US Equity Valuations PDF

14 November 2016
Americas/United States
Equity Research
US Equity Strategy
US Equity Strategy
Research Analysts
STRATEGY
Lori Calvasina
212 538 6396
lori.calvasina@credit-suisse.com Valuation Rundown
Sara Mahaffy, CFA
212 325 6824 Following the sharp rotation seen within the US equity market in the
sara.mahaffy@credit-suisse.com immediate aftermath of the Presidential Election, we have updated our
Joseph Eddy valuation models for the size and style trades, as well as key themes and
212 325 5608
joseph.eddy@credit-suisse.com industry groups, as of the Nov 10th close. Top takeaways:
■ Broad Context: S&P 500 valuations remain elevated – an ongoing
overhang for the intermediate/longer term - but remain below peaks,
pointing to some potential for stocks to move up short term. The median
S&P 500 P/E is 17.6x, below its post Tech bubble & 2016 peaks of ~18.5x.
■ Size: Despite strong outperformance immediately post the Election, small
caps remain deeply compelling relative to large. While some short term
profit taking in small caps wouldn't surprise us, we think small cap is likely
to continue outperforming large on an intermediate to longer-term basis
given its deep valuation appeal and its more domestically focused revenue
bias, given the trade views of the new administration.
■ Style: Growth remains cheap vs. value on P/E and PEG, but this condition
was in place before the election and hasn't been driving the trade in our
view. Higher interest rates, greater optimism around a recovery in earnings
for value companies, sector rotation (into Banks, out of Tech), and our
sense that a shift out of growth and back to value has been long overdue
make us believe value can continue to outperform (at least as long as the
path for interest rates remains higher).
■ Themes: Despite the strong rally in cyclicals and the sharp
underperformance of defensive dividend yields plays, cyclicals remain
deeply compelling vs. defensives on valuation. Meanwhile, the high
dividend yield trade remains highly overvalued relative to non-dividend
payers. We continue to favor cyclicals and non-dividend payers given the
shift higher in interest rates, and a breakdown in defensive earnings
revisions trends, a driver of the defensive trade in the first half of the year.
■ Industry Groups: Valuations for bond proxies have improved, but not
enough to tempt us (Utilities, Food Beverage & Tobacco remain most
onerous, reinforcing our underweights). The valuation case for Financials
has become less compelling, but generally remains intact reinforcing our
over weights, for now (Diversified Financials looks most undervalued,
Banks look best in large cap). Pharma/Biotech valuations are neutral on
our models, reinforcing our market weight. Capital Goods valuations have
worsened, and the group is now the most overvalued group in large cap (a
counterbalance to our positioning work indicating that the group has been
deeply under owned, and keeping us comfortable with our underweight).
Small cap Semis and Software/Svcs valuations are retreating from peaks.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
14 November 2016
What's Priced In
Following the sharp rotation seen within the US equity market in the immediate aftermath
of the Presidential Election, we have updated our valuation models for the size (small vs.
large), style (growth vs. value), and thematic (cyclical vs. defensive, high vs. non dividend
payer, high and low international vs. domestic) trades, as well as the 24 industry groups
(within both large cap and small cap). Our data is as of the November 10th close, the post-
election high.
Broad US Market Context

Though our work suggests that valuations remain an overhang for US equities on an
intermediate to longer-term basis, it also tells us that there is some potential for US
equities to rally a bit higher in the short term.
Our large cap valuation model has slipped off of its 2016 highs, but remains elevated.
After the post-Election rally seen so far, our multi factor S&P 500 valuation model is at
1.31 standard deviations above its 30 year average, in a range consistent with below trend
12 month forward returns. Over the summer, our model crossed 1.5 standard deviations,
levels typically accompanied by 12 month forward declines. On balance, valuations are
still a headwind for the US equity market, but to a lesser extent than they were over the
summer.
Figure 1: Large Cap Valuations Have Eased a Bit, Figure 2: Large Cap Valuations vs. 12 Month
Are But Still Elevated Forward Returns
Large Cap Valuation - Long Term Model Large Cap Valuation Test - Long Term Model
S&P 500; unweighted median LTM P/E ex negative EPS, Average 12 month forward return of the S&P 500 from
P/B, LTM P/S, NTM P/E ex negative EPS specified range on our multi factor valuation composite
3 75%
30%
2 50% 25%
1 25% 20%
0 0% 15%
-1 -25% 10%
-2 -50% 5%
-3 -75% 0%
-5%
12 Month Forward Return (right axis)

Valuation Composite (left axis)
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES, Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES,
Compustat; updated as of November 10th, 2016 Compustat; updated as of November 10th, 2016
Within the model, the NTM P/E has improved from 18.5x to 17.6x – due largely to strong
EPS growth expectations next year. This is also the mid-point of the recent range and the
range in place from 2003-2007 when markets generally traded in the 15.8-18.5x range.
Outside of the Financial Crisis and the shocks of 2010-2011, since the recovery off the
Tech bubble lows US equities have generally stayed within this more normalized range,
never breaking below the long-term average of 15.5x. Going forward, if the rally persists,
we think that 18.5x is a reasonable ceiling to anticipate for the median S&P 500 P/E.
US Equity Strategy 2
14 November 2016
Unless earnings expectations are adjusted higher (which is hard to imagine since growth
of 9.5% is already expected on a weighted median basis for the S&P 500 on IBES
consensus), this could imply a move of 5.6% higher in the S&P 500 from Thursday's close,
to 2288. Should equities take a breather from the post-Election rally, we would look for
support in the S&P 500 at a median P/E level of around 16.6x, about 5-6% below
Thursday's close and just north of 2000 on the index.
Figure 3: S&P 500 Forward P/E Over Time Figure 4: Upside Scenarios for the S&P 500
Large Cap NTM P/E S&P 500 Upside Scenarios Based On Peak NTM P/E's
Ex Negative EPS, Unweighted Median, S&P 500
2004 -
22
2016 Peak Early 2015 2006
20
Median NTM P/E 18.55 18.35 18.56
18
16 Date 7/31/2016 5/31/2015 12/31/2003
14
Implied Price Level 2288 2263 2290
12
Implied Upside % (From
5.6% 4.4% 5.7%
10 Thursday's Close)
Notable peaks at 18.6x (12/03), 18.4x (12/04), 18x (5/2007), 18.4x (7/13), 18.4x (2/15), 18.6x Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES,
(7/29); Notable troughs at 16.1x (8/04), 15.8x (7/2006), 16.7x (9/15 & 1/16) Compustat; updated as of November 10th, 2016
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES,

Compustat; updated as of November 10th, 2016
Figure 5: Downside Scenarios for the S&P 500

