2016 ROI Fourth Quarter Edition with Q & A HIS Capital Group Edition | Page 5

S&P 500 PERFORMANCE ACROSS THE ECONOMIC CYCLE
Perhaps the biggest wildcard in 2017 is how the
market will respond to incoming economic and
corporate data points. Largely due to unreasonably
pious central bankers in the U.S. and the Eurozone,
global valuations are approaching their all-time
highs, last reached just prior to the housing market
collapse in 2008. The American valuation picture
has already surpassed the housing market bubble
experience in 2007 and the technology bubble
highs of 2000.

Of course, if one just draws a linear trend line
through the historical experience, the current high
of almost 150% of GDP is about in line with what
a linear trend line would suggest. Perhaps market
can melt-up higher during the first couple years
of a Trump Administration; the risk of a significant
correction is, of course, heightened. Interestingly,
markets only experience positive returns half of the
time during a switch in presidential administrations
– not real comforting (see page 3).

The dotted lines around the linear trend line represent the 95% confidence interval.

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