Source: Bloomberg Finance LP, NBER, Deutsche Bank as of 9/17/24

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• We have officially entered into a global easing cycle as most developed market central banks have begun to normalize policy rates. The Fed is expected to join the crowd later today in a widely anticipated move to cut the Fed Funds rate after spending more than a year at 5.50%.
• As the chart above shows the stock market does quite well after the Fed begins to cut rates, provided that we don't slip into a recession.
• We do not think a recession is likely and remain in the soft-landing camp as earnings are recovering and lower market rates should support more capital intensive, interest rate sensitive sectors. The stock and bond markets are sending conflicting signals, with stocks tracking more in line with a non-recession scenario currently. We will stay tuned, but if the soft-landing plays out we would expect to see solid returns and the market continue to broaden out.

The index used in the chart is unmanaged, and not available for direct investment; they include reinvestment of dividends; they do not reflect management fees or transaction costs: S&P 500 Index is a widely recognized index of market activity based on the aggregate performance of a selected portfolio of publicly traded common stocks.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that an investment strategy will work under all market conditions. Investments involve varying degrees of risk. Commentary contains subjective judgements, management opinions and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Bloomberg Finance LP, NBER, Deutsche Bank

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• Since 1957, Fed easing followed by continued expansion resulted in good market performance over the following two years (light blue line above).
• We believe the Fed will ease later this year and no recession is likely. Consumers are employed, businesses are investing, and the Government is spending.
• The S&P 500 acts well, with broader participation and recovering earnings. We believe further gains are likely.

Source: Deutsche Bank Research. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. Investments involve varying degrees of risk, and there can be no assurance that investing in the equity market is suitable for everyone's investment portfolios. Commentary contains subjective judgements, management opinions, and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. The S&P 500 index is unmanaged, and not available for direct investment; it includes reinvestment of dividends; does not reflect management fees or transaction costs. The volatility of the index and an investment account will not be the same. It is a widely recognized index of market activity based on the aggregate performance of a selected portfolio of publicly traded common stocks. The performance data was supplied by Standard & Poor's. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Todd Asset Management, Bloomberg

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• A soft landing is when GDP continues to grow as inflation declines. By that definition, the US is in a soft landing.
• We do not believe a recession is likely this year. Consumers are employed, S&P earnings growth has resumed, and politicians are spending.
• The Fed wants to cut rates later this year. History suggests if rates are cut with no recession, the S&P should act well.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Nikkei NEEDs, TSE, AlphaSense, Bloomberg, Factset, Morgan Stanley Research as of 10/15/2023

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• This is the fourth Chart of Interest in a series we've recently published that have highlighted the breakout of the Japanese stock market, economy and their dramatically improved corporate profitability profile.
• Better growth prospects and a renewed focus on profitability have allowed management teams to significantly ramp shareholder returns via both share buybacks and dividend payments. The chart above shows that total shareholder returns have roughly tripled from the levels we saw in the years following the Great Financial Crisis.
• These are all important drivers of the Japanese market's impressive performance over the past decade and explain a renewed level of interest and enthusiasm from the investor community.
• Our International Intrinsic Value strategy is now overweight Japan for the first time in the product's 18 year history as the overall investment profile has greatly improved.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: IBES, Datastream, Rimes and Morgan Stanley Research as of 5/31/2023

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• The chart above is a little busy, but the message is simple. Japanese companies have dramatically improved their profitability profile over the past decade. Various reforms have reoriented management teams to focus on efficiency, margins and shareholder returns, closing the gap with the rest of the world and driving the impressive stock market performance we've seen over that time frame.
• In our last Chart of Interest (3/5/24) we highlighted that the Japanese economy is breaking out of a 30 year long stagnant, deflationary trend as a result of various reforms (Abenomics) that have been implemented over the past decade.
• Reforms at the corporate level are also having a major effect and Japanese companies are increasingly utilizing IT Service consulting arms (many of them in-house) to upgrade and digitize operations, migrate systems to the cloud and ultimately spur faster growth in higher margin areas of their businesses. These initiatives have more than doubled profitability levels (e.g. Return on Equity or ROE) and have allowed more excess profits to be returned to shareholders.
• Our International Intrinsic Value strategy is now overweight Japan for the first time in the product's 18 year history as a results of these structural reforms.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Cabinet Office and Morgan Stanley Research as of 6/11/2023
e = Morgan Stanley Research estimates

