Stock Market Handbook

Stock Market Handbook May 11, 212 Dr. Edward Yardeni 516-972-7683 eyardeni@ Sailesh S Radha 83-786-1368 jabbott@ Please visit our sites at www. blog. thinking outside the box

Table Of Contents Table Of Contents Presidential Cycles 1-2 S&P 5 Performance 3-5 ISM Super Composite Index 6-7 Consumer Comfort Index 8 Januaries & Annual S&P 5 Returns 9 New Charts 1-11 Dow Jones Index 12-13 S&P 5 Forward P/E & Expected Inflation 14 Bull Markets -17 Bear Markets 18 Bull/Bear Ratios of 1. or Less & Bull Markets 19-2 May 11, 212 / Stock Market Handbook www.

21 161 121 81 Figure 1. - Presidential Cycles - S&P 5 INDEX & FIRST YEAR OF A PRESIDENT S TERM: 1952-present (Average = 4.4%) Apr 21 161 121 81 41 41 1-6.6% -14.3 +23.1 +9.1-11.4-17.4-11.5-9.7 +26.3 +27.3 +7.1 +31. -13. +3. +23.5 54 56 58 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 52 14 1 * Shaded vertical lines are the first year of a President s term. Data above timeline shows Dec/Dec percentage change using end of month data. 21 161 121 81 Figure 2. S&P 5 INDEX & SECOND YEAR OF A PRESIDENT S TERM: 1952-present (Average = 5.4%) Apr 21 161 121 81 41 41 1 +45.% +38.1-11.8-13.1 +.1-29.7 +1.1 +14.8 +14.6-6.6-1.5 +26.7-23.4 +13.6 +12.8 54 56 58 6 64 68 72 76 8 84 86 88 92 96 4 8 12 52 62 66 7 74 78 82 9 94 98 2 6 1 14 1 * Shaded vertical lines are the second year of a President s term. Data above timeline shows Dec/Dec percentage change using end of month data. Page 1 / May 11, 212 / Stock Market Handbook www.

21 161 121 81 Figure 3. - Presidential Cycles - S&P 5 INDEX & THIRD YEAR OF A PRESIDENT S TERM: 1952-present (Average = 17.2%) Apr 21 161 121 81 41 41 1 +26.4% +8.5 +18.9 +2.1 +1.8 +31.6 +12.3 +17.3 +2. +26.3 +34.1 +19.5 +26.4 +3.5 =. 56 58 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 92 94 96 98 2 4 6 8 1 12 14 52 54 9 1 * Shaded vertical lines are the third year of a President s term. Data above timeline shows Dec/Dec percentage change using end of month data. 21 161 121 81 Figure 4. S&P 5 INDEX & FOURTH YEAR OF A PRESIDENT S TERM: 1952-present (Average = 5.7%) Apr 21 161 121 81 41 41 1 +2.6% -3. +13. +7.7 +.6 +19.2 +25.8 +1.4 +12.4 +4.5 +2.3-1.1 +9. -38.5 52 54 56 58 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 1 * Shaded vertical lines are the fourth year of a President s term. Data above timeline shows Dec/Dec percentage change using end of month data. Page 2 / May 11, 212 / Stock Market Handbook www.

