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  Global Real Estate Recovery Lagging The Rebound In The U.S.
Posted Under: Sectors

 

View from the Observation Deck 

  1. Investors seeking value in the equities markets may want to consider a portfolio of U.S. REITs, or a combination of foreign and domestic real estate companies and REITs. 
  2. The approach of pairing real estate companies with REITs is a bit more commonplace overseas where REIT markets are somewhat of a newer concept and still developing.    
  3. Despite that subtle distinction, the peak to trough returns in the chart clearly show that REIT and real estate company valuations, both domestic and foreign, reached their respective peaks in 2007.
  4. The bubbles in both the residential and commercial real estate markets eventually popped and the fallout was significant, with benchmark indices plunging from their highs by 72.65% to 79.26%.
  5. The chart also indicates that the indices bottomed out in early March 2009, which coincided with the end of the bear market in stocks.
  6. While U.S. REITs have recovered from their lows better than their foreign counterparts to date, there is potential for more upside (see Peak to Current column) both domestically and abroad, in our opinion.
  7. The International Monetary Fund sees global GDP growth rising. It estimates that the global GDP growth rate will rise from 3.0% in 2013 to 3.6% in 2014, and then up to 3.9% in 2015.
  8. REITs and real estate companies also offer relatively attractive dividend yields in today’s climate. Many yield 3.50% or better.    

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The FTSE NAREIT Equity REITs Index is a free float adjusted market capitalization-weighted index that includes all tax qualified REITs listed on the major U.S. exchanges. The FTSE NAREIT Composite Index combines the members of the FTSE NAREIT Equity REITs Index and the FTSE NAREIT Mortgage REITs Index. The FTSE EPRA/NAREIT Developed Asia Index and the FTSE EPRA/NAREIT Developed Europe Index are free float adjusted market capitalization-weighted indices that track listed real estate companies and REITs in those regions. 

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Posted on Tuesday, April 15, 2014 @ 1:55 PM • Post Link Share: 
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  Never Let the Facts Get in the Way of a Good Story
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 good look ahead at the all-important 2nd quarter earnings season.
Posted on Tuesday, April 15, 2014 @ 7:57 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 11, 2014
Posted Under: Weekly Market Commentary

 
Equities struggled last week and the resulting appetite for lower risk contributed to bond prices rising as yields fell. Earnings also got off to a bad start for the first quarter which calls into question whether continued growth can be sustained and has resulted in greater demand for low risk treasuries, which are not seeing yields rise as fast as was expected. The underlying bond environment is little changed with the overnight bank lending rate still at 0-.25%, the Federal Reserve continuing to slowly unwind its bond-purchase program and inflation is stable. In spite of the market downdraft, economic reports on the week were generally positive. Reports got off to a slow start as The MBA Mortgage Application Index showed a drop due to continued slow re-financing activity. Tuesday’s Jobless claims came in better than expected as 300,000 Americans filed for jobless claims for the week ended April 5th. The Labor Department’s Producer-Price Index (PPI) came out Friday and registered an increase of .5% for the prior month. Gasoline and Food cost continue to climb but nonetheless, Friday’s University of Michigan April Confidence Survey revealed consumer sentiment reaching its highest level since last summer. It bounced to 82.6 ahead of an estimated 81. Expectations are for consumer confidence to continue rebounding into the spring thanks for more temperate weather. The debated ‘thaw’ is expected to bring positive economic reports through the spring as consumer activity rebounds from the harsh winter. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: March Advance Retail Sales (0.8%, +.5%); Tuesday: March Empire Manufacturing (8.00, +2.39) and March CPI (.1%, unch.); Wednesday: MBA Mortgage Applications, March Housing Starts (975,000, +68,000) and Industrial Production (.5%, -.1%); Thursday: Prior Week Initial Jobless Claims (311,000, +5,000).

Posted on Monday, April 14, 2014 @ 8:44 AM • Post Link Share: 
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  US Stocks Week Ended April 11, 2014
Posted Under: Weekly Market Commentary

