Stock Market Outlook 2016

F I SH E R I N V E S T M E N TS ®
Stock Market
Outlook
Independent Research & Market Analysis
Published Quarterly by the Investment Policy Committee
2016: Part 3
2016 STOCK MARKET OUTLOOK – PART III
Executive Summary
Q2’s finale didn’t lack drama, yet for all the wildness, global markets rose 1.0% in the quarter. 1
While there may be volatility—both up and down—along the way, we expect stocks to reward
patient investors in 2016’s second half.
Many pundits bemoan “flat” market returns since mid-2015, suggesting the seven-year old bull
market is running out of steam. However, no bull market in history has died of old age or
because it lacked momentum. This line of thinking is dangerous for investors—past returns and
market direction are never predictive—flat market returns recently don’t foretell future flatness.
Besides, the flatness pundits bemoan is actually just the impact of 2015 and early 2016’s
correction, a not-uncommon occurrence historically. Since 1930, the S&P 500 has had nine flat
periods exceeding 300 days during bull markets (including the present). 2 Eight of them included
corrections.
Sudden, unforeseeable dips and corrections (short, sharp, sentiment-driven dips exceeding
-10%)—are routine in bull markets. Several have come and gone in this expansion, rewarding
those who stayed cool or bought while stocks wobbled. Early 2016’s downdraft illustrates this
perfectly. While volatility can always come, we do not see a bear market—a fundamentally
driven, lasting decline of more than 20%—drawing near. In the absence of a bear market, we
believe those needing equity-like returns on some or all of their portfolios to reach their long-
term goals should maintain equity exposure. This, not timing myopic market jumps and falls, is
the best way to capitalize on stocks’ superior long-term returns.
Many remain stunned by Britain’s June 23 vote to leave the European Union. Yet the media
glare exaggerates Brexit’s fallout. While markets gyrated immediately after the vote, by day
three they were recovering. A month after the vote, global stocks were up 1.0% from their pre-
Brexit level, and US stocks 3.1%. 3 UK stocks were up even more—6.3% in sterling. 4 This
wasn’t a crash, and we don’t believe Brexit will end the global bull market.
Brexit’s primary near-term impact is political, not economic. Headlines dwelled on Prime
Minister David Cameron’s resignation, but turmoil at 10 Downing Street lasted only until July
11, when former Home Secretary Theresa May took the Conservative Party helm. The tumult has
many investors on edge, but keeping a cool head is key. Stocks care about policy and economics,
not personalities. Most importantly, Britain stays in the EU throughout exit negotiations, a multi-
year process that hasn’t begun, so little has changed economically. The politicians who begin
talks may not even be those that finish them. The final agreement may be great, or it may contain
unintended consequences—it is unknowable now. Importantly, though, talks will proceed slowly
and publicly, mitigating shocks.
Gradually falling uncertainty should lift stocks this year. Brexit was a setback, but a temporary
one—its impact seemingly waning already. The near-term political uncertainty it caused is
already fading. Uncertainty over America’s election has already fallen, as the field has narrowed
Past performance is no guarantee of future results. 1

A risk of loss is involved with investing in stock markets. Phone: 800-568-5082
© 2016 Fisher Investments. All rights reserved. Email: info@fi.com
Confidential. For personal use only. Q3 2016 Website: www.fisherinvestments.com
to two—Hillary Clinton and Donald Trump. The Republican and Democratic conventions are
nearly over and the general election is officially underway —a stretch where stocks typically do
well, with America outperforming non-US stocks.
As a reminder, our election analysis is solely focused on the investment implications over the
next 12 - 18 months. We have no favorite candidate or party and can paint a scenario for either
candidate winning, hinging on whether states vote as they have in recent Presidential elections
(as the media expects) or as their state legislatures have trended. According to top-down analysis,
“blue” states—which voted Democratic in at least four of the last five contests—have 257
electoral votes, 13 short of the 270 necessary to win. “Red” states that went Republican have just
206 electoral votes, with five swing states. This top-down view favors Clinton. Yet a bottom-up
view, which considers recent state-level elections, favors Republicans. Since 1994, the GOP has
captured many state legislatures, controlling 30 today—many in states the media considers blue,
like Michigan and Pennsylvania. Bottom-up, they’re red.
Because top-down analysis and recent polls favor Clinton, pundits underrate Trump’s chances.
Yet polls are deceiving. In a bottom-up vote, Trump could win the Electoral College while losing
the popular vote. If he loses big in high-population California, New York and Illinois, while
winning Texas and Florida by a smaller margin, Clinton could win the popular vote by 2-4%.
But if Trump wins most other bottom-up red states, he could reach 270 electoral votes.
Historically, election years have been better when Republicans win and inaugural years have
been better under Democrats, but this year any resolution to the political circus may reduce
uncertainty and investor angst. Always remember: Love or hate either candidate, they can’t do
much to impact markets unilaterally. Presidential power is more limited than many think, and
gridlock likely persists. Also, candidates often promise big, only to backtrack post-election.
Watch what they do, not what they say.
Economically, most data points to reaccelerating US growth, underpinned by healthy

consumption, a strong services industry and improving manufacturing data. US earnings fell less
than expected in Q1, and the Energy sector accounted for most of the decline. Energy’s drag
should wane as early-2015’s higher profits fall out of the year-over-year comparisons. Looking
ahead, The Conference Board’s Leading Economic Index (LEI) is in a long uptrend, suggesting
growth should continue. Since its 1959 inception, no recession has begun when LEI is rising.
Most major foreign economies are growing. Despite Brexit fears, UK economic data were
mostly expansionary throughout Q2. Some data since have wobbled, but the sample set is too
small to draw conclusions. After eurozone GDP accelerated in Q1, newer data suggest growth
continues, countering lingering debt fears and bank jitters. The disconnect between Europe’s
positive fundamentals and negative sentiment is bullishly wide. Commodity-heavy nations aside,
most Emerging Markets are growing nicely, boosting global growth.
The lifting uncertainty fog should reveal a much more positive world than investors appreciate.
2 Past performance is no guarantee of future results.

