Download For Every Action There is an Equal and

“For Every Action There is an Equal and
Opposite Reaction” –Sir Isaac Newton’s Third Law
September 2009
Liz Ann Sonders
Senior Vice President, Chief Investment Strategist
Charles Schwab & Co., Inc.
1
(2009-7530)
The Case for Pessimism (aka the “Obvious” Case)
• Debt levels for both private and public sector are stratospheric with public
sector still leveraging and private sector just beginning to deleverage
• Banking sector healing but far from normal while shadow banking system still
very sick
• Massive pressures on consumer with record hit to net worth
• Residential real estate may be bottoming, but commercial real estate still
weak and foreclosures/mortgage reset problems still ahead
• Budget deficit (federal, state and local) outlook horrendous
• Deflation and inflation both big risks
• Some anti-growth government initiatives (taxes, protectionism, interference in
contracts/compensation)
• Unemployment rate remains elevated, not to mention hoards of disaffected
workers
• Weak U.S. dollar
2
(2009-7530)
The Case for Optimism (aka the “Contrarian/Intriguing” Case)
• Global stimulus, especially monetary, unprecedented
• Stocks telling bullish economic story
• Record low inventories; compressed industrial production/capacity utilization;
record job losses (coiled spring for production/employment)
• Pent-up demand building (consumer & business)
• Housing has likely bottomed
• Many foreign economies recovering sharply, driving global industrial production
surge
• U.S. export growth up sharply
• GDP can advance sharply even without consumer: trade, housing, autos,
inventories and government spending
• Credit markets back to pre-Lehman levels
• Easing credit standards lead consumer/capital spending
3
(2009-7530)
The Case for Optimism (continued)
• Steep yield curve portends expansion
• Consensus remains skeptical at best
• Corporate profits up nearly 30% in 1H09: record for recession
• Employment declines moderating; layoff announcements at new cycle low
• Household net worth now rising
• Inflation is extremely tame
4
(2009-7530)
U.S. Economy Off the Bottom in Classic “V”
ISI U.S. Economy Diffusion Index
But Will it Be a “Square Root” Recovery?
5
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
As of 9/09. 13-week average. Diffusion Index represents economic strength minus weakness. Source: ISI Group.
(2009-7530)
When Will We Know the Recession’s Officially Over?
NBER Always Late to Declare Beginnings and Ends
The “Miss”
The “Miss”
Recession
Date
NBER’s Announcement
Date of Recession
Start Date
Lag
NBER’s Announcement
Date of Recession
End Date
Lag
1/80-7/80
6/3/80
5 months
7/8/81
12 months
7/81-11/82
1/6/82
6 months
7/8/83
8 months
7/90-3/91
4/25/91
9 months
12/22/92
21 months
3/01-11/01
11/26/01
8 months
7/17/03
20 months
12/07-?
12/1/08
12 months
??
??
Average
6
8 months
15 months
See last slide for definition of recession. Source: National Bureau of Economic Research (NBER).
(2009-7530)
AN UNPRECEDENTED FINANCIAL CRISIS
UNLEASHES LONGER-TERM STORY:
PRIVATE SECTOR DELEVERAGING …
PUBLIC SECTOR LEVERAGING
7
(2009-7530)
Debt Became Massive GDP-Driver
$6 of Debt to Produce $1 of GDP…Not Sustainable
Diminishing Returns from Debt-Financing by Decade
Date Range
Decade Change in Debt
($, billions)
Decade Change in GDP
($, billions)
Debt/GDP
12/31/49-12/31/59
337.6
248.0
1.36
12/31/59-12/31/69
752.1
491.3
1.53
12/31/69-12/31/79
2,785.2
1,654.9
1.68
12/31/79-12/31/89
8,563.7
2,922.3
2.93
12/31/89-12/31/99
12,562.6
4,026.0
3.12
12/31/99-3/31/09
27,501.2
4,570.3
6.02
8 Source: Ned Davis Research, Inc.
(2009-7530)
Public Sector Takes Borrowing Lead
While Fed Picks Up Foreigners’ Lending Slack
Total U.S. Borrowing ($, billions)
Private Sector
Public Sector
2,500
Borrowing
2,000
1,500
1,000
500
0
-500
1968
1972
1976
1980
1984
1988
Foreign
1992
1996
2000
2004
2008
Federal Reserve
Total Lending ($, billions)
1,250
750
500
250
0
-250
-500
1968
9
Lending
1,000
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
As of 1Q09. Four-quarter moving average applied to data. Source: FactSet, Federal Reserve, MacroMavens.