 
After setting a record high last week, the S&P 500 Index closed down nearly 2.6% this week, which was the largest weekly loss since 2012. The decline was fueled by valuation concerns in some high growth equities, particularly in the technology and health care sectors. Between Thursday and Friday, the NASDAQ Composite Index fell over 4.4%, the biggest two day drop since 2011. For the week, Intuitive Surgical Inc. had a -13% return, SanDisk Corp. -9% return, Gilead Sciences Inc. -8.6% return, Yahoo! Inc. -4% return and Amazon.com Inc. had a -3.5% return. Tuesday evening marked the unofficial start to earnings season when Alcoa Inc. reported strong earnings and revenue that helped markets rally Wednesday. Aiding in Wednesday’s rally was the release of the Federal Reserve meeting minutes, which helped to ease concerns about the timing of future interest rate increases. The relief was short lived as markets sank Thursday and Friday. JP Morgan fell 6.7% between the two days, when the bank announced financials that missed earnings and revenue expectations. Jamie Dimon, CEO of JP Morgan, credited the banks iffy first quarter performance to industry-wide headwinds in the security markets and mortgage portions of the bank. Wells Fargo & Co. rallied 0.8% on Friday as the mega bank announced they exceeded analyst estimates for earnings and revenue. John Stumpf, the CEO of Wells Fargo, credited their success to their diversified business model, along with strong loan and deposit growth. Bed Bath & Beyond slid over 6% Thursday, as the home good retailer announced revenue and earnings that were below analyst estimates. Family Dollar Stores Inc. fell over 3% on Thursday as the discount retailer announced poor earnings and revenue numbers. Next week should offer a better understanding of how strong first quarter 2014 earnings were as Citigroup Inc., Johnson & Johnson, Coca-Cola Co., Intel Corp., Yahoo! Inc., Bank of America Corp., American Express Co., and many others are all expected to announce results.
Posted on Monday, April 14, 2014 @ 8:41 AM • Post Link Share: 
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  The U.S. Dollar Priced Where It Stood Prior To The Financial Crisis
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.
  2. The dollar is still regarded as the world’s primary reserve currency. Its relative strength over time can be influenced by such things as central bank monetary policy, geopolitical events and trade. 
  3. U.S. investors with exposure to foreign securities, commodities and the stocks of U.S. multinational companies are particularly vulnerable to fluctuations in the U.S. dollar.
  4. These investors tend to benefit more over time from any relative weakness in the U.S. dollar. A weaker U.S. dollar can potentially enhance returns via the exchange rate. Conversely, a stronger U.S. dollar can reduce the returns of foreign investments as they are translated into U.S. dollars. 
  5. Predicting the direction of the dollar, or any currency, can be a daunting task, even for professionals who specialize in it. 
  6. Standard & Poor’s downgrade of the U.S. sovereign credit rating from AAA to AA+ on 8/5/11 (see chart) is a prime example, in our opinion.
  7. While conventional thought would have been that a downgrade of that magnitude would have negatively impacted the U.S. dollar, it did not.
  8. In hindsight, the sovereign debt crisis threatening a number of countries within the European Union trumped the U.S. downgrade. Ironically, the U.S. was still viewed as a safe haven at that time.
  9. We believe that investors with a long time horizon and a properly diversified investment portfolio should not fear short-term fluctuations in the U.S. dollar.          

This chart is for illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

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Posted on Thursday, April 10, 2014 @ 1:36 PM • Post Link Share: 
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  The Best Performing Sector Over The Last 10 Years Was Energy (On Two Fronts)
Posted Under: Conceptual Investing

 
View from the Observation Deck 
  1. The energy sector posted the highest average annual total return (+12.95%) of the 10 major S&P 500 sectors for the 10-year period ended March 2014, as measured by the S&P 500 Energy Index. 
  2. It was the only S&P 500 sector to average more than 10.00%. The second-best performer, also energy-related, was the utilities sector at 9.72%, as measured by the S&P 500 Utilities Index.
  3. On 8/13/13, we did a blog post that offered four 50/50 split-ticket ideas combining sectors/subsectors that shared a common theme. 
  4. One of those ideas involved combining traditional energy stocks, which primarily represent the production side of the business, with Master Limited Partnerships (MLPs), which represent the distribution side of the business.
  5. We continue to favor this 50/50 split moving forward. We believe that it syncs up well with the growing desire for the U.S. to become more energy independent in the years ahead.
  6. Total U.S. crude oil production jumped by 15% in 2013. By 2015, the U.S. could surpass Saudi Arabia and Russia as the world’s top oil producer, according to U.S. Energy Information Administration.
  7. In order for the U.S. to accomplish the task of energy independence it will need to expand its system of pipelines and infrastructure over time, in our opinion.
  8. MLPs, while not one of the major sectors in the S&P 500, actually outperformed all 10 of them over the period featured in the chart.
  9. The Alerian MLP Index posted an average annual total return of 14.81% for the 10-year period ended March 2014.  
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 10 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. The Alerian MLP Index is the leading gauge of large- and mid-cap energy Master Limited Partnerships.  