Phone: 800-568-5082 A risk of loss is involved with investing in stock markets.
Email: info@fi.com © 2016 Fisher Investments. All rights reserved.
Website: www.fisherinvestments.com Confidential. For personal use only. Q3 2016
Table of Contents
Appendix I: Falling Uncertainty and Rising Stocks 4
Flatness in Perspective 4
Year of Falling Uncertainty Still Developing 5
Brexit Uncertainty Already Fading 5
Other Uncertainty Falling 6
Terrorism Won't Terrorize Stocks 9
Appendix II: The US Election 10
The Clinton Scenario—Top Down 10
The Trump Scenario—Bottom Up 11
As for Market Impact… 15
Bullish Gridlock Should Persist 17
Presidents Can't Do Much Unilaterally 18
Appendix III: The Global Economy Is Better Than Most Think 20
Brexit Doesn't Doom Britain's Economy 20
Britain's Healthy Economy 20
The US Is Accelerating 22
The Glacial Fed 23
US Earnings: Still Better Than Appreciated 23
Brexit Won't Break the Eurozone 24
Emerging Markets Better Than Ok 24

Appendix I: Falling Uncertainty and Rising Stocks
Brexit brought fireworks at Q2’s close, putting an exclamation point on another back-and-forth
quarter that finished up 1.0%—little movement by historical standards, a microcosm of recent
quarters. 5 Global markets returned only 4.7% between 2013’s close and Q2 2016. 6 Yet over that
span, global stocks experienced one near-correction in late 2014 and one lengthy correction with
two sharp downdrafts from mid-2015 to early 2016. (A correction is a sharp, sentiment-driven
decline exceeding -10%.) It has been challenging, we know, but we continue to expect stocks to
reward patience as 2016 progresses.
Ken Fisher often refers to markets as “The Great Humiliator” (TGH), and an extended period of
flat point-to-point returns paired with big volatility is a particularly tortuous trick. TGH rattled
nerves during the sharply volatile stretches, only to try investors’ patience when the rebounds
didn’t materially reward. Since humans often struggle to shrug off the past when looking forward
(a behavioral phenomenon called “recency bias”), many question if stocks’ volatility is worth it.
But equity returns often come in clumps. The best approach, for an investor in need of equity-
like returns, is to maintain equity exposure so you can capture the good clumps and capitalize on
stocks’ superior long-term returns.
Flatness in Perspective
Some investors fret flatness means the bull market is losing steam. But flat periods in a bull
market aren’t uncommon, and corrections often contribute. With the S&P 500 price index
reaching new all-time highs July 11, the period between record highs lasted 414 calendar days.
(Including dividends, record highs were set in April.) This closed the ninth flat period exceeding
300 days during a bull market since 1930. Not coincidentally, eight contained a correction.
Exhibit 1 shows these periods along with ensuing market returns over the subsequent 12, 18 and
24 months. A flat stretch doesn’t necessarily mean a bull market is dying—historically, flat-
period breakouts most often precede periods of strong returns.
Exhibit 1: S&P Sideways Streaks in Bull Markets Since 1930

S&P 500 Sideways Streak > 300 Days S&P 500 Return After Crossing Previous High
Start End Duration 12 Months 18 Months 24 Months
7/18/1933 10/21/1935 825 40.4% 42.8% -2.2%
7/14/1943 6/13/1944 335 18.6% 36.8% 48.7%
1/5/1953 3/10/1954 429 37.2% 65.2% 75.8%
8/3/1959 1/26/1961 542 12.4% -5.6% 8.7%
9/21/1976 8/14/1979 1057 14.7% 18.6% 24.2%
10/10/1983 1/18/1985 466 21.7% 38.0% 55.4%
2/2/1994 2/13/1995 376 37.1% 37.5% 66.7%
4/29/2011 2/23/2012 300 11.2% 22.0% 34.7%
5/21/2015 7/8/2016 414 ? ? ?
Average 541 24.1% 31.9% 39.0%
Median 448 20.1% 37.1% 41.7%
Source: Global Financial Data, Inc., as of 7/12/2016. S&P 500 price returns for periods shown.
Duration count is in calendar days. Sideways streak is defined as a period between record highs.

Year of Falling Uncertainty Still Developing
We believe the flat returns and associated volatility are largely tied to elevated uncertainty. First,
understand: There is never “certainty” in investing—this industry is about probabilities. When
we say uncertainty, we refer to the inability to assign probabilities to outcomes. Uncertainty has
fallen throughout the year, and as it continues, we believe increased clarity should buoy
sentiment.
Brexit Uncertainty Already Fading
Britain’s vote on EU membership was one such unpredictable source of uncertainty. While a
resolution either way—“Leave” or “Remain”—at least lets investors and markets move on, the
vote to leave did appear to stoke uncertainty at first, not alleviate it. However, this effect is
already fading. With hindsight, it appears markets had priced in a “Remain” win and the sharp
volatility the two days after “Leave” won was markets adjusting. Once they did, Brexit’s impact
waned. Stocks moved on.
Exhibit 2: Brexit’s Impact Was Fleeting

110
Series4
MSCI World (USD)
108
MSCI UK (GBP)
S&P 500 (USD)
106
Indexed to 100 at 5/31/2016
104
Day of Vote
102
100
98
96
Quarter End
94
92
90
6/2/2016
6/4/2016
6/6/2016
6/8/2016
7/2/2016
7/4/2016
7/6/2016
7/8/2016
5/31/2016
6/10/2016
6/12/2016
6/14/2016
6/16/2016
6/18/2016
6/20/2016
6/22/2016
6/24/2016
6/26/2016
6/28/2016
6/30/2016
7/10/2016
7/12/2016
7/14/2016
Source: FactSet, as of 7/15/2016. MSCI World Index in USD with net dividends, MSCI UK in GBP
with net dividends and S&P 500 total return in USD, 5/31/2016 – 7/14/2016.
It is too soon to know whether Brexit will ultimately help or hinder the UK economy. That will
largely depend on the final exit agreement and Britain’s resulting trade relationship with the EU
and other partners—unknowable today. Pundits and politicians make sweeping claims about
what will or won’t happen when the UK flies solo. Some say Britain will be more competitive,
free of Brussels’ red tape and able to sign its own free-trade deals. Others say the country will be
isolated, particularly if Scotland and Northern Ireland—both of which voted Remain
overwhelmingly—choose to leave the UK. In our view, it is impossible to say what will happen.
The final agreement could be amazing for Britain and the EU, or there could be unintended
consequences. Maybe Scotland votes on independence again, maybe not. Maybe there is a
referendum on Irish unification, maybe not. Yet not knowing isn’t a reason not to own stocks
today. Markets’ quick recovery from the initial shock demonstrates this in spades.
Brexit created near-term political uncertainty, but this is already beginning to fade. Former
Home Secretary Theresa May won the Conservative Party’s leadership race when her last
remaining challenger dropped out on July 11, and she became Prime Minister two days later. The
probability of a snap election declined, as May has said she won’t call one before 2020’s general
election. The opposition Labour Party’s disarray evolved into a standard leadership contest,
pitting leader Jeremy Corbyn against former Shadow Work and Pensions Secretary Owen Smith,
with results due September 24. For stocks, these theatrics conceal a bullish fact: Parliament was
gridlocked before the referendum, given the Conservatives’ narrow, seven-seat majority and
internal divisions over Brexit. Now both major parties are divided, an extreme form of gridlock
making sweeping legislation unlikely to pass soon. For all the drama, politicians’ personalities
don’t bother stocks much—policy and legislation do. Gridlock suggests a benign future.
Most important for stocks is the UK and EU’s trade relationship. The UK wants to maintain its
access to the single market, allowing goods to flow relatively unrestricted across borders and
preserving passporting rights for service firms—including London’s mighty financial services
industry. But EU officials are loath to award this while letting Britain restrict free movement of
people. Talks haven’t begun and will likely take years. The Lisbon Treaty’s Article 50—the
mechanism for leaving—says exit talks can take up to two years or longer if member-states
approve. May has said she won’t start this process until agreeing to a unified approach with the
devolved governments in Wales, Northern Ireland and Scotland—which could take a long while,
given the latter two’s desire to remain in the EU. If talks stretch on, the government that starts
them might not be the one that finishes them.
While protracted talks extend uncertainty, which could dampen sentiment toward the UK and
Europe, they benefit markets. Negotiations will play out publicly, with endless media dissection,
letting markets slowly discover and discount the likely outcome—vastly reducing the potential
shock factor. Helpfully, expectations are low, as EU leaders have taken a hard line, saying “out”
means out—recalling the tough stance they took repeatedly with Greece during the euro crisis.
They compromised then and have every incentive to do so with Britain now, given Continental
firms’ strong UK trade ties.
Meanwhile, as talks progress, the UK remains in the single market. There is little immediate
economic impact. Standard & Poor’s downgraded Britain’s credit rating, citing Brexit risk, but
markets—a better indicator of credit risk—aren’t worried. Gilt yields have fallen to historic
lows, and demand at post-Brexit Gilt auctions is robust. Demand for UK assets remains strong.
Other Uncertainty Falling
Uncertainty is falling elsewhere, which should boost stocks in 2016’s second half.