Figure 13. - S&P 5 Performance - C C C C C C C C C C 35 S&P 5 INDEX PERFORMANCE 3/6/12 MONTHS AFTER FIRST FED RATE CUT 35 3 3 25 2 3-m -.9% 6-m 1.4% 12-m 11.5% 3-m -13.6% 6-m -13.9% 12-m 13.6% 3-m -2.% 6-m 1.% 12-m -2.7% 3-m 19.5% 6-m 34.% 12-m 34.4% 3-m -8.3% 6-m -5.8% 12-m -16.% 3-m 2.3% 6-m 11.7% 12-m 13.8% 3-m 1.3% 6-m 4.6% 12-m 11.% 25 2 5 3-m 21.8% 6-m 29.4% 12-m.9% 3-m 11.4% 6-m 16.% 12-m 17.5% 3-m 9.5% 6-m 8.6% 12-m 13.9% 7 71 72 73 74 75 76 77 78 79 8 81 82 83 84 85 86 87 88 89 9 C= Federal funds rate first cuts in easing cycle. Boxes show 3/6/12 month percent changes in S&P 5 following first rate cut. From 1971 thru June 1981 using monthly lowest value for S&P 5 during month of first rate cut. 5 16 Figure 14. C C C C 16 1 13 12 S&P 5 INDEX PERFORMANCE 3/6/12 MONTHS AFTER FIRST FED RATE CUT 5/4 1 13 12 1 1 9 8 7 3-m 5.1% 6-m 11.3% 12-m 17.8% 3-m 18.4% 6-m 24.9% 12-m 2.9% 3-m -4.3% 6-m -12.4% 12-m -2.6% 9 8 7 6 6 5 3 3-m -17.9% 6-m -8.4% 12-m 13.5% 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 C= Federal funds rate first cuts in easing cycle. Boxes show 3/6/12 month percent changes in S&P 5 following first rate cut. 5 3 Page 3 / May 11, 212 / Stock Market Handbook www.

- S&P 5 Performance - 2 Figure. S&P 5 INDEX: average change each month 1946-212 (66 years) 1.83% 2 1.31% 1.43% 1.18% 1 1.3%.9%.91% 1.3% -.4% -.16% -.37% -1 -.72% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Updated through April 212. -1 5. Figure 16. S&P 5 INDEX: average of gain years each month 1946-212 (66 years) 5. 4.5 4. 3.5 3. 2.5 4.2% 2.38% 3.19% 3.54% 2.95% 2.63% 4.% 3.11% 3.% 3.84% 3.9% 2.99% 4.5 4. 3.5 3. 2.5 2. 2. 1.5 1.5 1. 1..5.5. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Updated through April 212.. Page 4 / May 11, 212 / Stock Market Handbook www.

- S&P 5 Performance - 1.5 1. Figure 17. S&P 5 INDEX: average of loss years each month 1946-212 (66 years) 5. 4.5.5. 4. -.5 3.5-1. 3. -1.5-2. -2.5-2.28% -2.1% 2.5 2. -3. -3.5-4. -4.5-5. -3.87% -3.19% -2.89% -3.8% -2.88% -2.77% -4.8% -3.86% -3.59% -3.29% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Updated through April 212. 1.5 1..5. 55 Figure 18. S&P 5 INDEX: # of months up each month 1946-212 (66 years) 55 5 5 45 45 35 35 3 3 25 25 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Updated through April 212. 2 Page 5 / May 11, 212 / Stock Market Handbook www.

1 13 Figure 19. - ISM Super Composite Index - ISM SUPER COMPOSITE INDEX vs. CONSUMER OPTIMISM INDEX 1 13 12 12 11 Apr 11 9 9 8 7 Apr 8 7 6 6 5 3 ISM Super Composite Index* Consumer Optimism Index** 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 5 3 * Sum of ISM manufacturing composite and ISM nonmanfacturing composite. ** Average of Conference Board and University of Michigan measures. Source: Institute for Supply Management (ISM), the Conference Board and University of Michigan Survey Research Center. 1 13 12 11 9 Figure 2. CONSUMER OPTIMISM INDEX vs. S&P 5 Consumer Optimism Index* S&P 5 Index 16 1 13 12 8 7 6 5 3 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 Apr 1 9 8 7 * Average of Conference Board and University of Michigan measures. Source: The Conference Board and University of Michigan Survey Research Center and Standard & Poor s Corporation. Page 6 / May 11, 212 / Stock Market Handbook www.

1 13 Figure 21. - ISM Super Composite Index - ISM SUPER COMPOSITE INDEX vs. S&P 5 INDEX 16 12 11 9 Apr 1 13 12 1 8 ISM Super Composite Index* 9 7 6 S&P 5 Index 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 8 7 * Sum of ISM manufacturing composite and ISM nonmanfacturing composite. Source: Institute for Supply Management (ISM) and Standard & Poor s Corporation. 1 12 Figure 22. NATIONAL CONFIDENCE INDEX vs. S&P 5 INDEX National Confidence Index: Average of COI* and ISM Super Composite** 16 1 13 8 Apr 12 1 6 S&P 5 Index 9 8 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 7 * Average of Conference Board and University of Michigan measures. ** Sum of ISM manufacturing composite and ISM nonmanfacturing composite. Source: Institute for Supply Management (ISM), The Conference Board, University of Michigan Survey Research Center and Standard & Poor s Corporation. Page 7 / May 11, 212 / Stock Market Handbook www.

