disclaim any liability for any losses or other consequences of any person s use of or reliance on the information contained in this communication. Strategas Securities, LLC is affiliated with Robert W. Baird & Co. Incorporated ( Baird ), a broker-dealer and FINRA member firm, although the two firms conduct separate and distinct businesses. A complete listing of all applicable disclosures pertaining to Baird with respect to any individual companies mentioned in this communication can be accessed at You can also call or write: Robert W. Baird & Co., PWM Research & Analytics, 777 E. Wisconsin Avenue, Milwaukee, WI