S&P 500 Downside Scenarios Based On Trough NTM P/E's
2004 - LT Avg
Early 2016 2015 2011 2010 2006 (since '84)
Median NTM P/E 16.64 16.57 11.73 12.97 15.84 15.46
Date 1/31/2016 9/30/2015 9/30/2011 8/31/2010 7/31/2006
Implied Price Level 2053 2044 1447 1600 1954 1907
Implied Downside %
-5.3% -5.7% -33.2% -26.2% -9.9% -12.0%
(From Thursday's Close)
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES, Compustat; updated as of November 10th, 2016
Size
Valuations Still More Favorable For Small Cap Than Large Cap Despite
Recent Outperformance – Trade Has Room To Run
Small cap valuations have moved up on the back of the post-Election rally, but don’t look
highly overvalued yet. Our multi factor Russell 2000 valuation composite has risen to 0.90
standard deviations above its 30 year average. At these levels, small cap gains have
averaged 5% over the next 12 months.
Importantly, despite the strong outperformance seen in small caps relative to large caps in
the immediate aftermath of the Election, small caps still appear cheap vs. large on our
model. After falling to its 1990 low earlier this year, our multi factor R2000/S&P 500
14 November 2016
valuation model has climbed to reach a level -0.68 standard deviations below its 30 year
average. On average, small/large relative returns have been 4% from these levels over the
next 12 months. The valuation case for small relative to large continues to run fairly deep
at the industry group level.
While some short term profit taking in small caps wouldn't surprise us given the sharp
move seen over the past week (especially if short term/backward looking economic data
like the ISM takes a breather), we think small cap is likely to continue outperforming large
on an intermediate to longer-term basis given its more domestically focused revenue bias,
the protectionist leanings of the new administration, and investor fears over its implications
for trade policy. The international revenue gap between small caps and large caps is
meaningful – 19% for Russell 2000 companies, compared to 31% for S&P 500 companies
as of 2015's fiscal year end.
Figure 6: Small Cap Valuations Have Climbed Figure 7: Small Cap Valuations vs. 12 Month
Recently But Are Well Below Peak Forward Returns
Small Cap Valuation - Long Term Model Small Cap Valuation Test - Long Term Model
Russell 2000; unweighted median LTM P/E ex negative EPS, Average 12 month forward return of the Russell 2000 from
P/B, LTM P/S, NTM P/E ex negative EPS specified range on our multi factor valuation composite
3 75% 45%
40%
2 50%
35%
1 25% 30%
25%
0 0%
20%
-1 -25% 15%
10%
-2 -50%
5%
-3 -75%
0%
-5%

14 November 2016
Figure 9: Small/Large Valuations vs. 12 Month

Figure 8: Small Caps Remain Attractive vs. Large Forward Returns
Small/Large Relative Valuation - Long Term Model Small/Large Relative Valuation Test - Long Term Model
Russell 2000 vs. S&P 500; unweighted median LTM P/E ex Average 12 month forward return of the Russell 2000 relative
negative EPS, P/B, LTM P/S, NTM P/E ex negative EPS to the S&P 500 from specified range
3 33% 20%
2 22%
15%
1 11%
10%
0 0%
5%
-1 -11%
0%
-2 -22%
-5%
-3 -33%
-10%
12 Month Forward Relative Return (right axis)

Figure 10: Small/Large Forward P/E's By Industry Figure 11: Small/Large Forward P/E's By Industry
Group vs. History Since 2004 Group vs. History Since 1984
Small vs Large Cap Relative Valuation Small vs Large Cap Relative Valuation Rankings
NTM P/E ex Neg EPS, Z Score since '04, R1, R2 NTM P/E ex Neg EPS, Z Score since '84, R2000, R1000
Transportation Tech HW & Equipment
Tech HW & Equipment Semis & Semi Equipment
Semis & Semi Equipment Software & Services
Software & Services Food Beverage & Tobacco
Household & Personal Products Transportation
Food Beverage & Tobacco Insurance
Consumer Services Automobiles & Components
Insurance Consumer Services
Automobiles & Components Health Care Equipment & Services
Banks Household & Personal Products
Telecommunication Services Banks
Materials Utilities
Media Materials
Utilities Retailing
Diversified Financials Consumer Durables & Apparel
Health Care Equipment & Services Media
Consumer Durables & Apparel Food & Staples Retailing
Food & Staples Retailing Capital Goods
Pharma, Biotech & Life Sci Pharma, Biotech & Life Sci
Retailing Telecommunication Services
Commercial & Professional Services Diversified Financials
Capital Goods Commercial & Professional Services
Energy Energy
(4) (3) (2) (1) - 1 2 (2) (1) - 1 2
14 November 2016
Figure 12: International Revenue Exposure By Market Cap

International Revenue Exposure For Small, Mid, Large & Mega Cap
Based on FY 2015 Revenues
40%
35%
30%
25%
20%
15%
10%
5%
0%
Russell 2000 S&P 600 Russell 2500 Russell Mid Cap S&P 400 Russell 1000 S&P 500 Russell Top 200 S&P 100
Europe, Middle East & Africa Asia Pacific & Australia Central & South America Unassigned
Source: CS US Equity Strategy, S&P Capital IQ, Russell; based on FY 2015 revenues
Mid Cap Valuations Still Expensive, But Also Below Peak

Similar to what we are seeing in large cap, mid cap valuations have slipped from the highs
achieved in 2015 (which has also been the high end of the historical range), but remain
elevated. Our multi factor Russell mid cap valuation composite is at 1.18 standard
deviations above its 30 year average, in a range where mid-caps have averaged 2% gains
on a 12 month forward basis.
Relative to small cap, mid cap valuations have improved sharply but remain elevated,
suggesting that small caps are still the better bargain for now.
The good news for mid-caps is that they now look slightly undervalued relative to mega
caps. Mid cap returns typically outpace those of mega caps on a 12 month forward basis
from these levels. Although large cap managers seldom dip down into true small caps,
they do often add mid cap exposure to their portfolios in risk on environments, and we
think the valuation data supports making such a move now.
14 November 2016
Figure 14: Mid Cap Valuations vs. 12 Month Forward

Figure 13: Mid Remains Expensive But Below Peak Returns
Mid Cap Valuation - Long Term Model Mid Cap Valuation Test - Long Term Model
Russell mid cap; unweighted median LTM P/E ex negative Average 12 month forward return of the Russell mid cap index
EPS, P/B, LTM P/S, NTM P/E ex negative EPS from specified range on our multi factor valuation composite
3 75% 45%
40%
2 50%
35%
1 25% 30%
25%
0 0%
20%
-1 -25% 15%
10%
-2 -50%
5%
-3 -75% 0%
-5%

Figure 16: Mid/Small Valuations vs. 12 Month

Figure 15: Mid Remains Expensive vs. Small Forward Returns
Mid/Small Relative Valuation - Short Term Model Mid/Small Relative Valuation Test - Short Term Model
Russell mid cap relative to Russell 2000; unweighted median Average 12 month forward return of the Russell mid cap index
LTM P/E Ex Neg EPS, P/B LTM P/S, Normalized P/E, NTM relative to the 2000 from specified range
EV/Sales, NTM P/E Ex Neg EPS, NTM P/CF
10%
3 15%
2 10% 5%
1 5%
0%
0 0%
-1 -5% -5%
-2 -10%
-10%
-3 -15%
-15%

14 November 2016
Figure 18: Mid/Mega Valuations vs. 12 Month

Figure 17: Mid Looks Slightly Attractive vs. Mega Forward Returns
Mid/Mega Relative Valuation - Long Term Model Mid/Mega Relative Valuation Test - Long Term Model
Russell mid cap relative to Russell Top 200; unweighted Average 12 month forward return of the Russell mid cap index
median LTM P/E ex negative EPS, P/B, LTM P/S, NTM P/E relative to Top 200 from specified range
ex negative EPS
14%
3 30%
12%
2 20%
10%
1 10% 8%
6%
0 0%
4%
-1 -10%
2%
-2 -20% 0%
-3 -30% -2%
-4%