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Posted on Tuesday, April 08, 2014 @ 10:59 AM • Post Link Share: 
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  Earnings Season
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., gives reasons for a probable lackluster April earnings season. He also speaks to the latest developments in the market and reminds investors what to watch for in the second quarter of 2014.
Posted on Monday, April 07, 2014 @ 10:59 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 4, 2014
Posted Under: Weekly Market Commentary

 
The Treasury yield curve experienced a twist over the course of the week as yields rose for 10-year and 30-year maturities but dropped for shorter duration maturities. The twist began on Monday as yields dropped across the board, but much more for short and intermediate duration Treasury notes. This was the result of Federal Reserve Chairwoman Janet Yellen appearing to backtrack earlier comments on how quickly the Fed would hike interest rates, as she said the central bank will maintain “extraordinary economic support for some time to come.” Treasury yields then rose for all maturities on Tuesday, except to a much larger extent for 10-year and 30-year durations, on optimism in the Equity markets for a spring rebound in economic data. This trend continued on Wednesday after a positive private-sector jobs report gave optimism about the coming payrolls report. Automatic Data Processing, Inc. data showed the fastest hiring pace in three months, which gave support to the theory that the economy will pick up with warmer weather. However, on Friday, the payrolls report showed slow improvement as the unemployment rate stayed unchanged at 6.7% and equities tumbled. This caused yields dropped significantly on Friday to close the week only slightly higher. Intermediate durations dropped more than short or long term maturities on Friday also. Major economic reports (and related consensus forecasts) for the upcoming week include: Wednesday: April 4 MBA Mortgages Applications, February Wholesale Inventories (0.5% MoM); Thursday: April 5 Initial Jobless Claims (320K); Friday: March Producer Price Index Final Demand (0.1% MoM, 1.2% YoY), University of Michigan Confidence (81.5).

Posted on Monday, April 07, 2014 @ 7:45 AM • Post Link Share: 
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  US Stocks Week Ended April 4, 2014
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index closed with a 0.44% return. Monday showed the best performance of the week with a 0.80% return after favorable comments from Janet Yellen that the Fed could still help the economy. It also marked a close for the first quarter of 2014 with a 1.80% return for the index. Equities started the second quarter with an upward trend, on Tuesday brought. Stocks opened strong, then quickly dropped on lower than expected March ISM Manufacturing data, and rose again in the afternoon to close the day with a 0.71% return. Wednesday returned 0.30% on mixed economic news with lower than expected ADP employment data, but higher than the previous month. After three straight positive trading days, the index closed down on Thursday with a -0.11% return. US initial jobless claims were 326K, which was higher than expected. Claims increased from the previous week’s 311K and were higher than the consensus estimate of 319K. The S&P 500 Index had its third worst performing day of the year on Friday with a -1.25% return. The index opened up and topped out just shy of 1,900 early in the day and declined the remainder of the trading day with the technology sector being hit the hardest. Nine of the ten economic sectors had positive performance for the week. The industrials sector was the best performing sector with a 1.45% return. Telecommunication services and materials sectors followed with 1.43% and 1.18% returns, respectively. The information technology sector’s -0.68% return was the worst performance of all the sectors and was followed by financials and consumer staples which returned 0.24% and 0.30%, respectively. Anadarko Petroleum Corp., an independent oil and gas production company, turned in the best performance in the S&P 500 Index with an 18.97% gain. The next two best performers were Intuitive Surgical Inc. and The ADP Corp. with returns of 16.21% and 8.42%, respectively. This week will bring earnings news from Wells Fargo & Co., JPMorgan Chase & Co., Constellation Brands Inc., Bed Bath & Beyond Inc., Alcoa Inc. and many others.
Posted on Monday, April 07, 2014 @ 7:42 AM • Post Link Share: 
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  Job & Economic Growth Could Drive Auto Sales Higher
Posted Under: Conceptual Investing

 
View from the Observation Deck 
  1. March’s U.S. nonfarm payroll number will be released tomorrow. Bloomberg’s survey of top economists produced a consensus estimate of 200,000 new hires. 
  2. That target is slightly above the 187,540 monthly average posted over the past 12 months, but still below the 250,000-plus economists believe is needed to make a serious dent in unemployment.
  3. While relatively modest, the pace of job growth in this recovery has been sufficient enough to date to jumpstart a recovery in U.S. auto sales (see chart), in our opinion. 
  4. The chart clearly indicates the negative impact that the financial crisis in 2008 had on auto sales as well as the number of miles driven annually in the U.S.
  5. While the chart only depicts the period from 2000 through 2013, from 1988 through 2007, the number of miles driven annually in the U.S. increased in every one of those 20 calendar years. 
  6. Total U.S. auto sales have rebounded off of their financial crisis monthly low point of 9.04 million (annualized) in Q1’09. Auto sales closed December 2013 (see chart) at an annualized pace of 15.36 million.
  7. The severe weather this winter season may have been depressing sales to some degree. March 2014’s sales came in at an annualized pace of 16.33 million. Sales averaged nearly 17.0  million from 2004-2005.
  8. With Europe exiting its recession and with the U.S. GDP growth rate expected to climb from 2.1% in 2013 to 2.8% (National Association for Business Economics) in 2014, we believe auto sales are likely headed higher.
This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. 

To Download a PDF of this post, please click here.
Posted on Thursday, April 03, 2014 @ 1:45 PM • 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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