The US Election
The US election is coming ever-more into focus. The two candidates are set—Donald Trump and
Hillary Clinton, who we now know will not be indicted over her private email server use while
Secretary of State. We know Indiana Governor Mike Pence is Trump’s running mate and
Virginia Senator Tim Kaine is Clinton’s. Obviously, we don’t know yet who wins or what they
will do in office, but markets will price in opinions, forecasts and talk before November 8. As the
campaign progresses, expect heated rhetoric and big promises from both camps, but campaign
promises often prove worthless. Even if they don’t, presidents can’t do much to impact markets
unilaterally. Checks and balances limit their power. (Much more on the election in Appendix II.)
High-Yield Bond Fears
In late 2015 and early 2016, weakness in high-yield bonds and sharply rising yields triggered
fears of looming trouble for stocks and the economy. When three distressed-debt funds blocked
investor redemptions in mid-December, the media drew parallels to two Bear Stearns hedge
funds that blocked withdrawals on the eve of 2008’s Financial Crisis, fanning concerns of a
sequel. But these specialized funds were buying only the junkiest debt—they didn’t indicate
broad problems. Nor were high yield’s troubles widespread—they were tied mostly to Energy’s
weakness. High-yield defaults are up in 2016, particularly in the resources sectors. But markets
pre-priced these events based on widespread fears and opinions. With time and oil’s rebound,
fears faded, high-yield bond prices rebounded and yields retreated. (Exhibit 3)
Exhibit 3: High Yield Fears Abate Exhibit 4: US Corporate Credit Spreads

4.0% 15
Spread in Percentage Points
Total Return Since 6/30/2015
Inv. Grade Spread Over Treasurys

2.0% High Yield Spread Over Treasurys
0.0% 12
-2.0%
-4.0% 9
-6.0%
6
-8.0%
-10.0% 3
-12.0%
-14.0% 0
May-16
Oct-15
Apr-16
Jun-15
Jan-16
Jun-16
Jul-15
Feb-16
Mar-16
Aug-15
Sep-15
Nov-15
Dec-15
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Source: FactSet, as of 7/12/2016. BofA/ML Source: FactSet, as of 7/8/2016. Spreads are US

High Yield Index total returns, 6/30/2015 – BofA/ML US High Yield (BB) and US AA
6/30/2016. Corporates AA Year Index minus US Treasurys,
7-10 Year Indexes, 12/31/2007 – 7/12/2016.
Credit Spreads Narrowing
Relatedly, the difference between corporate rates (high-yield and investment grade) and
Treasurys has fallen. As Treasurys are typically considered default risk-free, the premium
corporate borrowers pay is a market gauge of default fears and risk. As Exhibit 4 shows, spreads
fell sharply from the beginning of the year—and didn’t budge much with Brexit.

Negative Interest Rates
Although central banks first enacted negative interest rates in 2012, fears over their use in the
eurozone and Japan spiked early this year. Negative interest rate policies amount to taxing
banks’ excess reserves deposited at central banks—a counterproductive move primarily
encouraging banks to skirt the sting by buying sovereign debt.
Due partly to this, sovereign yields globally are plumbing record lows, and the media frequently
trumpets German or Japanese sovereign debt falling deeper into negative yield territory. More
than $10 trillion worth of the developed world’s $40-plus trillion in sovereign debt has a
negative yield.
Exhibit 5: Negative Yielding Debt Is Becoming More Commonplace

$50
Negative Yielding Debt Positive Yielding Debt
$40
Trillions of USD
$30
$20
$10
$0
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Source: Bloomberg, as of 7/13/2016. BofA Merrill Lynch Global Fixed Income Markets Index,
monthly breakdown of yields on bonds exceeding on year in maturity, 1/31/2014 - 6/30/2016.
Pundits claim this is a gathering storm overlooked by rising stocks. Yet bond markets are
unlikely to be uniquely aware of anything stocks miss, particularly something so widely
discussed. On the contrary, with frequent mention and broader prevalence, negative yields have
become more familiar—reducing uncertainty. And, considering eurozone GDP has grown
alongside negative yields since 2014, underpinned by improving lending, doomsayers’ bark
seems much louder than negative rates’ bite.
Oil Prices Stabilizing
At the year’s start, the steep decline in Brent and West Texas Intermediate (WTI) crude oil prices
stirred fears of spillover into the broader economy and stock market, contributing to the
aforementioned high-yield bond fears. However, Brent and WTI hit lows on January 20 and

February 11, respectively, and have since stabilized at higher prices, easing pressure and
reducing fears of an Energy-sector driven collapse.
This rally also triggered Energy stocks’ recent counter-trend rally. In our view, early 2016’s oil
selloff overshot fundamentals, teeing up the bounce. However, global oil markets remain well
supplied, and more new supply production is poised to come online relatively quickly should
prices advance. This likely acts as a weight on oil prices, although we don’t anticipate them
falling back to early-year lows.
China’s Devaluation
Last summer, China changed how it priced the yuan, leading some observers to believe it was
desperate to stabilize growth and would devalue to boost manufacturing and exports. There is
nothing wrong with manufacturing and exports, but China is aiming to transition away from
these old economic drivers to a more consumption and services-oriented economy. This currency
change had some investors fearing this transition—and China’s economy—were stalling. While
we never believed that narrative matched the facts—China’s slowdown was years in the making
and in line with recent years’ trends—the Chinese Communist Party’s opaque nature stirred
uncertainty. However, here too, time and data have proven fears false.
Terrorism Won’t Terrorize Stocks
In recent months, the frequency of terrorist attacks has, tragically, increased. Most recently,
attacks in Brussels, Belgium were followed by Orlando and Nice, France, leaving scores of
innocent lives lost.
On a human level, these attacks are devastating. But terrorism doesn’t much faze markets and the
global economy beyond the initial surprise. While the September 11, 2001 attacks did
temporarily rock markets, US stocks regained September 10 levels in 19 trading sessions—and
that was amid the pre-existing bear market that followed the Tech bubble’s burst. Stocks have
proven even more resilient when confronted with terrorism since. British stocks fell the day of
the 7/7/2005 bombings in London, but recouped the drop the next day. April 2013’s Boston
Marathon bombing may have contributed to short-term weakness, but stocks regained pre-attack
levels in 11 trading days en route to a fabulous year. Recent attacks in France and Belgium had
little noticeable market impact.
Terrorism lacks the power to upend global economic growth or free markets. The increased
frequency of strikes is depressing, but the shock power on markets is reduced greatly by our
collective expectation that there will be attacks. Markets have largely adapted to a post-9/11
world.