Style
Growth Still Looks Cheap vs. Value, But This Hasn't Been Driving The
Shift Into Value
We don't think that valuation is the best indicator to make a call on the growth – value
trade. Sector inputs, sentiment drivers, and flows matter much more to this trade in our
experience. Still we do monitor valuations using relative forward P/E and PEG ratios
between the two size segments, valuation metrics which have worked a bit better than
others at predicting 12 month forward returns between the two size segments. There has
been no meaningful change on these indicators after the election. Prior to the election,
growth looked cheap relative to value on both P/E and PEG in small cap, mid cap and
large cap.
We do not view this as a reason to veer away from value, however, as this condition was
in place prior to the election. In our view, recent value outperformance has been driven by
(1) strong outperformance by Financials and under performance by Tech (these are the
two biggest sector weights in value and growth, and relative performance between these
two sectors tend to move in tandem with the value/growth relative performance trade over
time), (2) the upward move in interest rates – given that trends in interest rates – both the
Fed Funds target rate and the 10 year yield – have moved in tandem with the value/growth
relative performance trade over the past decade, (3) our sense that the growth leadership
seen in the equity market was overdue for a shift back to value coming into 2016, since
the growth outperformance cycle that began in 2006 was the longest style cycle (growth or
value driven) in the history of the Russell indexes coming into 2016, and (4) the high
degree of optimism surrounding the anticipated recovery in EPS growth for value
companies (though growth expectations are technically higher for growth companies than
value companies, the ramp up in value EPS growth is expected to be stronger in value
companies than growth companies).
14 November 2016
Figure 19: Small Growth Looks Attractive vs. Value Figure 20: Small Growth Looks Attractive vs. Value
on a Relative P/E Basis on a Relative PEG Basis
Small Cap Growth/Value Relative Forward P/E vs. 12 Small Cap Growth/Value Relative PEG Ratio vs. 12
Month Forward Return Month Forward Return
NTM Ex Negative EPS, Unweighted Median Ex Negative EPS, Unweighted Median
1.39 25% 1.01 20%
20%
1.34 0.96 15%
15%
1.29 0.91 10%
10%
1.24
5% 0.86 5%
1.19
0% 0.81 0%
1.14
-5%
0.76 -5%
1.09
-10%
1.04 0.71 -10%
-15%
0.99 -20% 0.66 -15%
0.94 -25%
0.61 -20%
Forward Return (right axis) NTM P/E ex Neg EPS (left axis) Forward Return (right axis) PEG (left axis)
Figure 21: Mid Growth Looks Attractive vs. Value on Figure 22: Mid Growth Looks Attractive vs. Value on
a Relative P/E Basis a Relative PEG Basis
Mid Cap Cap Growth/Value Relative Forward P/E vs. 12 Mid Cap Growth/Value Relative PEG Ratio vs. 12 Month
Month Forward Return Forward Return
Ex Negative EPS, Unweighted Median Ex Negative EPS, Unweighted Median
1.36 20% 1.03 20%
1.31 15%
1.26 10% 0.93 10%
1.21 5%
1.16 0% 0.83 0%
1.11 -5%
1.06 -10% 0.73 -10%
1.01 -15%
0.96 -20% 0.63 -20%
14 November 2016
Figure 23: Large Growth Looks Attractive vs. Value Figure 24: Large Growth Looks Attractive vs. Value
On A Relative P/E Basis On A Relative PEG Basis
Large Cap Cap Growth/Value Relative Forward P/E vs. Large Cap Growth/Value Relative PEG Ratio vs. 12
12 Month Forward Return Month Forward Return
Ex Negative EPS, Unweighted Median Ex Negative EPS, Unweighted Median
1.37 20% 1.05 21%
1.32 15% 1.00

14%
1.27 10% 0.95
7%
1.22 5% 0.90
1.17 0% 0.85 0%
1.12 -5% 0.80

-7%
1.07 -10% 0.75
-14%
1.02 -15% 0.70
0.97 -20% 0.65 -21%
Figure 25: Rate Hike Helped Spark Rotation Back To Figure 26: Rate Hike Helped Spark Rotation Back To
Value In Small Cap Value In Large Cap
Small Cap Value/Growth Rel Perf vs. Fed Funds Target Large Cap Value/Growth Rel Perf vs. Fed Funds Target
Price Returns, R2000V, R2000G Price Returns, R1000V, R1000G
1.9 6 1.60 6
1.8 5 1.50 5
1.7 1.40 4
4
1.30
1.6 3
3 1.20
1.5 2
2 1.10
1.4 1
1.00
1.3 1
0.90 0
1.2 0
0.80 -1
1.1 -1
R1000V/R1000G Rel Perf (Left Axis) Fed Funds Target (right axis)
R2000V/R2000G Rel Perf (Left Axis) Fed Funds Target (right axis)
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Thomson Reuters Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Thomson Reuters
14 November 2016
Figure 27: The Latest Growth Outperformance Cycle Figure 28: Growth/Value Relative Performance
Was the Longest Seen in 3 Decades Peaked at the End of December
Based on Monthly Total Returns All Cap Growth vs. Value Relative Performance
R3000 Growth Monthly Total Returns, R3000 Growth, R3000 Value
Growth R3000 Less Value
Growth Outperformance Cycles # Months Perf Value Perf Rel Return
1.4
July 31 1979 - Nov 30 1980 16 66.6% 32.1% 34.5%

1.2
Aug 31 1988 - Dec 31 1991 40 102.5% 49.5% 53.0%
1.0
Sept 30 1993 - Feb 29 2000 77 317.0% 141.2% 175.8%
July 31 2006 - Dec 31 2015 113 131.7% 65.8% 65.9% 0.8
Growth 0.6
Less Value
Value Outperformance Cycles # Months Rel Return
0.4
Nov 30 1980 - Aug 31 1988 93 89.3% 212.6% -123.3%
0.2
Dec 31 1991 - Sept 30 -1993 21 5.2% 36.3% -31.2%
Feb 29 2000 - July 31 2006 77 -36.5% 73.2% -109.8% -
Source: CS US Equity Strategy, Russell, Bloomberg, performance as of 10/31/2016 Source: CS US Equity Strategy, Russell, Bloomberg, performance as of 10/31/2016
Figure 29: Tech, HC Much Greater Weight in Small Figure 30: Tech Much Greater Weight in Large Cap
Cap Growth; Fin's Much Greater Weight in Value Growth; Energy, Fin's Much Greater Weight in Value
Russell 2000 Growth Russell 2000 Value Growth Less Value Russell 1000 Growth Russell 1000 Value Growth Less Value
Sector Weight Weight Weight Sector Weight Weight Weight
Consumer Discretionary 14.7% 10.6% 4.1% Consumer Discretionary 20.6% 4.9% 15.7%
Consumer Staples 3.1% 2.9% 0.2% Consumer Staples 9.6% 8.9% 0.8%
Energy 1.2% 5.2% -4.0% Energy 0.6% 13.5% -12.8%
Financials 4.9% 30.1% -25.2% Financials 2.7% 23.4% -20.7%
Health Care 23.4% 4.9% 18.5% Health Care 16.8% 11.5% 5.3%
Industrials 15.5% 12.6% 2.9% Industrials 10.4% 9.5% 0.9%

