NDRG Research Paper

EQUITIES
Ned Davis
Research
Group
U.S. FOCUS
PUBLISHED MONTHLY NOVEMBER 9, 2016
Ed Clissold, CFA Chief U.S. Strategist
E-mail Us
Victor Jessup U.S. Market Analyst
Market Implications of Trumps Victory

As the pundits ponder how the pollsters got the election so wrong, here are four
objective data points on the markets.
1. Markets dislike upsets and uncertainty. Donald Trump staged
the biggest presidential upset
since at least 1948, when President Truman defeated Thomas
Dewey. The day after the 1948
election, the DJIA plunged -3.8%,
the third-biggest post-election
drop since at least 1900 after 1932
and 2008 (below).
One difference was that Truman
was the incumbent. The weakness
after his upset was the exception.
Days Prior
25 Days
9.7
13.7
2.1
-4.1
4.2
1.8
1.2
7.1
3.0
3.5
1.1
-0.6
5.5
-0.6
5.7
3.4
0.0
2.4
3.3
-4.6
1.7
2.5
0.9
-0.4
2.7
2.6
0.7
-10.1
-2.8
0.0
The DJIA has rallied a median

gain of +2.7% in the 10 days
after the election when the incumbent party has won versus
-0.9% when the incumbent party has lost.
Another difference is that Truman
was a Democrat. The DJIA has tended
to rally more immediately after Republican wins than Democrat wins. However,
as we noted in our American Nations
Featured Report, both candidates did
not follow the typical party lines.
BOTTOM LINE
If Trump's victory proves to
be a short-term shock, history
suggests stocks usually recover
from "crises."
Republican president/
Republican Congress
combination has produced
above-average market gains.
Big fiscal stimulus would be
unusual in first year but is a
potential game-changer in 2017.
U.S. ALLOCATION SUMMARY
For more details, see Current Positions and
Recommendation Dashboard.
OW
MW
UW
Stocks
Cash
Bonds
Mid,
Small
Growth
Value
Large
REFERENCED CHARTS
DOW JONES INDUSTRIAL AVERAGE PERFORMANCE AROUND ELECTIONS SINCE 1900

Election
Days After
10 Days
5 Days
Day*
1 Day
5 Days
10 Days
0.1
2.3
N/A
3.3
4.5
9.5
5.7
3.9
N/A
1.3
3.1
5.3
0.1
-0.8
N/A
2.4
3.1
3.3
-2.3
-1.3
N/A
1.8
-2.0
-2.1
2.5
2.5
N/A
-0.4
0.2
3.1
0.3
-0.2
N/A
-0.6
-5.9
-9.8
1.9
1.4
N/A
1.2
2.3
4.2
0.2
1.5
N/A
1.2
3.5
6.9
5.2
7.2
N/A
-4.5
5.8
3.2
0.0
1.3
N/A
2.3
1.9
2.3
2.1
2.3
N/A
-2.4
3.5
1.9
1.1
0.9
N/A
-0.3
-1.3
-0.3
1.7
0.0
N/A
-3.8
-4.7
-3.4
1.4
1.6
N/A
0.4
0.5
3.0
2.1
1.7
N/A
-0.9
-1.8
-4.7
4.5
3.0
N/A
0.8
0.4
0.0
-0.1
-0.2
N/A
-0.2
0.0
2.0
-1.3
-1.6
N/A
0.3
1.5
1.9
3.5
4.1
N/A
-0.1
1.5
3.7
2.1
3.0
N/A
-1.0
-3.4
-1.9
-2.5
0.6
N/A
1.7
1.2
4.0
1.0
2.3
1.2
-0.9
-3.0
-3.9
-2.1
-1.1
0.1
-0.4
-2.4
-2.3
2.3
0.6
-0.3
-0.9
-0.8
-1.8
-0.8
1.2
0.7
1.6
3.0
5.2
6.9
1.3
-0.2
-0.4
-2.5
-4.2
1.0
3.1
-0.2
1.0
3.5
4.5
0.6
14.0
3.3
-5.0
-9.7
-12.5
-3.2
0.1
1.0
-2.4
-3.7
-3.5
0.2
0.6
0.4
N/A
N/A
N/A
Election Day
11/6/00
11/8/04
11/3/08
11/5/12
11/7/16
11/2/20
11/4/24
11/6/28
11/8/32
11/3/36
11/5/40
11/7/44
11/2/48
11/4/52
11/6/56
11/8/60
11/3/64
11/5/68
11/7/72
11/2/76
11/4/80
11/6/84
11/8/88
11/3/92
11/5/96
11/7/00
11/2/04
11/4/08
11/6/12
11/8/16**
Median Percent Changes
All Cases
2.1
1.0
1.4
0.4
-0.2
0.4
1.9
Democrat Wins
0.6
1.4
1.3
0.9
-0.7
-0.4
-0.2
Republican Wins
2.4
1.0
1.5
-0.1
0.4
1.5
3.3
Incumbent Party Wins
2.6
1.0
1.5
0.7
-0.2
1.7
2.7
Incumbent Party Loses
0.9
1.0
1.0
-0.1
-0.2
-0.4
-0.9
*Prior to the 1984 election, the financial markets were closed on Election Day. **2016 case excluded from all summary statistics. Source: S&P Dow Jones Indices
Ned Davis Research Group
Please see important disclosures at the end of this report.
25 Days
2.0
3.2
2.8
-4.5
-0.3
-9.3
5.9
-1.3
-0.1
0.2
-0.5
2.6
-3.4
5.1
-0.1
1.4
-1.2
2.7
4.2
1.5
-4.7
-5.5
0.3
2.2
5.3
-1.4
4.6
-9.0
0.0
N/A
Winning
Party
R
R
R
D
D
R
R
R
D
D
D
D
D
R
R
D
D
R
R
D
R
R
R
D
D
R
R
D
D
R
0.2
-0.1
2.0
0.3
-0.1
T_20
www.ndr.com | Periodical | Issue #SSF16_22
Equities: U.S. Focus | NOVEMBER 9, 2016
NED DAVIS RESEARCH GROUP
Chart S01639 (right, top) shows that

