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  This Homebuilder Index Is Still Well Below Its All-Time High
Posted Under: Sectors

 
View from the Observation Deck  
  1. Investors are likely aware that most major U.S. equity indices have been setting numerous record highs over the past year of the current bull market. There are, however, niches of the market that have lagged the broader stock indices.  
  2. Today's post shows that while valuation levels of homebuilder stocks are up sharply from their bear market lows in 2009, on average, valuations still reflect a notable discount to their peak, set in July 2005 (see chart).
  3. Bloomberg's 2017 and 2018 estimated year-end price-to-earnings (P/E) ratios on the S&P Homebuilding Select Industry Index were 15.10 and 13.35, respectively, as of 9/20/17. Both are well below the index's three-year average P/E of 17.34.
  4. For comparative purposes, the 2017 and 2018 estimated year-end P/E ratios on the S&P 500 Index were 19.21 and 17.31, respectively, as of 9/20/17. Its three-year average P/E was 19.49. 
  5. Year-to-date through 9/20/17, the S&P Homebuilding Select Industry Index posted a total return of 14.21%, compared to a gain of 13.69% for the S&P 500 Index, according to Bloomberg.
  6. The two recent major hurricanes that struck the U.S., Harvey (Texas) and Irma (Florida), did significant damage to residential properties. The Texas Department of Public Safety estimates that more than 185,000 homes were damaged by Harvey and 9,000 homes were destroyed, according to The Guardian.
  7. Brian Wesbury, Chief Economist at First Trust Advisors L.P., believes that storm-related rebuilding plus the solid fundamentals of the housing market should push starts to new recovery highs by early next year.
  8. In August, housing starts stood at a 1.180 million annual rate, according to the U.S. Census Bureau. Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year, according to Wesbury. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P Homebuilding Select Industry Index provides investors with an equity benchmark for U.S. traded Homebuilding-related securities. The S&P 500 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. 

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Posted on Thursday, September 21, 2017 @ 2:07 PM • Post Link Share: 
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  S&P 500 Index’s Dividend Payout Still Trending Higher
Posted Under: Stock Dividends

 
View from the Observation Deck  
  1. S&P 500 Index companies paid out a record high $104.01 billion in cash dividends in Q2'17. 
  2. It marked the 3rd consecutive quarter in which cash dividend distributions exceeded $100.00 billion. Over the past 39 quarters through Q2'17, the average quarterly dividend payout was $73.90 billion.
  3. The low point in the chart was the $47.21 billion paid out in Q3'09, the first quarter of the current economic expansion. From Q3'09 to Q2'17, the index's quarterly dividend payout more than doubled (+120.31%).
  4. For the 12-month period ended 6/30/17, S&P 500 Index companies paid out $407.12 billion in cash dividends, up 4.54% from the $389.43 billion distributed over the same period through 6/30/16, according to S&P Dow Jones Indices.
  5. The steady rise in dividend distributions throughout the current economic recovery suggests that Corporate America is still on solid footing, in our opinion.
  6. As of 9/14/17, four sectors contributed 52.66% of the S&P 500 Index's dividend payout. Here was the breakdown: 15.75% (Information Technology); 13.36% (Financials); 11.82% (Health Care); and 11.73% (Consumer Staples), according to S&P Dow Jones Indices.
  7. S&P 500 Industrials (Old), defined as the S&P 500 minus Financials, Utilities and Transportation companies, had cash and equivalent holdings totaling an all-time high of $1.53 trillion in Q2'17, according to S&P Dow Jones Indices.
  8. Investors should be encouraged by the fact that companies are not only distributing billions of dollars more each quarter to shareholders via dividends, but appear to have the wherewithal to keep this trend going, in our opinion.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance.

To Download a PDF of this post, please click here.

Posted on Tuesday, September 19, 2017 @ 2:11 PM • Post Link Share: 
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  Why the Market Continues to Go Up
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments in the market and takes a look ahead.
 
Posted on Monday, September 18, 2017 @ 3:35 PM • Post Link Share: 
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  US Stocks Ended September 15, 2017

 
The S&P 500 closed last week at an all-time high of 2498.6. Monday, the S&P 500 was up over 1% for several reasons, the most influential of which, contrary to projections, the majority of Florida was spared of a direct hit from Hurricane Irma. The August CPI announcement came in ahead of expectations potentially moving the timeframe forward for the Federal Reserve's next interest rate move. In stock news, additional details were revealed about Equifax Inc. and their data breach that potentially affected over 140m people. As a result the stock plummeted over -24.5% last week, following the prior week's -13% return. Regeneron Pharmaceuticals Inc. also continued to fall as news that AstraZeneca, Amgen Inc. and AbbVie Inc. reported additional positive results for drugs that could eat away at the market share of Regeneron's blockbuster Dupixent drug. Oil futures were up over $2 this week and closed at $49.90 as OPEC raised its global demand projections. As a result, five of the six top performing names in the S&P 500 were from the energy sector last week: Range Resources Corp. was up 11.9%, Helmerich & Payne up 10.4%, Chesapeake Energy Corp. up 9.9%, Concho Resources Inc. up 9.6% and Newfield Exploration up 9.3%. Many retailers had a great week on news that U.S. weekly retail sales were up 4.5%, The Gap Inc. up 8.9%, L Brands Inc. up 9.3%, Macey's Inc. up 7.5% and Kohls Inc. up 7.5%. Looking ahead, tensions with North Korea will remain in the forefront of investors' minds; however, fundamentals are likely to drive returns long term.
Posted on Monday, September 18, 2017 @ 8:26 AM • Post Link Share: 
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  US Economy and Credit Markets Ended September 15, 2017
Posted Under: Weekly Market Commentary