(2009-7530)
Public Debt to Double as % of GDP
Debt Held by Public as % of GDP
Doesn’t Consider Social Security or Medicare
90
Actual
80
Projected
70
60
50
40
30
20
1965
1971
1977
1983
1989
1995
2001
2007
2013
2019
10 As of 4/14/09. Projected numbers under President Obama’s proposed budget. Source: Congressional Budget Office (CBO).
(2009-7530)
Decades Low Public-Sector Debt-Service Costs
Government Interest Payments
as % of Current Government Receipts
Thanks to Record-Low Interest Rates
18
16
14
12
10
8
6
4
1947
1957
1967
1977
1987
1997
2007
11 As of 2Q09. Source: Bureau of Economic Analysis, FactSet.
(2009-7530)
Household Debt Contracting Massively
Household Net Increase in Liabilities
Savings Rate is Big Beneficiary, But Not GDP
1,600
Change in Liabilities
1,200
800
400
0
-400
-800
-1,200
-1,600
1959
1969
1979
1989
1999
2009
16
Personal Savings Rate
Savings Rate
12
8
4
0
1959
12
1969
1979
1989
1999
2009
Consumer net increase in liabilities as of 1Q09. Personal savings rate as of 7/09. Source: Bureau of Economic Analysis, FactSet, Federal
Reserve.
(2009-7530)
Savings Rate Will Go Higher…
…If Households Want to Get Serious About Debt
Personal Savings Rate
(90-day moving average)
12
120
10
8
100
6
80
4
60
2
0
1959
1969
1979
1989
Household Debt as % of
Disposable Personal Income
140
14
40
2009
1999
13 Personal savings rate as of 7/09. Household debt as of 1Q09. Source: Bureau of Economic Analysis, FactSet, Federal Reserve.
(2009-7530)
Foreigners to Flee Falling U.S. Dollar?
No Economic Incentive to Dump Dollars
180
US $ Index
U.S. Dollar Index
160
140
120
100
80
Net Foreign Purchases of U.S.
Treasury Bonds & Notes ($, billions)
60
1984
14
1989
1994
1999
2004
2009
500
Treasury Purchases
400
300
200
100
0
-100
1984
1989
1994
1999
2004
2009
U.S. Dollar Index as of 9/4/09. Net Foreign purchases based on 12-month sum and as of 6/09. Source: FactSet, NYBOT (New York
Board of Trade), U.S. Department of Treasury.
(2009-7530)
LEADING INDICATORS SAY RECESSION IS OVER
15
(2009-7530)
Leading Indicators Generate Expansion Signal!
Leading Economic Index (y/y % chg)
Back Into Positive Territory
15
10
5
0
-5
-10
-15
1960
1967
1974
1981
Strong/Stable and Improving
- vendor performance
- stocks
- money supply
- interest rate spread
1988
1995
2002
2009
Still Weak But Stable/Improving
- average workweek
- unemployment claims
- new orders – consumer
- new orders – capital goods
- building permits
Recent Weakness: consumer expectations
16
As of 7/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: The Conference Board,
FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
Initial Unemployment Claims Down Sharply (But Stalling)
Historically, All Recessions Were Over at This Point
Initial Unemployment Claims
(4-week average)
700
600
-80K
-14K
-70K
500
-88K
0
-36K
400
-19K
300
200
100
1967
1974
1981
1988
1995
2002
2009
of 8/28/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Department of Labor,
17 As
FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
Steep Yield Curve Forecasting Recovery
Inversion Accurately Forecasted Recession
10-Year Treasury Yield minus
3-Month Treasury Yield
6
4
2
0
-2
-4
1968
1973
1978
1983
1988
1993
1998
2003
2008
1/5/1968-9/4/2009
10Y/3M T-Bill Spread
S&P 500 Annualized Gain
>0.6
9.3%
<0.6
-3.3%
As of 9/4/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Federal Reserve, FactSet,
18 National Bureau of Economic Research (NBER), Ned Davis Research, Inc.
(2009-7530)
Consumers’ Stresses Easing
Lower Inflation and Higher Stock Prices Helping
Consumer Stress Index
20%
10%
0%
-10%
-20%
-30%
1978
1983
1988
1993
1998
2003
2008
“Consumer Stress Index” = average year-over-year %
change of S&P 500 Index, non-farm payrolls, real DPI,
median home price; and inverse of oil price, medical care
inflation, household liabilities and CRB Foodstuffs Index.