- Consumer Comfort Index - 17 16 Figure 23. BOOM BUST BAROMETER vs. CONSUMER COMFORT INDEX 17 16 1 13 US Boom Bust Barometer* Consumer Comfort Index (index plus ) 5/5 1 13 12 12 11 11 9 9 8 8 7 7 6 6 5 2 21 22 23 24 25 26 27 28 29 21 211 212 213 5 * CRB raw industrials spot price index divided by initial unemployment claims, four-week moving average. Source: Bloomberg, Commodity Research Bureau, Department of Labor. 13 Figure 24. FUNDAMENTAL STOCK MARKET INDICATOR 16 12 11 FSMI = Average of BBB* and Consumer Comfort Index 1 S&P 5 Index 5/5 13 9 12 1 8 7 9 6 8 5 7 2 21 22 23 24 25 26 27 28 29 21 211 212 6 * CRB raw industrials spot price index divided by initial unemployment claims, four-week moving average. Source: ABC News/Washington Post, Commodity Research Bureau, Department of Labor and Standard & Poor s Corporation. Page 8 / May 11, 212 / Stock Market Handbook www.

3 Figure 25. - Januaries & Annual S&P 5 Returns - S&P 5 INDEX JANUARY EFFECT (percent change) 3 2 2 1 1-1 -1-2 -2-3 - January Entire Year 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14-3 - Page 9 / May 11, 212 / Stock Market Handbook www.

2.5 2. Figure 26. - New Charts - S&P 5 INDEX: AVERAGE 1-MONTH UN-ANNUALIZED CHANGE FOR ALL YEARS 1946-212* (percent) 2.5 2. 1.5 1.5 1. 1..5.5.. -.5 -.5-1. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -1. * Excludes January of 1946 and data is through April 212 1 Figure 27. S&P 5 INDEX: MAY MONTH UN-ANNUALIZED CHANGE FOR ALL YEARS 1946-212* (percent) 1 5 5-5 -5-1 195 1954 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21-1 * Data is through April 212 Page 1 / May 11, 212 / Stock Market Handbook www.

6 55 5 45 35 3 25 2 1 5-5 -1 - -2-25 -3-35 - Figure 28. - New Charts - S&P 5 INDEX: ANNUAL CHANGE FOR 1-YEAR PERIODS ENDING IN MAY FOR ALL YEARS 1947-212* (percent) 195 1954 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21 6 55 5 45 35 3 25 2 1 5-5 -1 - -2-25 -3-35 - * Data is through April 212 25 2 Figure 29. S&P 5 INDEX: RANGE OF 1-MONTH UN-ANNUALIZED CHANGE FOR ALL YEARS 1946-212* (percent) 25 2 1 1 5 5-5 -5-1 -1 - - -2-2 -25 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 211 * Excludes January of 1946 and data is through April 212-25 Page 11 / May 11, 212 / Stock Market Handbook www.

9 8 7 6 5 3 2 1-1 -2-3 - -5 Figure 3. S&P 5 INDEX: NUMBER OF 1-MONTH HOLDING PERIODS UP OR DOWN FOR ALL YEARS 1946-212* Up Months** Down Months - Dow Jones Index - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9 8 7 6 5 3 2 1-1 -2-3 - -5 * Excludes January 1946 and data is through April 212. ** No change (.%) month of September, 1979 counted as up month. 1 9 8 7 6 5 4 3 Figure 31. DOW JONES INDUSTRIALS AVERAGE PRICE INDEX (1922-1969) 1 9 8 7 6 5 4 3 2 2 1 1 2 22 24 26 28 3 32 34 36 38 42 44 46 48 5 52 54 56 58 6 62 64 66 68 Source: Dow Jones Inc. Page 12 / May 11, 212 / Stock Market Handbook www.

