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Bob Carey
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  2014 & 2015 Earnings Snapshot
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today’s blog post is an update of one we did on 7/31/14 (click here to view). We intend to update earnings forecasts every couple of months.
  2. With respect to the 2014 earnings growth rate estimates, the indices in the chart with double-digit projections (7 indices) are as follows (Highest-Lowest):  MSCI Europe; MSCI World (ex U.S.); S&P 500 Health Care; S&P 600; S&P 500 Information Technology; Nikkei 225; and the S&P 400.
  3. With respect to the 2015 earnings growth rate estimates, the indices in the chart with double-digit projections (13 indices) are as follows (Highest-Lowest):  S&P 600; S&P 500 Materials; S&P 500 Consumer Discretionary; S&P 400; MSCI Europe; S&P 500 Information Technology; Nikkei 225; MSCI Emerging Markets; MSCI World (ex U.S.); S&P 500 Health Care; S&P 500 Industrials; S&P 500; and the S&P 100.
  4. When comparing estimates for 2015 with 2014, earnings growth rates are expected to be higher in 12 of the 18 indices.  

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 S&P 100 Index is a capitalization-weighted index based on 100 highly capitalized stocks selected from the S&P 500 for which options are listed. The S&P 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Europe Index is a free-float weighted index designed to measure the performance of the developed equity markets in Europe. The Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange.

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

Posted on Tuesday, September 30, 2014 @ 2:32 PM • Post Link Share: 
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  Relax, 3Q Earnings Will Be OK
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 reminds investors the numbers for the 3rd quarter will be OK. He also takes a look ahead to the 4th quarter earning season.
Posted on Monday, September 29, 2014 @ 2:11 PM • Post Link Share: 
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  US Stocks Week Ended Sept. 26, 2014
Posted Under: Weekly Market Commentary

 
With fears that the global economy may be cooling, the S&P 500 retreated 1.34% from record highs. Despite last week’s losses, the S&P 500 remains up 9.87% year-to-date trading at a P/E multiple of 18 while yielding 1.95%. However, the biggest story of last week belongs to Bill Gross and asset managers, PIMCO and Janus. The bond investing legend parted ways with PIMCO, the fixed income asset manager he founded in 1971 to join Janus, an asset manager known for growth equity investing. This marks a major coup for the Denver-based asset manager. News of Gross’s addition caused shares in Janus to soar more than 40% for the week. Shares in Apple fell 3.81% on Thursday, after the company announced sales of the new iPhone 6 exceeded 10 million. However, the company faced criticism after it was reported that the phone could be bent or misshapen after normal use. Also, the company withdrew their new mobile operating system, iOS 8, after receiving complaints that it interfered with the phone’s performance and ability to make calls. Much discussed IPO Alibaba completed its first full week of trading. Shares in the new issue, closed the week at $90.46 down $3.43 from its opening day close on September 19th. In a week when shares in most companies declined, Nike was able to declare a victory in the quarter. The company announced that sales in their second fiscal quarter jumped 15% and reported EPS of $1.09 beating the Street’s expectations by more than $.21/share. Shares in Nike advanced 9.40% last week. This coming week marks the end of the third quarter. Companies reporting earnings include Cintas, Walgreen’s and McCormick.
Posted on Monday, September 29, 2014 @ 8:29 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Sept. 26, 2014
Posted Under: Weekly Market Commentary