Info Tech 25.5% 10.6% 15.0% Info Tech 31.5% 10.0% 21.5%
Materials 4.9% 4.5% 0.3% Materials 3.6% 2.9% 0.7%

Real Estate 5.3% 11.1% -5.7% Real Estate 2.8% 5.1% -2.3%
Telecom Services 0.8% 0.7% 0.0% Telecom Services 1.2% 3.9% -2.7%
Utilities 0.8% 6.9% -6.1% Utilities 0.1% 6.5% -6.4%
Source: CS US Equity Strategy, Russell, Capital IQ/ClariFi, as of 3Q16 Source: CS US Equity Strategy, Russell, Capital IQ/ClariFi, as of 3Q16
14 November 2016
Figure 31: The Growth/Value Relative Trade Has Largely Been Driven by the
Tech/Financials Relative Trade Over Time
All Cap Growth/Value Relative Performance vs.
Tech/Financials Relative Performance
Russell 3000, total returns
0.90 1.50
0.85
1.25
0.80
1.00
0.75
0.70 0.75
Growth/Value Perf Tech/Fin Perf
Source: CS US Equity Strategy, Russell, Capital IQ/ClariFi, as of 3Q16
Note that we use the

MSCI definitions of
Themes
defensives (Staples, Outperformance of Cyclicals & Underperformance of Defensive High
Energy, Health Care, Dividend Payers Seems Likely to Persist
Telecom, and Utilities)
and cyclicals The first half of 2016 was dominated by leadership in defensives over cyclicals, and high
(Consumer dividend yields relative to non-payers. Recently, both trades have wobbled, in part due to
Discretionary, extreme valuations that have been seen among defensives and dividend payers.
Financials, REITs,
Despite the recent rally cyclicals relative to defensives, and the sharp underperformance
Industrials, Tech, and
of defensive dividend yields plays like Utilities, Staples, and REITs, our valuation work
Materials).
suggests that cyclicals remain deeply compelling relative to defensives on valuation.
Meanwhile, the high dividend yield trade continues to look highly overvalued relative to
non-dividend payers.
We think that the outperformance of cyclicals and the underperformance of defensive high
dividend payers is likely to persist and note that (1) earnings revisions have stayed
resilient for large cap cyclicals while moving lower for defensives – a reversal of conditions
in place in 1H16 when trends were strong for defensives and weak for cyclicals, (2) higher
interest rates – given that falling rates have clearly supported the outperformance of high
dividend payers, (3) faltering flows into defensive sector funds and low vol ETFs – which
helped spark the strong outperformance of defensives and dividend payers in early 2016,
and (4) our sense that there is no longer a crowding problem in cyclicals among mutual
funds, as was the case to start the year when the percent of funds overweight cyclicals
14 November 2016
crossed 70% in small cap funds and approached that threshold in large cap (a problem in
that this tends to represent the peak).
Figure 32: Small Cap Cyclicals Are Still Cheap Figure 33: Large Cap Cyclicals Are Still Cheap
Relative to Defensives Relative to Defensives
Small Cap NTM P/E: Cyclicals vs. Defensives Large Cap NTM P/E: Cyclicals vs. Defensives
Unweighted Median, Ex Neg EPS, R2000 Unweighted Median, Ex Neg EPS, R1000
1.4 1.4
1.3 1.3
1.2 1.2
1.1 1.1
1.0 1.0
0.9 0.9
0.8 0.8
0.7 0.7
0.6 0.6
Cyclicals vs. Defensives Relative NTM P/E Average since 1984 Cyclical vs Defensive Relative NTM P/E Average since 1984
Compustat; updated as of November 10th, 2016\ Compustat; updated as of November 10th, 2016\
Figure 34: Small Cap High Dividend Names Are Figure 35: Large Cap High Dividend Names Are
Pricey vs. Non Dividend Payers Pricey vs. Non Dividend Payers
Small Cap NTM P/E: High Div Yield vs. No Dividend Large Cap NTM P/E: High Div Yield vs. No Dividend
1.2 1.1
1.1 1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4 0.4
0.3 0.3
0.2 0.2
High Div Yield vs. No Dividend Relative NTM P/E High Div Yield vs No Dividend Relative NTM P/E
Avg since 1984 Avg since 1984
Avg since 2004 Avg since 2004
CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES, Compustat; CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES, Compustat;
updated as of November 10th, 2016 updated as of November 10th, 2016
14 November 2016
Figure 36: Falling Interest Rates Have Boosted High Figure 37: Flows to Risk Oriented Smart Beta ETFs
Dividend Yielders vs. Those That Have No Have Turned Negative (Mostly Low/Minimum
Dividends Volatility Funds)
Large Cap High Div/No Div vs. 10 Year Yield Strategic Beta Flows: Risk Oriented
2.00 4.5
Bn $, Passive & ETF
3
4
1.90
3.5
2
1.80 3
2.5
1.70 1
2
1.60 1.5
-
1
1.50
0.5
(1)
1.40 0
(2)
Large Cap High Div Yield vs. No Dividends 10 Year Yield
Source: CS US Equity Strategy, S&P Capital IQ/ClariFi, Russell, Thomson CS US Equity Strategy, Morningstar; through September 2016
Reuters/Datastream, as of 10/31/2016
Figure 38: Defensive Revisions Have Faltered Figure 39: Cyclical Revisions Are Holding Up
Large Cap Defensives: % EPS Est Revisions To The Large Cap Cyclicals: % EPS Est Revisions To The
Upside Upside
FY1, R1000 FY1, R1000
90%
90%
80%
80%
70%
70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
1 Mth 3 Mth
1 Mth 3 Mth
Source: CS US Equity Strategy, S&P Capital IQ/ClariFi, Russell, Thomson Reuters/IBES, as Source: CS US Equity Strategy, S&P Capital IQ/ClariFi, Russell, Thomson Reuters/IBES, as
of 10/31/2016 of 10/31/2016
14 November 2016
Trade Fears Coming At A Time When Internationally Exposed Stocks