the DJIAs election yearend rally has been
almost non-existent when the incumbent
party has lost. S01638A (below) breaks it
down further by showing Democrat and
Republican incumbent wins and losses.
The later part of December has been modestly weaker when incumbent Democrats
have lost than when incumbent Republicans have lost, although we should note
that this is only the sixth case of an incumbent Democrat loss since 1900.
2. Crisis events come and go. In the
sense that the election result is a
shock to the markets, it could be
considered a crisis event if stocks
stumble over the short term. Trumans upset is the only U.S. presidential election listed in our Crisis
Events study (T_900). The latest
addition is the U.K.s surprise Brexit
vote. In the cases of Truman, Brexit, and virtually all of the crisis
events, the market has tended
to recover from the initial shock,
with a median gain of 9.2% six
months after the end of the crisis.
118
Dow Industrials -- Election-Year Cycle (Incumbent Party Wins vs. Loses)
112
All Elections
Current Case
Incumbent Party Wins
Incumbent Party Loses
111
110
109
112
Plotted Lines Are Average Cycle Patterns

Based on Daily Data From 1900 Through 2012
For Statistics On Election Year Returns, See Study T_10A
111
110
109
INCUMBENT
PARTY WINS
108
108
107
107
106
106
105
105
104
104
103
103
102
102
101
101
100
100
99
99
98
98
97
97
96
96
95
95
94
94
93
93
92
92
INCUMBENT
PARTY LOSES
91
91
90
90
All indices equal-weighted and geometric
Jan
Feb
Mar
Apr
2016
Source: S&P Dow Jones Indices
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
2017
S01639
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
Dow Industrials -- Presidential Election Year Cycle II

All Elections
Incumbent Democratic Party Wins
Incumbent Democratic Party Loses
Incumbent Republican Party Wins
Incumbent Republican Party Loses
117
116
115
114
INCUMBENT
REPUBLICAN WINS
118
117
116
115
114
113
113
112
INCUMBENT
DEMOCRAT WINS
111
110
112
111
110
109
109
108
108
107
107
106
106
105
105
104
104
103
103
102
102
101
101
100
INCUMBENT
DEMOCRATIC LOSSES
99
98
100
99
98
97
97
96
96
95
95
94
94
93
93
92
92
91
91
INCUMBENT
REPUBLICAN LOSSES
90
89
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
90
Nov
Dec
Jan
89
S01638A
Daily Data 1901-03-04 to 2016-11-08 (Log Scale)
DJIA vs. Presidential and Congressional Combinations
3. Republican President, Republican Congress. Last night was a