Appendix II: The US Election
Our political discussion is non-partisan and we analyze politics solely for market impact, as
markets prefer no candidate, party or ideology. Political bias is a blinding behavioral error.
Election uncertainty has fallen considerably. Donald Trump and Hillary Clinton are the
Republican and Democratic nominees, respectively. In early July, the FBI recommended against
indicting Clinton for storing confidential information on her private email server, advice
Attorney General Loretta Lynch announced she’d follow days later, removing the last big
question mark hanging over Clinton’s candidacy. Bernie Sanders, long a thorn in her side,
endorsed her in mid-July. A movement to derail Trump’s nomination at the convention failed.
Both candidates named running mates. Markets are no longer distracted by wild what-ifs, which
clouded sentiment earlier this year. Now they can price in November’s contest as the general
election campaign officially begins—a period when stocks typically do well, with the US
outperforming.
We can’t know who will win. We can paint a scenario for either candidate, but the outcome
depends on whether America votes “top down,” with states voting as they have in recent
presidential elections—or “bottom up,” with states voting as they have in recent state elections.
The Clinton Scenario—Top Down
A top-down view heavily favors Clinton. This analysis, widely used in the media, labels states
“blue,” “red” or “swing” based on which party won in recent presidential contests. As Exhibit 6
shows, 21 states and Washington, D.C. are blue—having voted Democratic in at least four of the
last five. Twenty-four states are red, by this logic, and five are swing. The blue states have 257
electoral votes, just 13 shy of the 270 needed to win. If Clinton sweeps these blue states and
takes just one or two swing states, she’ll win the presidency.

Exhibit 6: Electoral Map According to Top-Down Analysis
Democrat Swing Republican
257 75 206
Source: The Wall Street Journal, US Nat’l Archives, Fisher Investments Research, as of 7/20/2016.
The Trump Scenario—Bottom Up
Top-down analysis is perfectly valid and the most commonly used. Bottom-up analysis is equally
valid, in our view, but seldom seen, hence most pundits underestimate Trump’s chances. A
Trump victory would shock them but is entirely plausible.
Though little-noticed, Republicans control most state governments bottom-to-top. In Michigan, a

blue state per top-down analysis, Republicans hold both legislative houses and all state offices.
Pennsylvania and other top-down “blue” states are also heavily Republican at the state level.
Republicans’ rise in several state governments is relatively recent and non-urban, hence widely
overlooked. Exhibits 7 and 8 show state governments’ evolution since 1978, with states
organized first by 1978 per-capita income (Exhibit 7), then by present-day per-capita income
(Exhibit 8). In 1978, Democrats held 31 state legislatures, including 20 in the 33 lowest-income
states, making them the majority party—and the blue-collar party. Today, Democrats hold just 2
of the lowest-income 33 states, while Republicans control 30 legislatures overall. Yet few see it,
because most media is centered in major urban areas, where lower-income voters still lean
heavily Democratic. Republicans’ dominance is primarily rural.

Exhibit 7: State Legislatures Organized by 1978 Per Capita Income
Democratic Control Republican Control Split
Per
Capita
Income 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Mississippi $20,486
South Carolina $22,644
Arkansas $22,800
Alabama $22,870
West Virginia $22,978
Kentucky $23,472
Maine $23,907
North Carolina $23,945
Tennessee $24,112
Louisiana $24,237
Utah $24,488
New Mexico $24,606
Vermont $24,665
Georgia $24,770
Idaho $25,737
Oklahoma $26,026
South Dakota $26,075
Arizona $26,865
Montana $27,101
Rhode Island $27,164
Missouri $27,206
Indiana $27,589
New Hampshire $27,623
Texas $27,783
Florida $28,264
Kansas $28,358
Wisconsin $28,584
Ohio $28,612
North Dakota $28,726
Pennsylvania $28,772
Iowa $29,318
Minnesota $29,325
Virginia $29,610
Oregon $29,697
Massachusetts $29,743
Colorado $30,282
Delaware $30,320
Michigan $30,352
New York $31,159
Washington $31,496
Illinois $32,091
Wyoming $32,293
Maryland $32,774
New Jersey $32,961
Hawaii $33,581
California $33,602
Connecticut $33,804
Nevada $34,482
Alaska $44,783
Source: US Bureau of Economic Analysis, Nat’l Conference of State Legislatures, as of 2/5/2016.

Nebraska has a non-partisan, unicameral legislature.

Exhibit 8: State Legislatures Organized by Present-Day Per Capita Income
Democratic Control Republican Control Split
Per
Capita
Income 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Mississippi $34,431
West Virginia $36,132
South Carolina $36,677
Idaho $36,734
New Mexico $37,091
Kentucky $37,396
Alabama $37,512
Utah $37,664
Arkansas $37,782
Arizona $37,895
Georgia $38,980
North Carolina $39,171
Indiana $39,578
Montana $39,903
Tennessee $40,457
Michigan $40,740
Nevada $40,742
Maine $40,745
Oregon $41,220
Missouri $41,639
Louisiana $42,030
Ohio $42,236
Florida $42,737
Oklahoma $43,637
Wisconsin $44,186
Kansas $44,891
Iowa $44,937
South Dakota $45,279
Texas $45,669
Hawaii $46,034
Delaware $46,378
Vermont $46,428
Illinois $47,643
Pennsylvania $47,679
Rhode Island $48,359
Colorado $48,869
Minnesota $48,998
Washington $49,610
California $49,985
Virginia $50,345
New Hampshire $52,773
Alaska $54,012
Maryland $54,176
Wyoming $54,584
New York $55,611
North Dakota $55,802
New Jersey $57,620
Massachusetts $58,737
Connecticut $64,864
Source: US Bureau of Economic Analysis, Nat’l Conference of State Legislatures, as of 2/5/2016.

Nebraska has a non-partisan, unicameral legislature.

If we take a bottom-up approach, labeling states “blue” or “red” depending on their state
legislature, the electoral map looks quite different (Exhibit 9). Blue states have just 141 electoral
votes, versus red states’ 309—39 more than Trump would need to win.
Exhibit 9: Electoral Map According to Bottom-Up Analysis

Democrat Swing Republican
141 88 309
Source: Nat’l Conference of State Legislatures, US National Archives, as of 7/20/2016. Nebraska

has a non-partisan, unicameral legislature, but leans Republican. DC is counted as Democratic.
This is an uncommon viewpoint—few in the urban world grasp sentiment in rural America. Yet
the Brexit vote’s geographical breakdown is similar (Exhibit 10). In England, London and most
other cities voted to stay in the EU, but the rural vote to leave outweighed them. In Wales, the
capital, Cardiff, voted to remain, but the rural valleys tipped the balance. If America follows suit,
Trump likely prevails. Note, most state legislatures are up for re-election this year, raising the
likelihood of high bottom-up turnout.