12 Figure 32. - Dow Jones Index - DOW JONES INDUSTRIALS AVERAGE (1922-1969) (yearly percent change) 12 8 8 6 6 2 2-2 -2 - - -6-8 2 22 24 26 28 3 32 34 36 38 42 44 46 48 5 52 54 56 58 6 62 64 66 68 Source: Dow Jones Inc. -6-8 145 125 Figure 33. DOW JONES INDUSTRIALS AVERAGE PRICE INDEX (197-212) 5/1 145 125 85 85 65 65 45 45 25 25 5 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 Source: Dow Jones Inc. 5 Page 13 / May 11, 212 / Stock Market Handbook www.

8 6 Figure 34. - S&P 5 Forward P/E & Expected Inflation - DOW JONES INDUSTRIALS AVERAGE (197-212) (yearly percent change) 8 6 2 2 5/1-2 -2 - - -6 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 Source: Dow Jones Inc. -6 16 Figure 35. S&P 5 FORWARD P/E AND EXPECTED INFLATION 3 5/4 2 14 1 5/4 12 S&P 5 Forward P/E -1 1 Expected Inflation in 5-year TIPS* -2 8 27 28 29 21 211 212-3 * Nominal minus TIPS yield. Source: Board of Governors of the Federal Reserve System and Thomas Reuters I/B/E/S. Page 14 / May 11, 212 / Stock Market Handbook www.

17 36 31 16 26 Figure Figure 1. 36. S&P 5 P/E vs. EXPECTED INFLATION +46.2% 19 months - Bull Markets - +57.8% 28 months +172.6% 41 months +46.8% 5 months 3 36 31 26 21 5/4 21 16 14 S&P 5 INDEX 216 13 11 5/4 11 12 6 11 S&P 5 P/E* 1921 1922 1923 1924 1925 1926 1927 1928 1929 193 1 6 44 1 39 34 29 24 9 +46.8% 5 months Expected Inflation in 1-year TIPS** +168.6% 2 months +131.8% 23 months 25 26 27 28 29 21 211 212 19 * Price divided by 52-week forward S&P 5 consensus INDEX expected operating earnings per share. ** Nominal minus TIPS yield. 14 Source: Board of Governors of the Federal Reserve System and Thomas Reuters I/B/E/S. 44 39 34 29 24 19 14 9 9 4 193 1931 1932 1933 1934 1935 1936 1937 1938 1939 19 4 25 23 21 +69.2% months +75.2% 3 months +43.2% 12 months 25 23 21 19 19 17 S&P 5 INDEX 17 13 13 11 11 9 9 7 19 1941 1942 1943 1944 1945 1946 1947 1948 1949 195 * Grey shaded areas are bull markets. 7 Page / May 11, 212 / Stock Market Handbook www.

- Bull Markets - 75 69 63 57 51 Figure 2. +43.2% 12 months +119.% 34 months +55.7% 19 months 75 69 63 57 51 45 39 S&P 5 INDEX 45 39 33 33 27 27 21 21 195 1951 1952 1953 1954 1955 1956 1957 1958 1959 196 125 +38.9% 14 months +79.8% 44 months +33.3% 11 months +23.5% 8 months 125 S&P 5 INDEX 75 75 5 196 1961 1962 1963 1964 1965 1966 1967 1968 1969 197 5 1 1 13 12 +51.2% 11 months +33.4% 14 months +53.5% 9 months +31.4% 12 months +23.1% 6 months +28.1% months 13 12 11 11 9 8 S&P 5 INDEX 9 8 7 7 6 197 1971 1972 1973 1974 1975 1976 1977 1978 1979 198 * Grey shaded areas are bull markets. 6 Page 16 / May 11, 212 / Stock Market Handbook www.

- Bull Markets - 45 41 37 33 Figure 3. +43.1% 8 months +228.8% 6 months +64.8 31 months 45 41 37 33 29 29 25 21 S&P 5 INDEX 25 21 17 17 13 13 9 198 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 9 16 148 136 12 112 +64.8% 31 months +166.4% 43 months 16 148 136 12 112 88 76 S&P 5 INDEX 88 76 6 6 52 52 28 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 28 16 6 148 1 132 12 116 +11.5% 84 months +79.9% 14 months 5/1 16 6 148 1 132 12 116 18 18 92 8 S&P 5 INDEX 92 8 76 76 68 68 6 2 21 22 23 24 25 26 27 28 29 21 211 212 * Grey shaded areas are bull markets. 6 Page 17 / May 11, 212 / Stock Market Handbook www.