As of 9/8/09. DPI represents disposable personal income. Median home price component based on new and existing single-family homes.
19 Medical care component taken from Consumer Price Index. Green-shaded areas indicate periods of recession. See last slide for definition
of recession. Source: FactSet., National Bureau of Economic Research (NBER).
(2009-7530)
Credit Conditions Improving
Erased Post-Lehman Shock
Bloomberg U.S. Financial
Conditions Index
2
Lehm an
Shock
0
-2
-4
-6
-8
-10
-12
2007
2008
2009
The BFCI combines yield spreads and indices from the short-term debt
markets, equity markets and bond markets into a single normalized index.
As of 9/8/09. Y-axis values are z-scores which represent the number of standard deviations that current financial conditions lie above or
20 below the average of the past 16 years (1992-2008). Source: Bloomberg.
(2009-7530)
Consumer Loans More Accessible
Leads Consumer Spending
Banks' Willingness to Make
Consumer Installment Loans
60
8
40
6
20
0
4
-20
2
-40
0
-60
-2
-80
-100
1968
Real Consumer Spending
(y/y % change)
10
80
-4
1973
1978
1983
1988
1993
1998
2003
2008
21 Banks’ willingness to make consumer installment loans as of 8/09. Real consumer spending as of 2Q09. Green-shaded areas indicate
periods of recession. See last slide for definition of recession. Source: Bureau of Economic Analysis, FactSet, Federal Reserve.
(2009-7530)
Business Loans More Accessible
Leads Capital Spending
Banks Tightening Lending
Standards for C&I Loans
10
5
0
0
20
-5
-10
40
-15
60
80
1990
22
15
-20
-20
Nonresidential Fixed
Investment (y/y % change)
20
-40
-25
1993
1996
1999
2002
2005
2008
Banks tightening lending standards for C&I (commercial & industrial) loans plotted on inverted y-axis and as of 8/09. Nonresidential fixed
investment as of 2Q09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Bureau of
Economic Analysis, FactSet, Federal Reserve.
(2009-7530)
Consumers’ Expectations of Business Conditions Lead GDP
40
10
30
8
20
6
10
4
0
2
-10
0
-20
-2
-30
-4
-40
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Real GDP (y/y % change)
Expected Business Conditions
Suggests a Big Turn in GDP
-6
2010
Expected Business Conditions as of 8/09. Based on The Conference Board’s Expectations of Business Conditions (better minus worse) and
23 moved ahead 9 months. Real GDP as of 2Q09. Source: The Conference Board, FactSet.
(2009-7530)
Coincident/Lagging Ratio Turned Higher
Ratio of Coincident to Lagging Indicators
Alternate Leading Indicator Has Stellar Track Record at Recessions’ Ends
104
102
100
98
96
94
92
90
88
1960
1967
1974
1981
1988
1995
2002
2009
24 As of 7/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: The Conference
Board, FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
COINCIDENT INDICATORS SAY RECESSION IS ENDING
25
(2009-7530)
Coincident Indicators Turning?
Coincident Economic Index (y/y % change)
All Remain Weak But 3 Out of 4 Now Rising
8
6
4
2
0
-2
-4
-6
-8
1960
1967
1974
1981
1988
1995
2002
2009
1) real manufacturing & trade sales: weak but now rising
2) industrial production: weak but now rising
3) personal income less transfer payments: weak but now rising
4) payrolls: still weak
26
As of 7/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: The Conference Board,
FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
ISM Manufacturing Index Looks Like a “V”
Autos and Exports = Big Contributors
ISM Manufacturing Index
75%
65%
55%
45%
35%
25%
1960
1967
1974
1981
1988
1995
2002
2009
27 As of 8/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Bureau of Economic
Analysis, FactSet, Institute of Supply Management (ISM), National Bureau of Economic Analysis (NBER).