Exhibit 10: UK Brexit Vote Map
Remain Leave
Orkney and
Shetland Islands
Newcastle
Leeds
Liverpool
Manchester
London
Cardiff
Source: Bloomberg, Office for National Statistics, EU Referendum Final Results, as of 6/24/2016.
Ultimately, the better campaigner should win, as they almost always do. Is it possible Trump is a
disastrous campaigner and gets trounced? Yes. Is it possible he wins big? Sure. It’s early, and it
could go either way.
Most current polls show Clinton ahead, but this could mislead. The Brexit vote is a testament to
even last-minute polls’ unreliability. The final poll, conducted the day of the vote, showed
Remain beating Leave, 52% to 48%. A two to four-point lead can vanish quickly.
Trump could be behind by six points in the final polls and still win, based on the map. He could
even win the presidency while losing the popular vote by several percentage points. As Exhibit 9
showed, Democrats’ bottom-up presence is strongest in high-population states—most notably,
California and Illinois. Clinton should trounce Trump there. In California—the biggest state,
with 12.5% of the population—she could easily win by 20 points. Trump should win Texas—the
second-biggest state, with 8.5% of the population—but by a much smaller margin. Big Clinton
wins in Connecticut, Massachusetts, New Jersey, Illinois and Oregon, versus smaller Trump
wins in Georgia, Indiana, North Carolina and Tennessee, should similarly tilt the popular vote.
From there, if he is two to three points behind nationally in the popular vote, in a bottom-up
contest, he likely owns most of the remaining Electoral College, winning the presidency.
As for Market Impact…
Typically, market returns in presidential election and inaugural years follow a trend we call the
“Perverse Inverse.” When Republicans win, stocks typically do great in the election year, as pro-
business campaign rhetoric inflates investors’ hopes, then perform below average in the

inaugural year as the new president moderates and disappoints those lofty expectations.
Conversely, when Democrats win, stocks usually notch below-average returns in the election
year as investors fret anti-business campaign pledges, then surprise nicely the following year as
the Democratic president also moderates, exceeding investors’ low expectations. Therefore, if
Trump wins, history and sentiment imply a nice second half for 2016, and perhaps a tamer 2017.
If Clinton wins, the political cycle argues for a modest finish to 2016 and a strong 2017. Of
course, politics are only one factor to weigh—and US politics a piece of that. But it is worth
considering.
Exhibit 11: The Perverse Inverse

Election Year First Year
Republican Elected 15.5% 0.7%
Democrat Elected 7.4% 16.2%
Source: Global Financial Data, Inc., as of 1/6/2016. 1928 – 2016.
Now, Trump’s rhetoric isn’t exactly pro-business in a traditional sense, and Clinton is a well-
known commodity. Both may influence whether the Perverse Inverse holds this year or not.
However, the wild 2016 contest has driven investor angst so high that any resolution could
reduce uncertainty, boosting sentiment and stocks. With party conventions now winding down,
the general election campaign is beginning in earnest. Stocks usually discount the election’s
outcome before November, with US stocks frequently outperforming non-US stocks during this
stretch. The closer the election gets, the more markets should like the eventual winner.
Exhibit 12: US Stocks Outperform in Election Year Second Halves

8.0%
S&P 500 EAFE
6.0%
Average Cumulative Return by Month
US stocks tend to outperform

as election uncertainty abates.
4.0%
2.0%
0.0%
-2.0%
-4.0%
Oct
Nov
Dec
Feb
Jan
Mar
Apr
May
Jun
Jul
Aug
Sep
Jan
Source: Global Financial Data, Inc., as of 2/4/2016. Average monthly S&P 500 and EAFE price
returns in election years from January 1928 – December 2012.

Bullish Gridlock Should Persist
However the presidential contest goes, the Beltway should remain bullishly gridlocked, keeping
legislative risk low. Neither party appears poised to win a supermajority. Whoever wins the
presidency will likely have an opposing Congress or a thin majority, incapable of passing much.
In the House, Republicans have the advantage of incumbency and gerrymandering. In the Senate,
Democrats have a structural edge, with fewer seats to defend in traditional opposition territory
(Exhibit 13). Yet a sweep would take flawless campaigning and resources, and the Democratic
Party must play defense in several key governors’ races, potentially diverting campaign cash
from Senate contests (Exhibit 14). Moreover, it is exceptionally rare for Congress to flip control
in a presidential election year. Switches mostly happen in midterms. Even Barry Goldwater
wasn’t as disastrous for his party’s congressional candidates as people feared.
Exhibit 13: 2016 Senate Races

Percent of Percent of Percent of Vote Percent of Vote
Year
Senator Party State Vote for Bush Vote for Bush for McCain in for Romney in
Elected
in 2000 in 2004 2008 2012
Lee, Mike R UT 67% 72% 63% 73% 2010
Lankford, James R OK 60% 66% 66% 67% 2014
Crapo, Mike R ID 67% 68% 62% 65% 1998
Boozman, John R AR 51% 54% 59% 61% 2010
Shelby, Richard C. R AL 56% 62% 60% 61% 1986
Paul, Rand R KY 57% 60% 57% 60% 2010
Moran, Jerry R KS 58% 62% 57% 60% 2010
Hoeven, John R ND 61% 63% 53% 58% 2010
Thune, John R SD 60% 60% 53% 58% 2004
Open → Vitter, David R LA 53% 57% 59% 58% 2004
Murkowski, Lisa R AK 59% 61% 59% 55% 2002
Open → Scott, Tim R SC 57% 58% 54% 55% 2013
Coats, Daniel R IN 57% 60% 49% 54% 2010
Blunt, Roy R MO 50% 53% 49% 54% 2010
McCain, John R AZ 51% 55% 54% 54% 1986
Isakson, Johnny R GA 55% 58% 52% 53% 2004
Burr, Richard R NC 56% 56% 49% 50% 2004
Rubio, Marco R FL 49% 52% 48% 49% 2010
Portman, Rob R OH 50% 51% 47% 48% 2010
Toomey, Patrick J. R PA 46% 48% 44% 47% 2010
Ayotte, Kelly R NH 48% 49% 45% 46% 2010
Grassley, Chuck R IA 48% 50% 44% 46% 1980
Bennet, Michael F. D CO 51% 52% 45% 46% 2010
Johnson, Ron R WI 48% 49% 42% 46% 2010
Open → Reid, Harry D NV 50% 50% 43% 46% 1986
Wyden, Ron D OR 47% 47% 40% 42% 1996
Murray, Patty D WA 45% 46% 40% 41% 1992
Kirk, Mark R IL 43% 44% 37% 41% 2010
Blumenthal, Richard D CT 38% 44% 38% 41% 2010
Boxer, Barbara* D CA 42% 44% 37% 37% 1992
Open → Mikulski, Barbara A. D MD 40% 43% 36% 36% 1986
Schumer, Charles D NY 35% 40% 36% 35% 1998
Leahy, Patrick J. D VT 41% 39% 30% 31% 1974
Schatz, Brian D HI 37% 45% 27% 28% 2012
Source: Fisher Investments Research, US Senate, as of 7/12/2016. *Due to California’s “top two”
primary system, a Democrat is guaranteed to succeed Boxer.