clean sweep for the Republicans.
They will control the White House
and both chambers of Congress.
The combination of a Republican
president and Republican Congress has produced above-average DJIA gains on a nominal basis (7.0% GPA, top right) and is the
second-strongest combination
on a real basis thanks to lower
inflation (6.9% GPA, below).
15,849
15,849
12,589
12,589
10,000
10,000
7,943
7,943
6,310
6,310
5,012
5,012
3,981
3,981
3,162
3,162
2,512
2,512
1,995
1,995
1,585
1,585
1,259
1,259
1,000
1,000
794
794
631
631
501
501
398
398
316
316
251
251
200
200
DJIA Performance
158
126
When U.S. Government Has A:
100
Democratic President, Republican Congress
158
% Gain/
Annum
% of
Time
126
8.50
10.22
100
Democratic President, Split Congress
79
10.37
3.46
7.17
34.50
Republican President, Republican Congress
7.03
22.50
63
Republican President, Split Congress
-4.25
10.40
50
Republican President, Democratic Congress
2.44
19.04
Democratic President, Democratic Congress
63
50
40
79
40
32
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
32
2010
S01645
Monthly Data 1901-03-30 to 2016-10-31 (Log Scale)
79.4
70.8
DJIA Real Performance vs. Presidential and Congressional Combinations
79.4
DJIA Real Performance = Dow Jones Industrial Average / Consumer Price Index
70.8
63.1
63.1
56.2
56.2
50.1
50.1
44.7
44.7
39.8
39.8
35.5
35.5
31.6
31.6
28.2
28.2
25.1
25.1
22.4
22.4
20.0
20.0
17.8
17.8
15.8
15.8
14.1
14.1
12.6
12.6
11.2
11.2
10.0
10.0
8.8
8.8
7.7
7.7
6.8
6.8
DJIA Performance
% Gain/
Annum
% of
Time
5.9
Democratic President, Republican Congress
4.56
10.17
5.1
Democratic President, Split Congress
7.99
3.46
Democratic President, Democratic Congress
2.96
34.46
4.5
5.9
When U.S. Government Has A:
5.1
4.5
3.9
3.9
Republican President, Republican Congress
6.85
22.49
3.3
Republican President, Split Congress
-6.05
10.38
3.3
2.8
Republican President, Democratic Congress
-2.05
19.03
2.8

1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
S01646
4. Stimulus possible, but

historically
atypical.
Both candidates touted
government
stimulus
plans, mainly infrastructure spending, to boost
growth.
Government
spending has been one
of the drags on growth
this expansion, so a major spending plan would
mark a change from sequestration and the fiscal
cliff. Historically, big jumps
in government stimu
lus
have not occurred during
the first year of presidential terms (bottom right).
The last two cases were exceptions, when George H.
W. Bush and Obama were
fighting recessions.
The top chart at right shows
the DJIA (top clip) and NDR
Monetary and Fiscal Policy Index (bottom clip) four-year cycles, so they combine first and
second terms. One of the reasons stimulus has been modest
in the first year could be that
without the urgency of a recession, it will take time for any
spending measures to be imple
mented. But if President-Elect
Trump and Congress pass a
large fiscal stimulus bill, it
would mark a deviation from
the typical first-year trend.
A break from historical trends
could be positive, since the first
presidential year is the second
weakest of the four, on average.
That could lead to faster economic growth, which could lift
earnings growth, alleviating
one of our main worries heading into 2017.
DJIA and Monetary & Fiscal Policy Presidential Cycles

27.5
27.5
Trend Is More Important
Than Level
25.0
22.5
25.0
22.5
20.0
20.0
17.5
17.5
15.0
15.0
12.5
12.5
10.0
10.0
7.5
5.0
2.5
Election Year
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
-5.0
-5.5
7.5
Dow Jones Industrial Average

Presidential Election Pattern
Based on Daily Data
(1964-12-31 - 2015-12-31)
1st Presidential Year
2nd Presidential Year
5.0
2.5
3rd Presidential Year