(2009-7530)
ISM Services Index Has Turned
Services Drives Economy Much More Than Manufacturing
ISM Non-Manufacturing Index
65%
60%
55%
50%
45%
40%
35%
1997
1999
2001
2003
2005
2007
2009
28 As of 8/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Bureau of Economic
Analysis, FactSet, Institute of Supply Management (ISM), National Bureau of Economic Analysis (NBER).
(2009-7530)
Coiled Spring for Economy
Sharp Recoveries Tend to Follow Sharp Recessions
Post-Recession Growth
14
12
1954
1970
1958
10
1975
1961
8
1982
1980
2009
6
1991
4
2001
2
0
-2
-4
-6
-8
-10
-12
Maxim um Quarterly Contraction in Recession
29
Based on recessions between 1950-2001 and annualized Q/Q % change for real GDP. Post-recession growth represents maximum
growth one year following recession end. Source: Bureau of Economic Analysis, FactSet.
(2009-7530)
A Coiled Spring for GDP?
Business Spending, Exports and Government Spending to Lead
4Q08
2Q09
Q/Q annualized % change
20%
10%
0%
-10%
-20%
-30%
Business
Investment
Consumer
Spending
Residential
Investment
Exports
Federal
Gov't
Spending
State/ Local
Gov't
Spending
Inventory Investment: change in inventories
subtracted 1.39 percentage points from 2Q09 vs.
subtraction of 0.64 percentage point from 4Q08.
30 Source: Bureau of Economic Analysis.
(2009-7530)
Coiled Spring for Inventories
Change in Inventories as % of Real GDP
Rebuild Should Fuel Production and Employment
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
1960
record
contraction
1967
1974
1981
1988
1995
2002
2009
31 As of 2Q09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: Bureau of Economic
Analysis, FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
Coiled Spring for Industrial Production
Industrial Production (y/y % change)
Should Get Boost From Inventory Rebuild
15%
10%
5%
0%
-5%
-10%
-15%
1960
1967
1974
1981
1988
1995
2002
2009
32 As of 7/09. Green-shaded areas indicate periods of recession. See last slide for definition of recession. Source: FactSet,
Federal Reserve, National Bureau of Economic Research (NBER).
(2009-7530)
Coiled Spring for Employment
Employment Improves Quickly on Heels of Better GDP
Series3
Series4
Nonfarm Payroll
Real GDP
15
Y/Y % change
10
5
0
-5
-10
1948
1958
1968
1978
1988
1998
2008
Nonfarm payroll as of 8/09. GDP as of 2Q09. Green-shaded areas indicate periods of recession. See last slide for definition of recession.
33 Source: Bureau of Economic Analysis, Bureau of Labor Statistics, FactSet, National Bureau of Economic Research (NBER).
(2009-7530)
Coiled Spring for Employment?
Job Declines Went Beyond GDP Decline
Decline in Nonfarm Payroll
-6
-5
2009 Actual
1958
-4
1954
1982
-3
1975
1961
2001
-2
2009 Baseline
1970
1991
1980
-1
0
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
Decline in Real GDP
34
Data represents peak-to-trough declines for nonfarm payroll and real GDP in and around periods of recession between 1950-2009.
Source: Bureau of Economic Analysis, Department of Labor, FactSet.
(2009-7530)
Unemployment Rate Lags Big Time
Low When Recession Begins … High When it Ends
Unemployment Rate
12%
10%
8%
6%
4%
2%
1948
1958
1968
1978
1988
1998
2008
As of 8/09. Green-shaded areas indicate periods of recession. Red dots indicate unemployment rate at beginning of recessions and blue dots
35 indicate unemployment rate at end of recessions. See last slide for definition of recession. Source: Bureau of Labor Statistics, FactSet,
National Bureau of Economic Research (NBER).
(2009-7530)
HOUSING: A LIGHT AT THE END OF THE TUNNEL
36
(2009-7530)
Home Prices Have Likely Bottomed
Sales Up Substantially in Hardest-Hit Regions
3%
15%
2%
10%
1%
5%
0%
0%
-5%
-1%
-10%
-2%
-15%
-20%
2001
-3%
2002
2003
2004
2005
2006
2007
2008
Home Price Index (m/m % chg)
Home Price Index (y/y % chg)
20%
2009
37 As of 6/09. Based on S&P/Case-Shiller composite 20 Home Price Index. Source: FactSet, Standard & Poor’s .
(2009-7530)
“Real” Mortgage Rates Remain Elevated
Real Mortgage Rates for Existing
Single-Family Homes
“Rapid Deflation” Part of Equation Finally Easing?