Exhibit 14: 2016 Governors’ Races
Percent of Percent of Percent of Vote Percent of Vote Senate Seat
Year
Governor Party State Vote for Bush Vote for for McCain in for Romney in Up for
Elected
in 2000 Bush in 2004 2008 2012 Election?
Herbert, Gary R. R UT 67% 72% 63% 73% 2009 Yes
Open → Tomblin, Earl Ray D WV 52% 56% 56% 62% 2010 No
Open → Dalrymple, Jack R ND 61% 63% 53% 58% 2010 Yes
Bullock, Steve D MT 58% 59% 50% 55% 2012 No
Open → Pence, Mike R IN 57% 60% 49% 54% 2012 Yes
Open → Nixon, Jay D MO 50% 53% 49% 54% 2008 Yes
McCrory, Pat R NC 56% 56% 49% 50% 2012 Yes
Hassan, Maggie D NH 48% 49% 45% 46% 2012 Yes
Brown, Kate* D OR 47% 47% 40% 42% 2015 Yes
Inslee, Jay D WA 45% 46% 40% 41% 2012 Yes
Open → Markell, Jack D DE 42% 46% 37% 40% 2008 No
Open → Shumlin, Peter D VT 41% 39% 30% 31% 2010 Yes
Source: Fisher Investments Research, National Governors Association, as of 6/7/2016. *Became
acting governor 2/18/2015; special election will be held in November 2016 for remainder of former
Gov. John Kitzhaber's original term.
Should both houses flip, it would be a weak Democratic majority—likely much weaker than
President Obama’s first two years, when it required heaps of political capital to pass the
Affordable Care and Dodd-Frank acts. A Congress lacking a supermajority is unlikely to pass
anything nearly as sweeping.
Presidents Can’t Do Much Unilaterally
Republicans fear Clinton doing extraordinary things. Democrats fear the same of Trump. In
reality, neither will do as much as people think. The Constitution’s checks and balances limit
executive power. Congress and Supreme Court were designed to limit the president from doing
whatever he or she wants outside of the law. The other two branches limited Obama, and they’ll
limit a President Clinton or Trump.
Presidents can’t do much unilaterally. Only Congress can write and pass laws. The president can
issue Executive Orders or amend rules through regulatory agencies, but this isn’t unchecked
power, as recent events demonstrate. The Constitution limits the scope of presidential
rulemaking, and the judicial branch has a long record of keeping things in check. Not just the
Supreme Court—the lower Federal Courts and the 50 state court systems are also capable of
checking an overreaching president.
Two June court decisions illustrate this—one regarding Obama’s Executive Order to shield some
undocumented immigrants from deportation, and one regarding the Interior Department’s
attempt to regulate hydraulic fracturing (aka fracking) on federal lands. Several states challenged
each executive action, arguing they exceeded Constitutional limits on the Executive Branch. In
both cases, the courts agreed. A Federal Judge in Wyoming overturned the fracking regulations,
ruling Congress didn’t cede regulatory authority to the Interior Department. The next day, a split
Supreme Court affirmed the lower court’s verdict against the immigration action—a ruling that
said the president lacked the power to reform immigration without Congress.
Strong opinions about these decisions abound, but stocks don’t care about the associated
sociology, and our focus for you remains solely on market outcomes. It also isn’t our place or
specialty to determine the law or say whether the courts ruled correctly. Courts interpret the law,

and in these cases, they decided the president exceeded his authority. Agree or disagree, the law
is the law, and the law limited the president.
If Obama is limited, a President Clinton or President Trump won’t have free rein. Note, the
Wyoming fracking decision swung on an Obama appointee. It wasn’t a Republican judge
repudiating a Democratic president. Nor did the judges’ personal opinions on the merits of
fracking play a role. It was a procedural decision, not partisan or ideological.
While these decisions could be appealed, they won’t be heard within the Obama administration’s
remaining months. They will fall to the next administration, which could decide to continue the
fight—or abandon one or both endeavors entirely. One administration’s actions are easily
undone by the next. All it takes is a new Executive Order.

Appendix III: The Global Economy Is Better Than Most Think
Perhaps tied to some “Remain” proponents’ argument that a “Leave” win meant a British
recession—possibly even global weakness—the days after Leave’s victory saw economic fears
spike globally. However, this chatter seems vastly overstated. While the long-term effects are
unknown, the June 23 vote didn’t change much. Britain remains part of the EU, with unfettered
access to the single market. US economic data suggest growth is reaccelerating after Q1’s
slowdown. Across the world, from the eurozone to China, growth remains underappreciated.
Though economic expansion isn’t universal, growth is considerably better than widely
appreciated—and more importantly, seems set to continue for the foreseeable future.
Brexit Doesn’t Doom Britain’s Economy
Despite myriad Brexit-related fears, Britain’s economy remains in fine shape. The noise
currently dominating headlines—which is mostly political, not economic—should eventually
fade. The actual, fundamental economic changes potentially resulting from Brexit are
unknowable right now, and won’t be clear soon. Brexit’s chief impact would be on trade, as the
UK presently benefits from access to the largely tariff-and-restriction-free EU single market (and
trade treaties between the EU and third parties). Yet if this happens, it would only come after
exit talks conclude. Those haven’t begun and will likely take years. Meanwhile, Britain’s access
to the single market is unaffected.
Britain’s Healthy Economy
Plenty of evidence suggests the UK economy was on firm footing before the vote. Q1 GDP grew
at a 1.8% annualized rate, slowing from Q4 2015’s 2.8%, but this isn’t unusual. 7 Growth rates
have fluctuated throughout the current expansion, and this appears to have been the case as Q2
2016 growth reaccelerated to 2.4% annualized. 8