Real Monetary and Fiscal Policy Index
Presidential Election Pattern
Based on Monthly Data
(1964-12-31 - 2015-12-31)
Monetary and Fiscal Policy Index based on

Real M2 Money Supply Year-to-Year Change
Plus Federal Expenditures Year-to-Year Change
Minus Federal Receipts Year-to-Year Change
Source: Federal Reserve Board

2016
2017
2018
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
-5.0
-5.5
2019
S01643
NDR REAL MONETARY & FISCAL POLICY INDEX BY PRESIDENT AND TERM LIMITS
President
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Eisenhower
5.1
12.2
-7.3
-6.3
3.4
16.1
-5.5
-3.6
Kennedy
11.7
5.9
4.3
10.2
-7.3
11.2
17.9
5.8
-9.8
19.6
1.5
3.7
7.7
-4.3
-1.2
Johnson
Nixon
Ford
-4.0
Carter
1.2
-5.4
-12.0
1.6
Reagan
-1.6
14.6
15.6
-0.3
Bush I
-1.9
2.1
3.3
5.2
Clinton
-3.5
-7.2
-2.3
-3.0
-3.0
0.0
0.8
-2.0
Bush II
12.3
18.4
12.8
1.2
-4.7
-1.6
1.6
18.1
Obama
25.9
4.1
0.4
1.5
-9.2
1.2
3.9
N/A
Median
1.2
5.0
3.8
1.5
-3.5
1.2
0.8
-1.6
% Positive
56
70
70
70
33
60
60
25
Readings are values at end of year. Monetary & Fiscal Policy Index based on real M2 money supply year/
year change, plus federal expenditures year/year change, minus federal receipts year/year change.
Quarterly federal expenditure and receipts data 1953-1963, monthly thereafter.
Ned Davis Research Group
T_BFC201601051.2
4
NDR HOUSE VIEWS (Updated 11/3/2016)

Confirmed by the majority of our Rally Watch indicators reaching key levels, NDR remains with a bullish view toward global
equities, maintaining our maximum overweight allocation. The
outlook is supported by accommodative global monetary policy,
a positive supply/demand balance, and secular bull tailwinds
equities have produced double-digit per annum returns since the
secular bull started in 2009. A cyclical risk is a potential ceiling in
U.S. earnings multiples, but global valuations are more reasonable, and the likely earnings growth recovery should reduce the
upward pressure on multiples.
GLOBAL ASSET ALLOCATION

Stocks (70%)
Cash (10%)
Bonds (20%)
Benchmark Stocks (55%), Bonds (35%), Cash (10%)
EQUITIES REGIONAL RELATIVE ALLOCATION

Emerging Markets (14%) Japan (9%)
Europe ex. U.K. (10%)
U.S. (53%) Canada (3%) U.K. (7%) Pacific ex. Japan (4%)
Benchmark U.S. (53.2%), Europe ex. U.K. (15.5%), Emerging Markets
(9.8%), Japan (7.9%), U.K. (6.8%), Pacific ex. Japan (3.9%), Canada (3%)
REGIONAL FOCUS:
GLOBAL BOND ALLOCATION
U.S. The U.S. should participate in any rally, but

stretched valuations and sluggish growth remain top
Europe (30%) Japan (30%)

U.S. (35%)
U.K. (5%)
concerns. We favor SMID-caps, stocks with growth at a

reasonable price (GARP), and quality Dividend Payers.
Benchmark U.S. (49%), Europe (26%), Japan (20%), U.K. (5%)
EUROPE Europe ex. U.K. remains an underweight,
U.S. ALLOCATION
but weare bullish on an absolute basis.

EMERGING MARKETS We like Russia and Brazil, and
Stocks (70%) Mid Cap Small Cap
are underweight Indian equities. As we watch China's
Bonds (20%) Large Cap
transition to a more mature growth profile, we are
Cash (10%) Growth Value

Benchmark Stocks (55%), Bonds (35%), Cash (10%)
overweight select markets in emerging Asia.
SECTORS
MACRO:
Information Technology Telecom Services Financials
FIXED INCOME Rising yields in Europe and North
Health Care
America, higher inflation, potential new supply, and

questions about the limits of central bank accommoda-
U.S. BONDS 90% OF BENCHMARK DURATION
tion have turned us more cautious. Fed positioning for
ECONOMIC SUMMARY 11/7/2016
a December rate hike.