 
The yield curve steepened over the course of last week. Early last week, Treasuries sold off as fears of both natural and unnatural disasters dissipated over the prior weekend. Hurricane Irma was weaker than expected when it made landfall in Florida and North Korea did not conduct another missile test. Turning to economic data, on Wednesday it was announced that the Producer Price Index (PPI) rose 0.2% in August, below consensus, and 2.4% over the last 12 months, which is above the Federal Reserve's stated 2% inflation target. Then on Thursday U.S. government bonds sold off for a fourth consecutive session as it was announced that the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in August, the highest rate since January when it rose 0.6%, and 1.9% over the last 12 months. Most of the increase came from increases in the indexes for gasoline and shelter, possibly related to Hurricane Harvey. The timing of both reports is important as they come before the Federal Open Market Committee meets on September 20-21. Some investors took the data as evidence that recent softness in inflation was indeed temporary, a sign that the Fed could raise rates one more time this year in December. Specifically, the probability of a rate hike in December rose from around 25% on September 8th to nearly 50% on September 15th. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Tuesday: August Housing Starts (1,174K; 1,155K); Wednesday: FOMC Rate Decision – Upper Bound (1.25%, 1.25%), September 15 MBA Mortgage Applications (9.9%), August Existing Home Sales (5.46M, 5.44M); Thursday: September 16 Initial Jobless Claims (300K, 284K), August Leading Index (0.2%, 0.3%), September Philadelphia Fed Business Outlook (17.0, 18.9); Friday: September Preliminary Markit US Manufacturing PMI (53.0, 52.8).
Posted on Monday, September 18, 2017 @ 8:24 AM • Post Link Share: 
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  The S&P 500 Index Just Set Another All-Time Closing High
Posted Under: Broader Stock Market

 
View from the Observation Deck
  1. In today's post, we show the percentage of stocks in a number of major Standard & Poor's (S&P) stock indices that are trading above their respective 100-Day moving averages.
  2. Moving averages tend to smooth out day-to-day price fluctuations and can be a useful tool for traders/investors to identify both positive trends and reversals, as well as entry or exit points, in our opinion.
  3. With many stock indices trading at or near their respective all-time highs, we believe that investors can benefit from a variety of perspectives on the market. Investors can view another we posted on 9/7/17 (click here to view)
  4. The S&P 500 Index stood at its all-time closing high (2,496.48) on 9/12/17, according to Bloomberg. The S&P Mid-Cap 400 Index stood 2.27% below its all-time closing high (1,791.93 on 7/25/17), while the S&P Small-Cap 600 Index stood 2.53% below its all-time closing high (876.06 on 7/25/17).
  5. As indicated in the chart, five of the 13 indices have 50% or fewer of their constituents trading above their respective 100-Day moving averages. Utilities stands above all at 92%.
  6. Even though the S&P 500 Index just set a new all-time high on 9/12/17, its 32nd of the year, there is still plenty of potential value in the market, in our opinion.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices (Real Estate was added as the 11th major sector in 2016 but data is not available for this chart) are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. The S&P Mid-Cap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small-Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization.

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Posted on Thursday, September 14, 2017 @ 12:51 PM • Post Link Share: 
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  A Snapshot Of Dividend-Payers & Non-Payers In The S&P 500 Index
Posted Under: Stock Dividends

 
View from the Observation Deck  
  1. One of the ways in which S&P Dow Jones Indices tracks the performance of the constituents in the S&P 500 Index is by separating those that pay a dividend from those that do not. 
  2. While the S&P 500 Index is capitalization-weighted, constituents are equally weighted in this comparison. 
  3. As of 8/31/17, there were actually 505 stocks in the index and 419 of them distributed a cash dividend to shareholders. Companies that do not pay a dividend tend to be more growth-oriented, in our opinion. 
  4. The number of S&P 500 companies that distribute dividends fluctuates over time. Since 2002, the numbers have ranged from a year-end low of 351 in 2002 to a year-end high of 423 in 2014.
  5. From 2002-2016, the dividend-payers category outperformed the non-payers category, on a total return basis, in 9 of the 15 calendar years, but lagged year-to-date through August 2017. 
  6. With respect to the non-payers, two years in the table stand out: 2003 and 2009. Both marked the first year of a new bull market, which helps explain the huge disparity in performance over the dividend-payers, in our opinion.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance.