55 45 35 - Bear Markets - Figure 4. T P T P T P -14.8% -9.4% -44.3% 55 45 35 25 S&P 5 INDEX 25 5 44 39 34 29 24 19 14 1921 1922 1923 1924 1925 1926 1927 1928 1929 193 T P T -83.% -31.8% -54.5% -31.9% S&P 5 INDEX 5 44 39 34 29 24 19 14 9 9 4 27 22 193 1931 1932 1933 1934 1935 1936 1937 1938 1939 19 P T P T -31.9% -34.5% -13.1% -26.6% -2.6% 4 27 22 17 S&P 5 INDEX 17 12 12 7 19 1941 1942 1943 1944 1945 1946 1947 1948 1949 195 * P/T = peaks and troughs of business cycle. Grey shaded areas are bear markets. 7 Page 18 / May 11, 212 / Stock Market Handbook www.

- Bull/Bear Ratios of 1. or Less & Bull Markets - 172 57 76 16 51 71 148 66 136 45 61 12 125 39 56 112 51 33 46 88 27 41 76 36 21 6 31 75 52 26 21 P P TP T P T P T P T P P P T -19.9% -28.% -14.8% -22.2% -19.2% -17.1% -27.1% -2.7% -33.5% -36.1% -19.9% S&P 5 INDEX -49.1% S&P (ratio 5 scale) INDEX 76 57 172 71 51 16 66 148 61 45 136 125 56 12 39 51 112 33 46 88 41 27 76 36 21 6 31 75 52 26 21 28 16 5 9 16 1 6 148 13 1 12 132 12 11 116 18 9 92 8 8 76 7 68 195 199 196 198 1951 1991 1961 1981 1952 1962 1982 1992 1953 1963 1983 1993 1954 1994 1964 1984 1955 1995 1965 1985 1956 1966 1986 1996 1957 1967 1987 1997 1958 1998 1968 1988 1959 1999 1969 1989 196 197 199 2 P T P T P T P -56.8% T P T -36.1% -49.1% S&P 5-48.2% INDEX -19.4% -16.% -17.1% 5/1 S&P 5 INDEX 16 5 9 28 1 16 6 13 148 1 12 132 11 12 116 18 9 92 8 8 76 7 68 6 2 197 21 1971 22 1972 23 197324 1974 25 1975 26 27 1976 281977 29 1978 21 1979 211 198 212 * P/T = peaks and troughs of business cycle. Grey shaded areas are bear markets. S&P 5 INDEX vs. BULL/BEAR RATIO OF 1. OR LESS 18 16 6 5/1 1 12 8 6 Page 19 / May 11, 212 / Stock Market Handbook 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 2 www.

13 12 1 9 8 7 6 5 3 2 Figure 6. Copyright (c) 212. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily DOW JONES complete INDEX and vs. BULL/BEAR its accuracy RATIO cannot be guaranteed. No representation or warranty, express OF or 1. implied, OR LESSis made as to the fairness, accuracy, completeness, or 5/1 correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. This report and the others posted on www. are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company s stock. Predictions, forecasts, estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed on any Yardeni Research, Inc. product, service, report, email or website are proprietary to and constitute valuable intellectual property. No material from any part of www. may be downloaded, transmitted, broadcast, transferred, assigned, 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 reproduced or in any other way used or otherwise disseminated in any form to any person or entity, without the explicit written consent of All unauthorized reproduction or other use of material from shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights. Green shaded areas indicates Bull/Bear Ratio equal to or less than 1.. Source: Wall Street Journal and Investors Intelligence. The recipient should check any email and any attachments for the presence of viruses. accepts no liability for any damage caused by any virus transmitted by this company s emails or website. Additional information available on request. 13 12 1 9 8 7 6 5 3 2

- Bull/Bear Ratios of 1. or Less & Bull Markets - Page 2 / May 11, 212 / Stock Market Handbook www.