ECONOMY The global economy is still holding up,
GLOBAL ECONOMY
but in light of Brexit risks, we cant completely rule out
Below Trend (2.8-3.0%)
recession. We still see a low probability of U.S. recession in the next six to nine months, but downside risks
U.S. ECONOMY
have increased.
Trend (1.8-2.0%)
ENERGY The crude oil market continues to rebal-
U.S. INFLATION
ance. However, record inventories and seasonal weak-
Subdued (1.7%)
ness should keep prices range-bound.

Overweight Marketweight Underweight

sales @ndr.com
www.ndr.com
(800) 241-0621
VENICE
NDRG EDITORIAL BOARD

Ned Davis
Senior Investment Strategist
Ed Clissold, CFA
Chief U.S. Strategist
Tim Hayes, CMT

Chief Global Investment Strategist
Brian Sanborn, CFA

Director of Research Applications
Joseph Kalish
Chief Global Macro Strategist
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EQUITIES

PUBLISHED MONTHLY NOVEMBER 9, 2016

Ed Clissold, CFA Chief U.S. Strategist

Victor Jessup U.S. Market Analyst

Market Implications of Trumps Victory

The DJIA has rallied a median

DOW JONES INDUSTRIAL AVERAGE PERFORMANCE AROUND ELECTIONS SINCE 1900

www.ndr.com | Periodical | Issue #SSF16_22

Equities: U.S. Focus | NOVEMBER 9, 2016

NED DAVIS RESEARCH GROUP

Chart S01639 (right, top) shows that

Dow Industrials -- Election-Year Cycle (Incumbent Party Wins vs. Loses)

Plotted Lines Are Average Cycle Patterns

Source: S&P Dow Jones Indices

Dow Industrials -- Presidential Election Year Cycle II

Please see important disclosures at the end of this report.

www.ndr.com | Periodical | Issue #SSF16_22

Equities: U.S. Focus | NOVEMBER 9, 2016

NED DAVIS RESEARCH GROUP

Daily Data 1901-03-04 to 2016-11-08 (Log Scale)

DJIA vs. Presidential and Congressional Combinations

3. Republican President, Republican Congress. Last night was a

When U.S. Government Has A:

Democratic President, Republican Congress

Democratic President, Split Congress

Republican President, Republican Congress

Republican President, Split Congress

Republican President, Democratic Congress

Democratic President, Democratic Congress

Source: S&P Dow Jones Indices

Monthly Data 1901-03-30 to 2016-10-31 (Log Scale)

DJIA Real Performance vs. Presidential and Congressional Combinations

Democratic President, Republican Congress

Democratic President, Split Congress

Democratic President, Democratic Congress

When U.S. Government Has A:

Republican President, Republican Congress

Republican President, Split Congress

Republican President, Democratic Congress

Source: S&P Dow Jones Indices

Please see important disclosures at the end of this report.

www.ndr.com | Periodical | Issue #SSF16_22

Equities: U.S. Focus | NOVEMBER 9, 2016

NED DAVIS RESEARCH GROUP

4. Stimulus possible, but

DJIA and Monetary & Fiscal Policy Presidential Cycles

Dow Jones Industrial Average

1st Presidential Year

2nd Presidential Year

3rd Presidential Year

Monetary and Fiscal Policy Index based on

Source: Federal Reserve Board

Please see important disclosures at the end of this report.

www.ndr.com | Periodical | Issue #SSF16_22

Equities: U.S. Focus | NOVEMBER 9, 2016

NED DAVIS RESEARCH GROUP

NDR HOUSE VIEWS (Updated 11/3/2016)

GLOBAL ASSET ALLOCATION

EQUITIES REGIONAL RELATIVE ALLOCATION

GLOBAL BOND ALLOCATION

U.S. The U.S. should participate in any rally, but

Europe (30%) Japan (30%)

concerns. We favor SMID-caps, stocks with growth at a

NED DAVIS RESEARCH GROUP

NED DAVIS RESEARCH GROUP

NED DAVIS RESEARCH GROUP

NED DAVIS RESEARCH GROUP