Exhibit 15: Growth Rate Fluctuations Aren’t Unusual
5.0
4.0
Annualized Growth Rate 3.0
2.0
1.0
0.0
-1.0
-2.0 Yellow columns indicate slowing growth.
-3.0
-4.0
-5.0
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Source: FactSet, as of 7/27/2016. UK GDP growth (annualized), Q3 2009 – Q2 2016.
June retail sales fell -0.9% m/m (4.3% y/y)—which was broadly overhyped as showing Brexit
fallout. 9 However, it’s worth noting the downtick followed two consecutive record highs. The
UK Office for National Statistics noted sales rose 1.6% q/q in Q2 and said June’s dip was
unlikely to have been swayed by Brexit much. Such data are frequently volatile, and one month’s
dip isn’t telling about future growth. While some say post-Brexit drops in consumer confidence
surveys suggest a further slowdown looms, these data often don’t match actual behavior.
Exhibit 16: UK Total Retail Sales Volumes Exhibit 17: UK Industrial Production
8.0 4.0
Month-Over-Month Year-Over-Year
Percentage Change (Y/Y)
7.0 3.0
Percentage Change
6.0 2.0
5.0 1.0
4.0 0.0
3.0 -1.0
2.0 -2.0
1.0 -3.0
0.0 -4.0
Dec-13
Dec-14
Dec-15
Sep-13
Sep-14
Sep-15
Dec-13
Dec-14
Dec-15
Sep-13
Sep-14
Sep-15
Jun-13
Jun-14
Jun-15
Mar-14
Mar-15
Mar-16
Jun-13
Jun-14
Jun-15
Jun-16
Mar-14
Mar-15
Mar-16
Source: FactSet, as of 7/22/2016. June 2013 – June 2016.
Many claim Britain’s economy is too reliant on consumption, lacking the “balance” brought by
heavy industry and exports. While industrial production has been choppy throughout the

expansion, it comprises only 15% of UK GDP. Moreover, it is neither uniformly weak nor
dragging down growth—recent releases showed acceleration.
Preliminary “Flash” Purchasing Managers’ Indexes (PMI)—surveys measuring the breadth of

growth—showed both manufacturing and services fell slightly below 50 in July (indicating
contraction), but this seems heavily influenced by short-term sentiment. And, as we frequently
note, one data point proves little—these gauges could easily reverse. While readings in the last
year are down from earlier in this expansion, they have fairly consistently indicated growth.
Looking ahead, conditions favor growth. Broad money supply is growing. Lending to non-
financial companies is rising, and while long-term bond yields are down, the Bank of England’s
commercial bank liability yield curve is relatively steeper—indicating lending remains profitable
for banks, supporting continued expansion.
Exhibit 18: UK PMIs Exhibit 19: UK M4 and Loan Growth

70.0 5.0
Manufacturing M4 (Y/Y)

65.0 Services 4.0 Non-Fin. Corporate Loan Growth
3.0
60.0
PMI Index Level
2.0
55.0 1.0
50.0 0.0
45.0 -1.0
-2.0
40.0
-3.0
35.0 -4.0
30.0 -5.0
Dec-13
Dec-14
Dec-15
Sep-13
Sep-14
Sep-15
Jun-13
Jun-14
Jun-15
Mar-14
Mar-15
Mar-16
Jul-13
Jul-14
Jul-15
Jul-16
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Jan-14
Jan-15
Jan-16
Source: FactSet, as of 7/15/2016. June 2013 – Source: Bank of England, as of 7/15/2016. June
June 2016. 2013 – May 2016.
The US Is Accelerating
US data show a reacceleration from Q1’s slowdown. After Q1’s initially reported 0.5%
annualized GDP growth, slow growth worries and recession fears grew. 10 Yet by Q2’s close,
revisions put Q1 growth at 1.1% annualized—not fast, but certainly not recessionary. 11
More importantly, recent data show economic activity picking up. Retail sales rose in April, May
and June and, after weighing on headline data for months, gas station sales are now positive on a
monthly basis—an after-effect of stabilizing oil prices.
A broader measure of spending—personal consumption expenditures, which includes services

spending and comprises about 70% of GDP—has also risen steadily. Industrial production has
rebounded after a recent soft patch. In addition, manufacturing and non-manufacturing PMIs are
both in expansionary territory with healthy contributions from the forward-looking new orders
components.

Exhibit 20: US Retail Sales Exhibit 21: US Real Consumer Spending
15.0 6.0 US Recession
US Recession

Total Sales Real Personal Consumption Expenditures
10.0 Sales Ex. Gas Stations 4.0
5.0 2.0
0.0 0.0
-5.0 -2.0
-10.0 -4.0
-15.0 -6.0
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Source: US Census Bureau, as of 7/15/2016. Source: FactSet, as of 7/15/2016.
January 2009 – June 2016. January 2009 – May 2016.
The Glacial Fed
There is little sign the Fed has any thoughts of materially hiking interest rates this year, if they do
at all. After an initial rate hike in December 2015, analysts started guessing how many moves
would occur in 2016. Based on information like the Fed’s “dot-plot” projection of FOMC
member forecasts, the consensus foresaw several hikes. However, such projections aren’t proven
to indicate future Fed actions. With the Fed often citing a global viewpoint on policy choices,
Brexit and the associated media firestorm suggest the Fed would be loath to do anything
potentially seen as rocking the boat. Similarly, with the US presidential election approaching, the
Fed could hesitate to make material moves to avoid the perception of acting for the benefit of
any candidate. The Fed often claims it is apolitical, but Janet Yellen’s term is up in early 2018
and, without knowing who will be responsible for either reappointing her or naming her
successor, Fed officials likely want to avoid making headlines.
US Earnings: Still Better Than Appreciated
Corporate America continues beating dour expectations. With Q1 2016 earnings season
concluded, earnings fell -6.7% y/y, exceeding analysts’ April 1 projection of -8.5%—extending a
long-running trend of analysts undershooting firms’ profits. 12 Moreover, the primary cause for
recent negative earnings is, unsurprisingly, the long-struggling Energy sector. Q1 Energy
earnings fell 107.2% y/y. Excluding this drop, the other nine sectors’ profits fell a meager
-1.1%. 13 Similarly, S&P 500 revenues fell -1.5% y/y in total—more than expected—but rose
1.6% when Energy’s -29.4% decline is excluded. 14

Exhibit 22: S&P 500 Earnings and Revenue Growth Skewed by Energy
4.0%
S&P 500
Ex. Energy
Year-Over-Year Percentage Growth

2.0%
1.5% 1.6%
0.0%
-1.4% -1.1%
-1.5%
-2.0%
-3.2%
-4.0%
-6.0% -6.7%
-8.0% -8.5%
-10.0%
Expectations on Final Figures Expectations on Final Figures
4/1 4/1
Earnings Revenues
Source: FactSet Earnings Insight, as of 4/1/2016 and 6/13/2016.
Importantly, Energy earnings should improve as the year-over-year comparisons become easier,
adding clarity. This should help investors overcome widespread fears of an “earnings recession.”
While non-Energy earnings fell in Q2, this looks unlikely to persist, with full-year earnings
expected to be mildly positive.
Brexit Won’t Break the Eurozone
The eurozone’s economic fundamentals remain brighter than most believe. While some fear
Brexit fallout, the same logic that applied to the UK applies here in reverse. Some fear other
nations will follow Britain’s lead, splintering the EU or eurozone, but the bloc has experienced
existential uncertainty during much of this global bull market. Despite those fears, the region
hasn’t remained mired in perpetual recession. The eurozone has grown for 12 straight quarters
and, while choppy, growth is exceedingly broad-based. 15 In Q1, only 1 of 16 reporting countries
contracted (Greece). 16 Monthly readings like PMI and retail sales suggest growth continued into
Q2, and leading indicators point positively. The Conference Board’s Leading Economic Index is
in a long uptrend, and bank lending to non-financial corporations and households has picked up.
Emerging Markets Better Than Ok
The rest of the world isn’t in dire straits, either. Despite persistent concerns about a hard landing,
China continues expanding at a high rate, albeit down from recent years. Chinese GDP grew
6.7% y/y in Q1 and Q2, in line with its 6.5-7.0% target range, and the government remains
committed to spurring growth as necessary. 17 Outside struggling, commodity-focused Emerging
Markets like Brazil and Russia, developing countries are overall growing solidly, contributing to
global demand. India currently boasts one of the world’s fastest growth rates, eclipsing China’s.