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• Last week (2/27/24) we began a series of Charts of Interest focused on Japan and a major breakout in the Nikkei. The term breakout is usually reserved for stock charts, but we are highlighting above a chart from Morgan Stanley showing a macro-driven breakout that may be more consequential.
• The Japanese economy is breaking out of a 30 year long stagnant, deflationary trend. The post-pandemic wave of inflation that rolled across the globe has certainly lifted the nominal series above, however structural changes have been at work since Shinzo Abe became Japan's Prime Minister in 2012.
• Abenomics were built on "three arrows": Monetary stimulus, Fiscal stimulus and Structural reforms. While critics may rightly point to debt accumulation through his tenure, the profile of the broader Japanese market has undoubtedly improved. The Nikkei is certainly voicing its opinion after breaking out to new all-time highs in late February.
• Our International Intrinsic Value strategy is now overweight Japan for the first time in the product's 18 year history as businesses are increasingly focusing on profitability and shareholder returns. Our discipline has picked up on this breakout, and we continue to look for opportunities in this market.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Bloomberg as of 2/26/2024

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• Last week the Nikkei 225 broke out to an all-time high for the first time in more than 34 years.
• We always pay close attention to breakouts. They signal the structural change of a trend that had persisted for an extended period of time. In Japan's case, 'extended' is an understatement as December 1989 served as the all-time high for the Nikkei for more than 34 years. This marks a major milestone in the country's long journey out of an era that was defined by deflation, negative interest rates and poor corporate governance.
• Our International Intrinsic Value strategy is now overweight Japan for the first time in the product's 18 year history. Over the next few weeks, we will be sending out a series of Charts of Interest that highlight some of the fundamental transformations that are behind this historic breakout in Japanese stocks.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2024

Source: Datastream, Stoxx, S&P, Goldman Sachs as of 10/30/2023

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• It may come as a surprise that European stocks have actually held their own vs. the US market for the better part of the past 2 years. What is likely more underappreciated is the driver of this change in momentum... the outperformance of European earnings.
• At a very basic level, stock prices follow earnings over time. A durable inflection in fundamentals should be a meaningful catalyst and challenge the unrelenting outperformance US markets have enjoyed since the Great Financial Crisis. This shift is all the more interesting when considering the outsized effect the Magnificent 7 have had on US earnings growth and returns over the past few years.
• We've spilled plenty of ink over the years highlighting potential inflection points in US vs. international market performance. It will turn, when it turns. However fundamental inflections in earnings do warrant our attention. We've been more constructive on Europe than consensus as the earnings profile has dramatically improved.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that this investment strategy will work under all market conditions. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2023

Source: Daily Shot 6-29-23, JP Morgan

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• Economic growth rates pivoted 3 quarters ago to consistently favor International Real GDP Growth (yellow bar above) over US Growth (blue bar above) through the end of 2024 according to consensus estimates.
• Many international markets are surging because of this as Germany and France are near new all-time highs and Japan is at a 30+ year high. MSCI Europe has outperformed the S&P 500 since the beginning of 2022.
• We believe China's re-opening coupled with a new global capital investment cycle underpins better growth overseas and should result in better performance for international markets over time.
• International markets should benefit if US investors tire of focusing on the top 7 large (and expensive) stocks. Valuation differences are at generational highs favoring international markets. Our International Strategy is overweight European and Japanese stocks to take advantage of this.

This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. There is no guarantee that a particular investment strategy will work under all market conditions. Investments involve varying degrees of risk, and there can be no assurance that investing in the equity market is suitable for everyone's investment portfolios. Commentary may contain subjective judgements and assumptions subject to change without notice. Commentary is based on information as of the period covered by this publication. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2023

Be Different than The Market

The cycle has turned and the growth superstars of the past 10 years are now likely to see continued erosion in market cap. This is like the process we saw after the Dot Com Bubble and it took until 2007 for the process to be completed. Looking different than the S&P index will probably lead to better returns than mimicking the index. Active strategies that are value oriented or investing in international markets are the best places to make money if the largest US companies continue to bleed market cap.

Source: Strategas. Performance Period measured is 06-30-2000 until 06-30-2007

The End of an Era - Negative Debt Finally Eliminated

Negative rates never made much sense to us and created a tough environment for fundamentally oriented active strategies like ours. This era was defined by a number of speculative assets garnering all the attention (e.g. SPACs, Meme stocks, Crypto, NFTs) and the markets concentrating on a handful of mega-cap Tech names. Interest rates have broken out of a 40 year downtrend and closed the chapter on negative rates. the leadership profile that worked over the past cycle should look different as we enter this new cycle.

Source: Deutsche Bank 2022 Review and Bloomberg

Have We Finally Reached a Tipping Point?

The relative performance of US markets over International markets has been incredibly stretched for some time. Candidly we were too early on our call for a reversion to the mean, so what's changed to make the recent run of outperformance for International markets more lasting? Stated simply we are in a different interest rate, inflation and policy environment. As we highlighted in the first 2 charts, the breakdown of the largest stocks in the US and the breakout of interest rates has ushered in a new environment. As a result, the leadership profile that worked over the past cycle should look different as we enter this new cycle. We read this as Value > Growth, International > US, Active > Passive.

Source: Bank of America Global Research and Todd Asset Management

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This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2023