25%
20%
2
15%
10%
5%
0%
-5%
-10%
-15%
1971
1
1975
1979
1983
1987
1991
1995
1999
2003
2007
1) 6% minus 17% = (11%)
2) 5% minus (15%) = 20%
As of 7/09. Real Mortgage Rate represents 30-year fixed mortgage rate minus y/y % change in median sales price. Source: FactSet,
38 Federal Reserve, National Association of Realtors.
(2009-7530)
GLOBAL ECONOMY: BACK IN BUSINESS
39
(2009-7530)
International Economies Having V-Shaped Rebounds, Too
China Leading Emerging Economies’ Improvement
ISI Developed Economies
ex U.S. Diffusion Index
10%
Developed Economies
5%
0%
-5%
-10%
-15%
-20%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
20%
ISI Emerging Economies
Diffusion Index
Emerging Economies
10%
0%
-10%
-20%
-30%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
40 As of 9/09. 13-week average. Diffusion Index represents economic strength minus weakness. Source: ISI Group.
(2009-7530)
Global Industrial Production V-Bottoms
China’s Stimulus a Big Driver
Global Industrial Production
(3-month % change)
6
4
2
0
-2
-4
-6
-8
-10
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
41 As of 6//09. Green-shaded areas indicate periods of U.S. recessions. See last slide for definition of recession. Source: ISI Group.
(2009-7530)
Exports Stage Impressive Rebound
U.S. New Export Orders PMI Composite
To Become Bigger Driver of U.S. Growth?
65
60
55
50
45
40
35
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
42 As of 8/09. Green-shaded areas represent periods of recession. Source: FactSet, Institute for Supply Management.
(2009-7530)
INFLATION OR DEFLATION?
43
(2009-7530)
Monetary Base Up Dramatically
Watch “Money Multiplier” for Growth/Inflation
Monetary Base ($, billions)
2,000
1,800
1,400
Fed flooded system
1,200
1,000
800
2007
10
M2 to Monetary Base Ratio
Monetary Base
1,600
2008
2009
Money Multiplier
9
8
But “velocity” of money
remains depressed
7
6
5
4
2007
2008
2009
44 As of 8/09. Source: FactSet, Federal Reserve.
(2009-7530)
STOCK MARKET: LOOKING BETTER
45
(2009-7530)
Mild Deflation = Best Environment for Stocks
Average 12-Month S&P 500 Total Returns
Severe Deflation or Inflation Punishes Stocks
25%
(33)
20%
(73)
15%
(68)
(69)
(33)
10%
(29)
5%
(13)
0%
-5%
-10%
(16)
-2.5% or -2.4% to 0.1% to
Less
Zero
2.0%
2.1% to
3.0%
3.1% to
5.0%
5.1% to
7.0%
7.1% to 12.1% or
12.0%
More
You are here
46 3/31/26-6/30/09. Purple bars represent deflation and orange bars represent inflation as measured by CPI. Parenthesis represent number of
quarters included in each inflation segment. Dotted line represents average total return. Source: The Leuthold Group.
(2009-7530)
Inflation and Valuation Inversely Correlated
Low Inflation and Better Earnings Visibility Will Help
1960-7/2009
You are here
Inflation
Average P/E
Peak P/E
Trough P/E
< 2%
21.3
29.6
14.9
2 – 3%
17.3
26.0
13.8
3 – 4%
16.3
21.7
9.9
4 – 5%
14.4
19.9
9.3
5 – 6%
13.4
19.2
10.2
6 – 7%
9.5
12.7
7.6
>7%
8.5
12.0
6.7
Current Trailing P/E @ 25.7
(Current Forward P/E @ 17.0)
1960-7/09. Current P/E (as of 8/28/09) based on estimated 2Q09 EPS. Inflation is year-over-year based on Personal Consumption
47 Expenditures excluding food & energy. P/Es based on trailing 12-month operating earnings. Past performance is no indication of future results.
Indexes are unmanaged, do not incur management fees, costs and expenses (or "transaction fees or other related expenses"), and cannot be
invested in directly. Source: FactSet, Ned Davis Research, Inc. Standard & Poor’s.
