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Exhibit 58: Coppock Curve S&P 500 Buy Signals One of only 17 post-WWII buy signals was triggered in July 2016. S&P 500 Index (Log Scale) 10,000 1,000 100 t 10 + 1945 1955 1965 1975 1985 1995 2005 2015 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. Exhibit 59: Inflection Point for Negative Correlation Between Bond Yields and Stock Prices Typically stocks and interest rates move in the same direction until yields reach levels far above those seen today. US 10-Year Treasury Yield (%) 51 Current Historical Since 1962 Adjusted for Today's Lower Equilibrium Rate* Yield at Which Stock Prices and Bond Yields Become Negatively Correlated Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Federal Reserve. * Adjusts for the reduction of 1.25 percentage points in the long-run equilibrium nominal rate, in line with the shift in Federal Reserve projections since 2012. Some have taken a less sanguine view, arguing that the “taper tantrum” of 2013 suggests bond yields have already reached a troublesome level for stocks. However, the tantrum primarily reflected concerns that by tightening policy prematurely, the Federal Reserve was committing a mistake that would undermine growth—a fact evident in the episode’s widening credit spreads and declining breakeven inflation rates. Despite a similarly rapid increase in rates this time around, we have seen the opposite market reaction, with credit spreads tightening and breakeven inflation rates moving higher alongside growth expectations. This contrast reminds us that the reason rates are increasing is as important as their resulting level. Aside from rates, ongoing concern about a hard landing in China and a banking or political crisis in Europe remain top of mind (see Section I, The Risks to Our Outlook}. We also start the year with less of a buffer to absorb such adverse developments, given today’s high valuations. Even worse, this narrower margin of safety arrives at a time when policy uncertainty in the US is particularly acute, given upcoming changes to tax, trade and immigration policies under the new administration. A destination tax, for example, could be particularly damaging to S&P 500 margins given the growth of global supply chains in the last decade, not to mention the sizable Exhibit 60: US Dollar Index Even if the dollar stays unchanged, it will still act as a drag on US multinational earnings in early 2017. YoY % 40 US Dollar Index US Dollar Index Assuming Constant from 12/31/16 Level 30 26 20 -20 2006 2008 2010 2012 2014 2016 Data through December 31, 2016, with illustrative projection through 2017. Source: Investment Strategy Group, Bloomberg. upward pressure it would place on the US dollar. Even at current levels, the dollar will represent a renewed drag on US multinational earnings in the first quarter (see Exhibit 60). That said, the collective impact of these various risks is not yet sizable enough to undermine our core view: we are in a longer-than-normal US recovery that supports equity returns that are Outlook | Investment Strategy Group 55 HOUSE_OVERSIGHT_014588