Look Vulnerable On Valuations
Separately, it is worth noting that concerns about the future of US trade policy are coming
at a time when stocks with high international exposure look vulnerable from a valuation
perspective. As we show below, stocks with high international exposure within both small
cap and large cap look overvalued relative to domestically focused names using forward
P/E.
Within large cap, our work shows that stocks with high international performed in line with
domestics in the first two days after the Election, while stocks with low international
exposure performed the best. Given that there have been no indications in the aftermath
of the election that the new President is likely to soften his rhetoric on trade, we worry that
relative performance of the high international bucket could worsen. Note that throughout
2016, one of the strongest correlations that we found between the two candidates' polling
numbers and performance was the link between the high international/domestic trade and
Clinton's polling numbers.
Figure 40: Small Cap Valuations: High International Figure 41: Large Cap Valuations: High International
vs. Domestic vs. Domestic
Small Cap NTM P/E: High Int'l vs. Domestic Exposure Large Cap NTM P/E: High Int'l vs. Domestic Exposure
1.3 1.2
1.2
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.7 0.7
0.6
0.6
High vs. Domestic Relative NTM P/E Average since 2006 High vs. Domestic Relative NTM P/E Average since 2006
14 November 2016
Figure 42: Small Cap Stocks With High Int'l Sales Figure 43: Large Cap Stocks With High Int'l Sales
Moved More In Sync With Clinton Moved More In Sync With Clinton
Small Cap High Int'l Exposure Performance Relative To Large Cap High Int'l Exposure Performance Relative To
Domestic Exposure vs. Clinton Polls Domestic Exposure vs. Clinton Polls
R2000, total returns, high int'l rel no int'l revenue exposure R1000, total returns, high int'l rel no int'l revenue exposure
1.15 52 1.04 52
50 1.02 50
1.10
48 1.00 48
1.05
46 0.98 46
44 0.96 44
1.00
42 0.94 42
0.95
40 0.92 40
0.90 38 0.90 38
High international relative to domestic exposure Clinton High international relative to domestic exposure Clinton
Source: CS US Equity Strategy, Capital IQ/ClariFi, Russell, Thomson Reuters, exposure Source: CS US Equity Strategy, Capital IQ/ClariFi, Russell, Thomson Reuters, exposure
based on FY 2015 revenues, performance through November 4th based on FY 2015 revenues, performance through November 4th
Industry Groups
The most noteworthy development within US equity markets in the immediate aftermath of
the US election has been the sharp sector rotation that has been seen – out of defensive
yield plays like Utilities, REITs and Staples (given the strong move higher in yields on the
back of expectations for a ramp up in inflation), along with Tech – an issue that we
explored in last week's Carving Up The Consensus report, and where Semis earnings
revisions have suddenly stumbled after a strong upward move in the first half of the year –
an issue that we explored in our recent EPS Report Card. Meanwhile, Financials, Health
Care, Industrials, and Materials have strongly outperformed alongside hopes of regulatory
relief, fiscal stimulus (primarily through infrastructure spending), and a planned revamping
of Health Care policy.
From a valuation perspective, the pump was already primed for many, though not all, of
these shifts, and in this context we have been monitoring valuation levels closely.
14 November 2016
Figure 44: Small Cap Industry Group Valuations Figure 45: Large Cap Industry Group Valuations
Relative to Benchmark– Summary of Our Models Relative to Benchmark – Summary of Our Models
Small Cap Industry Group Valuation Model Rankings Large Cap Industry Group Valuation Model Rankings
Russell 2000, Relative to Benchmark, Z Score vs. Post 2004 Russell 1000, Relative to Benchmark, Z Score vs. Post 2004
Average, ex REITs Average, ex REITs
Semis & Semi Equipment Capital Goods
Telecom Svcs Materials
Food Beverage & Tobacco Energy
HC Equipment & Svcs Food Beverage & Tobacco
Materials Utilities
Software & Services HH & Personal Products
Autos & Components Pharma, Biotech & Life Sci
Capital Goods Commercial & Professional Svcs
Utilities Food & Staples Retailing
Banks Banks
Media Insurance
Pharma, Biotech & Life Sci HC Equipment & Svcs
Insurance Autos & Components
Transportation Semis & Semi Equipment
Food & Staples Retailing Transportation
Energy Retailing
HH & Personal Products Consumer Durables & Apparel
Tech HW & Equipment Diversified Financials
Commercial & Professional Svcs Telecom Svcs
Consumer Services Consumer Services
Diversified Financials Tech HW & Equipment
Consumer Durables & Apparel Software & Services
Retailing Media
-2 -1 0 1 2 3 -3 -2 -1 0 1 2 3
Bond Proxies – Some Valuation Improvement Seen, But Not Enough To

Get Us Intrigued
For the most part, defensive yield plays had looked highly overvalued on our industry
group valuation models ahead of the Election, causing us to take a cautious approach (we
downgraded Utilities, Food Beverage & Tobacco, and Food & Staples Retail to
underweight back in April). There has been some improvement on most of the groups that
fit this theme, but the degree of this improvement has varied greatly and at this time we
see no time to veer away from a generally cautious stance (we remain underweight
Utilities, Food Beverage & Tobacco, and Food & Staples Retail, and market weight REITs,
Telecom, and Household & Personal Products).
The most compelling valuations can be found in large cap Telecom, though this condition
has been in place for some time. In our view it is the most natural place to look for a
contrarian opportunity, but we don't think valuation will spark a rotation back into this group
on its own.
REITs have shown the most improvement within this theme. The group has fallen sharply
on price to FFO (to the low end of their post Financial Crisis range in large) and look far
more intriguing than they did in the late summer months, when this indicator returned to
the high end of its post Financial Crisis range.
Food & Staples Retail and Household & Personal Products have also shown some
improvement, and are back down to neutral on our large cap valuation models. But they
don't look cheap yet and our models do not point to a reason to step into either at this
time.
Although Utilities valuations have fallen sharply on both our small cap and large cap,
valuations are still slightly elevated on our models.
Food Beverage & Tobacco appears to be the most overvalued defensive yield play at the
moment – it remains the third most overvalued group on our small cap models across all
14 November 2016
sectors, and the fourth most overvalued group in large cap. We would be most cautious
here and on Utilities.
Figure 46: Small Cap REITs – Price/FFO Has Slipped Figure 47: Large Cap REITs – Price/FFO Has Fallen
Below Its Long Term Average Sharply, Now In Line With Long Term Average
Price/FFO: Small Cap REITs Price/FFO: Large Cap REITs
Unweighted Median, R2000 Unweighted Median, R1000
20 20
15 15
10
10
5
5
-
-
R2000 P/FFO - Median Average since 2008 R1000 P/FFO - Median Average since 2008
Average since 2010 Average since 2010
Figure 48: Small Cap Utilities Relative Valuations Figure 49: Large Cap Utilities Relative Valuations
Have Fallen Sharply, But Still Elevated Have Fallen Sharply, But Still Elevated
Small Cap Utilities Relative Valuation Model Large Cap Utilities Relative Valuation Model
Eq. wtd. median LTM P/E Ex Neg, P/B, Norm P/E, NTM Eq. wtd. median LTM P/E Ex Neg, P/B, Norm P/E, NTM
EV/Sales, NTM P/E Ex Neg, NTM P/CF; vs. R2000 EV/Sales, NTM P/E Ex Neg, NTM P/CF; vs. R1000
3 45% 3 45%
2 30% 2 30%
1 15% 1 15%
0 0% 0 0%
-1 -15% -1 -15%
-2 -30% -2 -30%
-3 -45% -3 -45%
12 Mo. Fwd Return (shading, right axis) Model (line, left axis) 12 Mo. Fwd Return (shading, right axis) Model (line, left axis)
14 November 2016
Figure 50: Small Cap Food, Beverage & Tobacco Figure 51: Large Cap Food, Beverage & Tobacco
Valuations Have Eased, But Remain Expensive Valuations Have Eased, But Remain Expensive
Small Cap Food, Beverage & Tobacco Relative Valuation Large Cap Food, Beverage & Tobacco Relative Valuation
Eq. wtd. combination of median P/B, LTM P/S, Norm P/E, Eq. wtd. combination of median P/B, LTM P/S, Norm P/E,
NTM EV/Sales, NTM P/CF; vs. R2000 NTM EV/Sales, NTM P/CF; vs. R1000
3 33%
3 33%
2 22%
2 22%
1 11% 1 11%
0 0% 0 0%
-1 -11% -1 -11%
-2 -22%
-2 -22%
-3 -33%
-3 -33%
Financials – Valuation Story Less Compelling, But Remains Intact