Korea is quietly chugging along thanks to its solid, services-driven economy. Lower commodity
prices haven’t derailed Mexico or Indonesia, which enjoy growing domestic demand.
We hope you’ve found this information helpful. Please contact Fisher Investments at
800-568-5082 for more information on our outlook and services or to arrange an appointment
with one of our representatives for a complimentary review of your portfolio. To follow our daily
commentary on market and economic events, please visit www.MarketMinder.com.
Alternatively, you can sign up here for MarketMinder’s weekly newsletter.
The Investment Policy Committee
Aaron Anderson, Ken Fisher, Bill Glaser and Jeff Silk
Commentary in this summary constitutes the general views of Fisher Investments and should not
be regarded as personal investment advice. No assurances are made we will continue to hold
these views, which may change at any time based on new information, analysis or
reconsideration. In addition, no assurances are made regarding the accuracy of any forecast
made herein. The MSCI World Index measures the performance of selected stocks in 23
developed countries and is presented net of dividend withholding taxes and uses a Luxembourg
tax basis. The S&P 500 Composite Index is a capitalization-weighted, unmanaged index that
measures 500 widely held US common stocks of leading companies in leading industries,
representative of the broad US equity market. Past performance is no guarantee of future
results. A risk of loss is involved with investments in stock markets. You should consider
headlines and developing stories in the broader context of overall market conditions and events.
A single geopolitical event or corporate announcement is unlikely to move broad markets
materially. You should carefully consider investment actions in light of your goals, objectives,
cash flow needs, time horizon and other lasting factors.
M.01.034-Q3160727
1
Source: FactSet, as of 6/30/2016. MSCI World Index returns with net dividends, 3/31/2016 – 6/30/2016.
2
Source: Global Financial Data, Inc., as of 4/28/2016. S&P 500 price returns, 1/2/1930 – 4/27/2016.
3
Ibid. MSCI World Index with net dividends, S&P 500 total return, 6/23/2016 – 7/22/2016.
4
Ibid. MSCI UK total return (in sterling), 6/23/2016 – 7/22/2016.
5
Source: FactSet, as of 7/11/2016. MSCI World Index return with net dividends, 3/31/2016 – 6/30/2016.
6
Ibid. MSCI World Index return including net dividends, 12/31/2013 – 6/30/2016.
7
Source: FactSet, as of 7/27/2016.
8
Ibid.
9
Source: UK Office for National Statistics, as of 7/22/2016.
10
Source: US Bureau of Economic Analysis, as of 7/15/2016. US Q1 Real GDP growth, preliminary estimate.
11
Ibid. US Q1 2016 Real GDP Growth, third estimate.
12
Source: FactSet Earnings Insight, as of 6/13/2016 .
13
Ibid.
14
Ibid.
15
16
Source: Eurostat, as of 7/15/2016.
17

F I S HE R I N V ES T M ENTS ®
5525 NW Fisher Creek Dr., Camas, WA 98607

800-568-5082
www.fisherinvestments.com
©2016 Fisher Investments. All rights reserved. M.01.034-Q3160727

Stock Market Outlook 2016

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F I SH E R I N V E S T M E N TS ®

Past performance is no guarantee of future results. 1

Economically, most data points to reaccelerating US growth, underpinned by healthy

2 Past performance is no guarantee of future results.

Past performance is no guarantee of future results. 3

Exhibit 1: S&P Sideways Streaks in Bull Markets Since 1930

4 Past performance is no guarantee of future results.

Brexit Uncertainty Already Fading

Exhibit 2: Brexit’s Impact Was Fleeting

Other Uncertainty Falling

6 Past performance is no guarantee of future results.

High-Yield Bond Fears

Exhibit 3: High Yield Fears Abate Exhibit 4: US Corporate Credit Spreads

Inv. Grade Spread Over Treasurys

Source: FactSet, as of 7/12/2016. BofA/ML Source: FactSet, as of 7/8/2016. Spreads are US

Credit Spreads Narrowing

Past performance is no guarantee of future results. 7

Exhibit 5: Negative Yielding Debt Is Becoming More Commonplace

Oil Prices Stabilizing

8 Past performance is no guarantee of future results.

Terrorism Won’t Terrorize Stocks

Past performance is no guarantee of future results. 9

The Clinton Scenario—Top Down

10 Past performance is no guarantee of future results.

The Trump Scenario—Bottom Up

Though little-noticed, Republicans control most state governments bottom-to-top. In Michigan, a

Past performance is no guarantee of future results. 11

Source: US Bureau of Economic Analysis, Nat’l Conference of State Legislatures, as of 2/5/2016.

12 Past performance is no guarantee of future results.

Source: US Bureau of Economic Analysis, Nat’l Conference of State Legislatures, as of 2/5/2016.

Past performance is no guarantee of future results. 13

Exhibit 9: Electoral Map According to Bottom-Up Analysis

Source: Nat’l Conference of State Legislatures, US National Archives, as of 7/20/2016. Nebraska

14 Past performance is no guarantee of future results.

As for Market Impact…

Past performance is no guarantee of future results. 15

Exhibit 11: The Perverse Inverse

Exhibit 12: US Stocks Outperform in Election Year Second Halves

US stocks tend to outperform

16 Past performance is no guarantee of future results.

Exhibit 13: 2016 Senate Races

Past performance is no guarantee of future results. 17

Presidents Can’t Do Much Unilaterally

18 Past performance is no guarantee of future results.

Past performance is no guarantee of future results. 19

Brexit Doesn’t Doom Britain’s Economy

Britain’s Healthy Economy

20 Past performance is no guarantee of future results.

Annualized Growth Rate 3.0

-2.0 Yellow columns indicate slowing growth.

Source: FactSet, as of 7/22/2016. June 2013 – June 2016.

Past performance is no guarantee of future results. 21

Preliminary “Flash” Purchasing Managers’ Indexes (PMI)—surveys measuring the breadth of

Exhibit 18: UK PMIs Exhibit 19: UK M4 and Loan Growth

Percentage Change (Y/Y)

A broader measure of spending—personal consumption expenditures, which includes services

22 Past performance is no guarantee of future results.

Percentage Change (Y/Y)

The Glacial Fed

US Earnings: Still Better Than Appreciated

Past performance is no guarantee of future results. 23

Year-Over-Year Percentage Growth

Brexit Won’t Break the Eurozone