To Download a PDF of this post, please click here.
Posted on Tuesday, September 12, 2017 @ 12:11 PM • Post Link Share: 
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  US Stocks Ended September 8, 2017
Posted Under: Weekly Market Commentary

 
Equities lost ground during a holiday-shortened week in which investors grappled with matters ranging from Hurricane Irma and North Korea to raising the US debt limit and the Federal Reserve's future interest rate path. Financial shares were one of the worst performing sectors as insurers continued to sell-off due to Hurricane Irma's potential impact on Florida and banking shares lost ground on lower treasury yields. In stock news, Hertz Global Holdings Inc. and Avis Budget Group Inc. both added to last week's gains as rental car rates jumped in hurricane affected areas and a supply glut in used cars could be further reduced by Hurricane Irma, benefiting resale values for both rental fleets. Newell Brands Inc. declined after lowering its full year EPS forecast due to increased cost of its manufactured resin business as most suppliers remain closed since Hurricane Harvey. Restoration Hardware shares surged as short sellers covered positions after the high-end furniture seller reported strong earnings and raised guidance, citing the core business showing signs of stabilization. Looking ahead to next week, investors will closely watch North Korea over the weekend as Saturday marks the 69th anniversary of the founding of the Democratic People's Republic of Korea, which is a likely day for another missile test. In addition, next week's inflation data will be a key data point as investors have been lowering their expectations for future rate hikes after a series of weak inflation reports.
Posted on Monday, September 11, 2017 @ 8:56 AM • Post Link Share: 
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  US Economy and Credit Markets Ended September 8, 2017
Posted Under: Weekly Market Commentary

 
Longer dated yields fell hard last week due to diminishing expectations of another rate hike being enacted by the Federal Reserve for the remainder of the current calendar year. The current implied probabilities of a rate hike in 2017 have fallen to near 25%. It also remains to be seen whether the Federal Reserve will begin unwinding its balance sheet. Recent Federal Reserve Bank of New York data shows that as of the 2nd quarter of 2017 the aggregate outstanding household debt for the United States rose to a new high. It was recorded at $12.84 trillion dollars, in nominal terms, which is $164 billion higher than the previous record set in the third quarter of 2008. Mortgage balances represent $8.69 trillion of the outstanding balance and therefore make up the preponderance of outstanding debt. The outstanding balance profile has changed since 2008 however, as mortgage balances make up less of the outstanding balance and car loans and student loans have taken greater share. Last Wednesday saw two important economic reports as the trade deficit in Goods and Services for July was reported at $43.7 Billion and the ISM Non-Manufacturing Index rose to 55.3. The deficit was slightly less than expectations and both exports and imports declined. The ISM non-manufacturing index reported 15 of 18 industries expanding in August. Major economic reports (related consensus forecasts; prior data) for the upcoming week include: Wednesday: Prior week MBA Mortgage Applications, August PPI Demand (.3%, +.4%); Thursday: Prior week Initial Jobless Claims (300K, +2K) and August CPI (.3%, +.2%); Friday: September Empire Manufacturing (18, -7.2), August Retail Sales (.1%, -.5%), August Industrial Production (.1%, -.1%) and Preliminary September University of Michigan Sentiment (95.6, -1.2).
Posted on Monday, September 11, 2017 @ 8:53 AM • Post Link Share: 
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  S&P 500 Index Stock Prices Relative To Their 52-Week Highs
Posted Under: Broader Stock Market

 
View from the Observation Deck  

  1. The averages in the chart simply reflect where the stocks in the S&P 500 Index stood, by sector, relative to their 52-week highs as of 8/31/17. Investors can compare today's snapshot to the one we did on 3/30/17 (click here to view). 
  2. From 8/31/16 through 8/31/17, the S&P 500 Index, which is capitalization-weighted, posted a total return of 16.21%, according to Bloomberg. On a price-only basis, which excludes dividends, the index was up 13.85%.
  3. Year-to-date through 8/31/17, 65.5% of the stocks in the S&P 500 Index had positive returns on a price-only basis, according to S&P Down Jones Indices. In 2016, 69.7% of stocks in the index finished the year in positive territory.  
  4. As of 8/31/17, the S&P 500 Index, on a cap-weighted basis, stood 0.37% below its all-time high of 2,480.91, which was set on 8/7/17, according to Bloomberg.
  5. The 10 largest stocks in the index by market capitalization have significantly outperformed the overall index since the start of 2015, according to data from S&P Dow Jones Indices. That explains why the S&P 500 Index has been setting new all-time highs even though many of its constituents sit below, and in some cases well below, their respective 52-week highs, in our opinion.  
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

To Download a PDF of this post, please click here.
Posted on Thursday, September 7, 2017 @ 11:44 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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