We were overweight Banks – as well as Insurance and Diversified Financials – coming
into the Election given deeply compelling valuations, our expectation that the groups would
benefit from Fed rate hikes, improving earnings revisions trends (which has started to
rebound after hitting Financial Crisis lows earlier this year).
Despite the strong outperformance seen in Financials in the immediate aftermath of the
Election, the valuation story generally remains intact, though it is clearly not as compelling
as it was before the Election. Despite moving up, our large cap valuation indicators remain
at least slightly attractive for all three industry groups (Diversified Financials has
rebounded the least, and remains one of the most compelling groups across all sectors).
Within small cap, valuations for Banks and Insurance have returned to neutral on our
models, but Diversified Financials continues to look deeply compelling.
Figure 52: Small Cap Banks Relative Valuations Figure 53: Large Cap Banks Relative Valuations
Have Risen a Bit, Appear Fairly Valued Have Climbed Sharply, But Remain Attractive
Small Cap Banks Relative Valuation Large Cap Banks Relative Valuation
Eq. wtd. median LTM P/E Ex Neg EPS, P/B, LTM P/S, Eq. wtd. median LTM P/E Ex Neg EPS, P/B, LTM P/S,
NTM EV/Sales, NTM P/E Ex Neg; vs. R2000 NTM EV/Sales, NTM P/E Ex Neg; vs. R1000
3 60% 3 60%
2 40% 2 40%
1 20% 1 20%
0 0% 0 0%
-1 -20% -1 -20%
-2 -40% -2 -40%
-3 -60% -3 -60%
14 November 2016
Capital Goods – Dramatically Worse Valuations Keep Us Comfortable On

The Sidelines, Despite Hopes For Heightened Infrastructure Spending
We were underweight Capital Goods ahead of the Election, as expensive valuations and
falling earnings revisions trends outweighed the under owned nature of the group in our
minds. Within large cap, the valuation profile of the group has worsened materially since
the Election, and it is now the most overvalued industry group in large cap on our models,
at 2 standard deviations above its long-term average. We also worry that earnings
revisions have more room to fall given the recent strengthening of the US Dollar, as
revisions trends for this group have been very inversely correlated with Dollar moves over
time.
Figure 54: Small Cap Capital Goods Relative Figure 55: Large Cap Capital Goods Relative
Valuations Still Close to Neutral Valuations Have Surged to Extreme Highs
Small Cap Capital Goods Relative Valuation Large Cap Capital Goods Relative Valuation
Eq. wtd. median P/B, LTM P/S, NTM EV/S, NTM P/E ex Eq. wtd. median P/B, LTM P/S, NTM EV/S, NTM P/E ex
Neg EPS, NTM P/CF; vs. R2000 Neg EPS, NTM P/CF; vs. R1000
3 30% 3 30%
2 20% 2 20%
1 10% 1 10%
0 0% 0 0%
-1 -10% -1 -10%
-2 -20% -2 -20%
-3 -30% -3 -30%
Figure 56: Dollar Strength Would Likely Pressure Figure 57: Capital Goods Revisions Have Shown the
Capital Goods Earnings Revisions Further Strongest Inverse Correlation w/ Yr-Yr USD moves
Capital Goods Earnings Revisions vs. USD Earnings Revisions Correlation w/ USD Yr/Yr Change
Upward EPS Revisions (3 Mth Avg), US Dollar Yr/Yr Chg By Industry Group
Correlation since 2004 = -70% 20%
90% 25%
0%
80% 20%
70% 15%
60% 10% -20%
50% 5%
40% 0% -40%
30% -5%
20% -10% -60%
10% -15%
0% -20% -80%
HC Equip & Svcs
Diversified Fin
Capital Goods
Energy
Tech HW & Eq
Retailing
Cons Svcs
Transportation
Real Estate
Materials
Com & Prof Svcs
Cons Dur & App
Utilities
Autos & Comp
Semis & Semi Eq

HH & Pers Prod
Software & Svcs
Food Bev & Tob

Media
F&S Retailing
Pharma/Bio
Telecom Svcs
Banks
Insurance
Capital Goods Earnings Revisions (Left Axis)

USD Dollar (Right Axis)
Source: CS US Equity Strategy, S&P Capital IQ/Clarifi, Russell, ThomsonReuters/IBES, as of Source: CS US Equity Strategy, S&P Capital IQ/Clarifi, Russell, ThomsonReuters/IBES, as of
October 2016 October 2016
Pharma/Biotech – Valuations Don't Get Us Excited, But Don't Scare Us

We were market weight the Pharma/Biotech group coming into the Election, noting that
the extreme crowding problems that helped prompt out downgrade to underweight in
October 2015 hadn't been fully resolved. But the group stood out as being one of the more
reasonably valued defensive areas of the US equity market prompting our more recent
14 November 2016
upgrade to market weight. Not much has changed on the valuation front for this group in
the aftermath of the Election, and for now we remain comfortable with a market weight.
Figure 58: Small Cap Pharma/Bio Relative Figure 59: Large Cap Pharma/Bio Relative
Valuations Still Neutral Valuations Still Neutral
Small Cap Pharma, Biotech & Life Sciences Relative Large Cap Pharma, Biotech & Life Sciences Relative
Valuation Model vs. 12 Month Forward Relative Return Valuation Model vs. 12 Month Forward Relative Return
Equal weighted median LTM P/E Ex Neg EPS, P/B, P/S, Equal weighted median LTM P/E Ex Neg EPS, P/B, P/S,
NTM EV/Sales, NTM P/E Ex Neg EPS; R2000 NTM EV/Sales, NTM P/E Ex Neg EPS; R1000
3 60%
3 45%
2 40% 2 30%
1 20% 1 15%
0 0% 0 0%
-1 -20% -1 -15%
-2 -40% -2 -30%
-3 -60% -3 -45%
Tech A Key Source Of Funds