(2009-7530)
Coiled Spring for Earnings
0.10
7
0.08
6
0.06
0.04
5
0.02
4
0.00
-0.02
3
-0.04
2
-0.06
Beat/Miss Ratio
S&P 500 Average EPS vs. Estimate
Estimates Low and Comparisons Getting Easy
1
-0.08
-0.10
0
2Q02
2Q03
2Q04
2Q05
2Q06
2Q07
2Q08
2Q09
48 As of 8/3/09. Source: Birinyi Associates, Inc.
(2009-7530)
Market Typically Leads Economy
Many Bull Markets Born in Recessions
S&P 500 Around Recession
Start Dates (1929-2001)
108
Recessions have
lasted an average
of 12.9 m onths
106
104
1
102
100
98
Recession
start date
96
94
3
92
90
-12 -10
2
-8
-6
-4
-2
0
+2
Months Before
+4
+6
+8 +10 +12 +14 +16 +18
Months After
1-2: Peak-to-trough average decline = 30% (recent decline = 57%)
2-3: Trough-to-recession end average gain = 25% (recent gain = 52%)
(gain thru 2Q09 = 36%)
Indexed price-only data from 1929-3/31/02. Recent decline (10/9/07-3/9/09). Recent gain (3/9/09-9/8/09). See last slide for description of
49 recession. Source: Ned Davis Research, Inc.
(2009-7530)
Market Leads Economy
Market “Likes” Weak, Not Strong Growth
S&P
3/31/1960-6/30/2009
Y/Y % Change
of Real GDP
S&P 500
Annualized Gain
> 6.0
-4.6%
0.5-6.0
7.1%
< 0.5
7.5%
50 As of 2Q09. Red dots indicate periods of weak economic growth; blue dots indicate periods of strong economic growth. Source:
Bureau of Economic Analysis, FactSet, Ned Davis Research, Inc., Standard and Poor’s.
(2009-7530)
Sentiment Flirting With Extreme Optimism
Can Stocks Continue to “Climb a Wall of Worry?”
NDR Crowd Sentiment Poll
80
Extrem e Optim ism (Bearish for Market)
70
60
50
40
30
2000
Extrem e Pessim ism (Bullish for Market)
2001
2002
2003
2004
2005
2006
2007
2008
2009
12/1/1995-9/8/2009
NDR Crowd Sentiment Poll
S&P 500 Annualized Gain
< 56
8.6%
56-62
3.8%
> 62
-1.6%
51 As of 9/8/09. See last slide for description of Crowd Sentiment Poll. Source: Ned Davis Research, Inc. (NDR).
(2009-7530)
Cash on Sidelines Peaked in March
Another Great Bear Market Finale Signal?
MZM as % of Wilshire 5000
140
?
120
100
80
60
40
20
1985
1988
1991
1994
1997
2000
2003
2006
2009
Circles indicate bear market end
52 As of 8/09. Source: FactSet, Federal Reserve.
(2009-7530)
Disclosures/Definitions
Disclosures
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or
personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an
investment strategy for his or her own particular situation before making any investment decision.
We believe the information obtained from third-party sources to be reliable, but neither Schwab nor its affiliates guarantee its accuracy, timeliness, or
completeness. The views, opinions and estimates herein are as of the date of the material and are subject to change without notice at any time in
reaction to shifting market conditions. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an
indicator of future performance.
Examples provided are for illustrative purposes only and not intended to be reflective of results you should expect to attain.
Definitions
Indexes are unmanaged, do not incur management fees, costs and expenses (or "transaction fees or other related expenses"), and cannot be
invested in directly.
The Dow Jones Industrial Average (DJIA, “The Dow”) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials and
is the oldest and most widely quoted of all the market indicators.
The S&P 500 Index is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted
according to the total market value of their outstanding shares.
Terms:
Asset Allocation - The strategy of spreading your investment funds across categories of assets such as stocks, bonds and cash investments to
help offset risks and rewards, based on your goals, time horizon and risk tolerance.
Ned Davis Research (NDR) Crowd Sentiment Poll - Shows perspective on a composite sentiment indicator designed to highlight short- to
intermediate-term swings in investor psychology. It's based on seven different individual sentiment indicators in order to represent the psychology of
a broad array of investors.
Recession - As per National Bureau of Economic Research (NBER), a recession is a significant decline in economic activity spread across the
economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
53
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