Within Tech, what jumped out at us the most on our valuation updates was that our
models for small cap Semis and Software are both in retreat – in the case of Semis after
approaching past peaks, in the case of Software & Services after hitting 1 standard
deviation above its long-term average. This reinforces our growing sense of caution on
Semis in particular – where our earnings revisions indicator has recently started to fall
from peak levels – and the Tech sector generally. Additionally, as we noted in last week's
Carving Up The Consensus report, all three Tech groups are strong candidates for being
crowded from a positioning perspective within the active stock picking community of hedge
funds, mutual funds, and sell-side analysts, in that most of our positioning indicators
(hedge fund net exposure, the percent of mutual funds overweight, and sell-side net buys
relative to the broader market) are in the upper end of their historical range.
Figure 60: Small Cap Software & Services Relative Figure 61: Small Cap Software & Services Relative
Valuations Appear To Have Peaked Valuations Appear To Have Peaked
Small Cap Software & Services Relative Valuation Small Cap Semis & Semi Equipment Relative Valuation
Eq. wtd. median LTM P/S, NTM P/E ex Neg EPS, FY2 PEG; Eq. wtd. median P/B, LTM P/S, NTM EV/Sales, NTM P/CF;
vs. R2000 vs. R2000
3 60%
3 33%
2 40%
2 22%
1 20%
1 11%
0 0% 0 0%
-1 -11% -1 -20%
-2 -22% -2 -40%
-3 -33% -3 -60%
14 November 2016
Figure 62: Semis Revisions Appear To Have Peaked Figure 63: Hardware Revisions More Resilient
Semis & Semi Equipment Upward EPS Est Revisions Tech HW & Equipment Upward EPS Est Revisions
FY1, Upward as a % of total, S&P 1500 FY1, Upward as a % of total, S&P 1500
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Rolling 4-week Revisions Rolling 13-week Revisions Rolling 4-week Revisions Rolling 13-week Revisions
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Compustat, Thomson Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Compustat, Thomson
Reuters/IBES Reuters/IBES
Figure 64: Small Cap Positioning By Industry Group Figure 65: Large Cap Positioning By Industry Group
Ahead of the Election Ahead of the Election
Small Cap Consensus Views (Z Scores) Large Cap Consensus Views (Z Scores)
Sell Side Sell Side
Composite Ratings Hedge Fund Composite Ratings Hedge Fund
Crowding Relative to Mutual Fund Net Crowding Relative to Mutual Fund Net
Industry Groups Score Market Overweights Exposure Industry Groups Score Market Overweights Exposure
Software & Services 1.4 1.3 2.3 0.5 Semis & Semi Equipment 1.2 0.5 1.2 1.9
Semis & Semi Equipment 1.0 1.6 0.8 0.7 Tech Hardware & Equipment 1.2 1.7 0.7 1.2
Food & Staples Retailing 0.9 -1.3 2.1 1.8 Food & Staples Retailing 1.2 2.3 0.5 0.7
Real Estate 0.8 0.7 NA 0.9 Banks 1.2 0.9 0.8 1.7
Banks 0.6 0.7 0.4 0.7 Retailing 1.0 0.5 1.0 1.7
Tech Hardware & Equipment 0.6 -0.7 0.9 1.6 Real Estate 1.0 1.4 NA 0.6
Automobiles & Components 0.5 0.0 1.5 -0.1 Pharma & Biotech 1.0 0.7 0.9 1.3
Health Care Equipment & Svcs 0.4 1.3 2.1 -2.0 Software & Services 0.9 1.0 -0.2 1.9
Commercial & Prof Svcs 0.4 0.1 1.6 -0.5 Utilities 0.7 -0.4 1.5 1.0
Consumer Durables & Apparel 0.2 -0.6 -0.2 1.4 Health Care Equipment & Svcs 0.5 1.6 -1.8 1.7
Media 0.2 1.2 -1.4 0.7 Food Beverage & Tobacco 0.4 -0.4 0.0 1.7
Materials 0.1 -0.7 0.0 1.1 Media 0.4 0.4 1.5 -0.7
Energy 0.1 -0.7 -0.3 1.4 Materials 0.2 -0.4 0.1 1.0
Food Beverage & Tobacco 0.0 0.1 0.3 -0.3 Household & Personal Products 0.1 -0.7 -0.3 1.5
Pharma & Biotech 0.0 1.6 -1.0 -0.6 Commercial & Prof Svcs 0.1 -0.8 0.0 1.2
Consumer Services 0.0 -0.7 -0.7 1.3 Consumer Services 0.1 0.0 -1.4 1.8
Diversified Financials -0.1 -2.2 -0.2 1.9 Diversified Financials -0.2 0.0 -0.8 0.3
Insurance -0.3 0.9 -0.4 -1.3 Consumer Durables & Apparel -0.2 0.4 -1.0 0.0
Utilities -0.6 0.0 -2.0 0.3 Telecom Services -0.4 -0.5 -1.0 0.2
Transportation -0.6 -2.2 1.0 -0.5 Insurance -0.5 -1.4 0.0 -0.2
Telecom Services -0.7 -1.1 -0.9 -0.3 Transportation -0.7 -0.6 0.5 -1.8
Capital Goods -0.8 -2.2 1.2 -1.3 Automobiles & Components -0.7 0.0 -0.3 -1.7
Retailing -0.8 -1.8 -0.4 -0.3 Energy -0.8 -1.2 0.0 -1.3
Household & Personal Products -1.5 -1.2 -1.7 -1.5 Capital Goods -0.8 -1.9 0.1 -0.6
Source: CS US Equity Strategy, Morningstar, CS Prime Services, Russell, S&P Capital Source: CS US Equity Strategy, Morningstar, CS Prime Services, Russell, S&P Capital
IQ/Clarifi; as of 11/4/16 (SS & HF), 3Q16 (MF) IQ/Clarifi; as of 11/4/16 (SS & HF), 3Q16 (MF)
We have been market weight Semis and Software & Services since April, when we
removed our overweight and moved to a market weight. Our neutral stances have been
driven by our sense that large cap valuations remain attractive (conditions still in place).
We have also stuck with an overweight of Tech Hardware & Equipment given attractive
valuations in both small cap and large cap, and more resilient earnings revisions trends.
But we confess that we are rapidly losing enthusiasm for these calls, given our growing
sense that the shift from growth back into value has legs heading into 2017 and that Tech
stands to be a primary source of funds and Financials the destination for it. We are also
14 November 2016
becoming more mindful of the strong inverse correlation between interest rates and the
relative performance trends of the Software & Services and Tech Hardware & Equipment
groups over the past decade. If history is any guide, the same interest rate driver that has
been pushing investors into Financials, seems poised to take a toll on the broader Tech
sector at the same time.
Figure 66: Small Cap Industry Groups' Interest Rate Figure 67: Large Cap Industry Groups' Interest Rate
Sensitivities Sensitivities
Small Cap Industry Group Correlations to Fed Funds Large Cap Industry Group Correlations to Fed Funds
Target Rate Target Rate
Since 2003, Perf relative to benchmark, Russell 2000 Since 2003, Perf relative to Benchmark, Russell 1000
Telecommunication Services Diversified Financials
Commercial & Professional Services Insurance
Diversified Financials Banks
Real Estate Real Estate
Consumer Services Commercial & Professional Services
Banks Capital Goods
Automobiles & Components Semis & Semi Equipment
Energy Consumer Durables & Apparel
Media Automobiles & Components
Semis & Semi Equipment Telecommunication Services
Transportation Energy
Technology Hardware & Equipment Utilities
Consumer Durables & Apparel Materials
Insurance Health Care Equipment & Services
Capital Goods Media
Health Care Equipment & Services Retailing
Materials Transportation
Retailing Consumer Services
Food & Staples Retailing Household & Personal Products
Pharma, Biotech & Life Sciences Pharma, Biotech & Life Sciences
Household & Personal Products Food & Staples Retailing
Utilities Technology Hardware & Equipment
Food Beverage & Tobacco Food Beverage & Tobacco
Software & Services Software & Services
-100% -50% 0% 50% 100% -100% -50% 0% 50% 100%
Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Thomson Reuters Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Thomson Reuters
14 November 2016
Appendix A
For more details on the size, style, thematic, and industry group calls described here, and
our thoughts on other industry groups, please see our latest US Equity Strategy Stat Pack
for mid-November. Below we highlight our scorecards for the size, style, and industry
group calls.
Figure 68: CS US Equity Strategy Broad Market/Size Views
Source: CS US Equity Strategy
14 November 2016
Figure 69: CS US Equity Strategy Style Views
14 November 2016
Figure 70: CS US Equity Strategy Sector/Industry Group Views
14 November 2016
Appendix B
While we think it is too early to make any big sector conclusions about the potential impact
of corporate tax reform, given the high number of investor questions that we have received
on the topic below we have included two charts that rank the 24 industry groups in small
cap and large cap by their effective tax rates, using data from the companies' latest filings
as tracked by S&P Capital IQ / Clarifi. In both small cap and large cap, Retailing, Telecom,
Media, and Transportation have some of the highest effective tax rates, while
Pharma/Biotech, Software & Services, REITs, and Semis have some of the lowest.
Figure 71: Small Cap Industry Groups' Effective Tax Figure 72: Small Cap Industry Groups' Effective Tax
Rates Rates
Small Cap IGs Ranked By Effective Tax Rate Large Cap IGs Ranked By Effective Tax Rate
R2000, Wgt Median R1000, Wgt Median
Telecommunication Services Retailing

Transportation Telecommunication Services
Media Transportation
Retailing Commercial & Professional Services
Food & Staples Retailing Media
Commercial & Professional Services Food & Staples Retailing
Food Beverage & Tobacco Consumer Services
Banks Utilities
Automobiles & Components Banks
Consumer Durables & Apparel Health Care Equipment & Services
Capital Goods Food Beverage & Tobacco
Consumer Services Diversified Financials
Health Care Equipment & Services Automobiles & Components
Insurance Materials
Household & Personal Products Technology Hardware & Equipment
Materials Capital Goods
Utilities Household & Personal Products
Diversified Financials Insurance
Software & Services Energy
Energy Semis & Semi Equip
Technology Hardware & Equipment Consumer Durables & Apparel
Semis & Semi Equip Pharma, Biotech
Pharma, Biotech Software & Services
Real Estate Real Estate
0% 10% 20% 30% 40% 0% 10% 20% 30% 40%
CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Compustat; updated as of November CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, Compustat; updated as of November
10th, 2016 10th, 2016
14 November 2016
Disclosure Appendix
Analyst Certification
Lori Calvasina, Sara Mahaffy, CFA and Joseph Eddy each certify, with respect to the companies or securities that the individual analyzes, that (1)
the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his
or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (63% banking clients)
Neutral/Hold* 39% (60% banking clients)
Underperform/Sell* 15% (56% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products
may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made
available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the
frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with
the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely
manner, please contact your sales representative or go to https://plus.credit-suisse.com .
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-
analytics/disclaimer/managing_conflicts_disclaimer.html .
14 November 2016
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research:
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated
within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=270679&v=-
369xv5eie9k5mn6qnmevt1rfy .
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse
does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-
suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
This research report is authored by:
Credit Suisse Securities (USA) LLC ..........................................................................................Lori Calvasina ; Sara Mahaffy, CFA ; Joseph Eddy
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-
suisse.com/disclosures or call +1 (877) 291-2683.
14 November 2016
This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are
This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such
distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material
presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other
party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The
information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities
or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of
their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about
such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual
circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular
that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their
accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific
statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are
inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and
CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case
of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no
representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to
change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange
rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility,
effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the
risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity,
market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult
with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and
large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial
investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may
be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the
value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not
reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and
information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk.
This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer
Finanzdienstleistungsaufsicht ("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico:
Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial
Instruments Firm, Director-General of Kanto Local Finance Bureau ( Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association,
Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the
Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000;
Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch; India: Credit Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and
Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor,
Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited, Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT
Credit Suisse Securities Indonesia; Philippines: Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above.
Additional Regional Disclaimers
Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does
not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial
services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a
registered Senior Business Person.
Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020.
Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is
also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or
overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers
Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you.
UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available
to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United
Arab Emirates.
EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division
This research may not conform to Canadian disclosure requirements.
In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may
require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction
unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US.
Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor
customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to
investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to
where this may be the case are available upon request in respect of this report.
CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to
municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's
length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the
officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided
by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of
obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on
behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact
that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution,
and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is
not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can
be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you
will be requested to pay the purchase price only.

US Equity Valuations PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

US Equity Valuations PDF

Uploaded by

Copyright:

Available Formats

14 November 2016

Broad US Market Context

12 Month Forward Return (right axis)

16 Date 7/31/2016 5/31/2015 12/31/2003

Source: CS US Equity Strategy, Russell, S&P Capital IQ/ClariFi, ThomsonReuters/IBES,

Figure 5: Downside Scenarios for the S&P 500

Date 1/31/2016 9/30/2015 9/30/2011 8/31/2010 7/31/2006

Implied Price Level 2053 2044 1447 1600 1954 1907

12 Month Forward Return (right axis)

Figure 9: Small/Large Valuations vs. 12 Month

12 Month Forward Relative Return (right axis)

(4) (3) (2) (1) - 1 2 (2) (1) - 1 2

Figure 12: International Revenue Exposure By Market Cap

Mid Cap Valuations Still Expensive, But Also Below Peak

Figure 14: Mid Cap Valuations vs. 12 Month Forward

12 Month Forward Return (right axis)

Figure 16: Mid/Small Valuations vs. 12 Month

12 Month Forward Relative Return (right axis)

Figure 18: Mid/Mega Valuations vs. 12 Month

12 Month Forward Relative Return (right axis)

1.39 25% 1.01 20%

0.99 -20% 0.66 -15%

1.36 20% 1.03 20%

1.26 10% 0.93 10%

1.06 -10% 0.73 -10%

0.96 -20% 0.63 -20%

1.37 20% 1.05 21%

1.32 15% 1.00

1.12 -5% 0.80

0.97 -20% 0.65 -21%

July 31 1979 - Nov 30 1980 16 66.6% 32.1% 34.5%

July 31 2006 - Dec 31 2015 113 131.7% 65.8% 65.9% 0.8

Feb 29 2000 - July 31 2006 77 -36.5% 73.2% -109.8% -

Industrials 15.5% 12.6% 2.9% Industrials 10.4% 9.5% 0.9%

Materials 4.9% 4.5% 0.3% Materials 3.6% 2.9% 0.7%

Growth/Value Perf Tech/Fin Perf

Source: CS US Equity Strategy, Russell, Capital IQ/ClariFi, as of 3Q16

Note that we use the

Trade Fears Coming At A Time When Internationally Exposed Stocks

Bond Proxies – Some Valuation Improvement Seen, But Not Enough To

Financials – Valuation Story Less Compelling, But Remains Intact

Capital Goods – Dramatically Worse Valuations Keep Us Comfortable On

Com & Prof Svcs

Cons Dur & App

Semis & Semi Eq

Software & Svcs

Food Bev & Tob

Capital Goods Earnings Revisions (Left Axis)

Pharma/Biotech – Valuations Don't Get Us Excited, But Don't Scare Us

Tech A Key Source Of Funds

Figure 68: CS US Equity Strategy Broad Market/Size Views

Source: CS US Equity Strategy

Figure 69: CS US Equity Strategy Style Views

Source: CS US Equity Strategy

Figure 70: CS US Equity Strategy Sector/Industry Group Views

Source: CS US Equity Strategy

Telecommunication Services Retailing

You might also like