 
Yields continue to stay low and while the Federal Reserve is expected to raise rates in the future they have not made clear when that will be. Internationally, the ECB, Bank of Japan and others have signaled continued accommodative monetary policies and though US rates are low on an absolute basis, as foreign bond yields drop the US rates become relatively more attractive, increasing demand. Though bonds sold off on Friday, the markets were volatile and bonds rose for the week. Last week started as Monday’s August Existing Home sales were lower than expectations but housing surprised to the positive on Wednesday as new home sales beat expectations. The housing market continues to reflect tepid conditions as low interest rates make mortgages affordable but tighter lending conditions and slow wage growth have not led to the robust growth low rates often provide. On Thursday, August US Durable Goods Orders fell 18.2% but Durable Goods Orders excluding transportation rose .7%, slightly above expectations. The large drop resulted from civilian aircraft order declines and followed a 22.6% rise in the prior month from aviation orders. Excluding transportation provides a picture of the core US economy continuing its slow growth. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: August Personal Income and Spending (.3% and .4% respectively); Tuesday: September Consumer Confidence Index (92.5, +.4); Wednesday: Prior Week MBA Mortgage Applications, September ADP Employment Change (208K, +4K) September ISM Manufacturing (58.3, -.7); Thursday: Prior Week Initial Jobless Claims (297K, +4K); Friday: August Trade Balance ($-41B,$ -.5B), September Change in Non-Farm Payrolls (215K, +73K) and September Unemployment Rate (6.1%, unch.).
Posted on Monday, September 29, 2014 @ 8:25 AM • Post Link Share: 
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  Investors With Exposure To Dividend-Paying Stocks Should Check This Out
Posted Under: Equity Income

 

View from the Observation Deck 

  1. Today’s blog post is an update of one we did on 3/27/14. We intend to continue monitoring the direction of S&P 500 stock dividend distributions over the coming quarters.
  2. S&P 500 companies paid out $86.65 billion in stock dividends in Q2’14, up 13.02% from the $76.67 billion distributed in Q2’13. This is an indication of how healthy Corporate America is in 2014, in our opinion.
  3. The $86.65 billion distributed in Q2’14 was 83.5% higher than the $47.21 billion in Q3’09 (see chart). Stock dividend distributions are now well above pre-financial crisis levels.
  4. Companies have the capital to raise payouts. The cash and equivalent holdings of the S&P 500 Old Industrials companies (excludes Financial, Utility & Transportation companies) stood at $1.23 trillion in Q1’14, according to S&P Dow Jones Indices.
  5. Investors should be encouraged by the fact that companies are not only distributing billions of dollars more each quarter to shareholders via stock dividends, but have the wherewithal to keep this trend going.

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. 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 used to measure large-cap U.S. stock market performance.

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

Posted on Thursday, September 25, 2014 @ 3:01 PM • Post Link Share: 
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  Q4 Has Been The Best Performing Quarter For Technology Stocks Since 1994
Posted Under: Sectors

 

View from the Observation Deck 

  1. Today's blog post is a reminder of the potential for a seasonality trade in tech-oriented stocks heading into Q4. We chose 1994 as our starting point because it coincided with the start of the Internet Revolution. 
  2. One of the potential boosts for tech-oriented companies in Q4 comes from IT spending. Managers have just three months left to spend their budgets. It is often a use it or lose it proposition.
  3. A second potential driver for business is the launch of new consumer electronics products to coincide with the holiday shopping season. We have already witnessed a couple of major smartphone launches in the past few weeks. 
  4. Semiconductor sales, which are a good barometer for the technology sector, in our opinion, have been strong in 2014.
  5. Worldwide sales of semiconductors rose 9.9% (y-o-y) to $28.10 billion in July, the industry’s highest-ever monthly sales total, according to the Semiconductor Industry Association.
  6. From 1994-2013, the S&P 500 Information Technology Index posted an average total return of 7.27% in Q4, nearly double the second-highest quarterly average (3.79% in Q2).
  7. Since 1994, the S&P 500 Information Technology Index posted a positive total return 75% of the time in Q4. The best showing was in Q4’98 (+36.46%), while the worst was in Q4’08 (-25.73%) – the year of the financial crisis.
  8. On a price-to-earnings (P/E) basis, technology stocks are a value at current levels, in our opinion. As of 9/23, the estimated 2014 and 2015 P/Es for the S&P 500 Information Technology Index were 16.77 and 14.89, respectively, well below the 10-year average of 18.98, according to Bloomberg.   


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. 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 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector.

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

Posted on Tuesday, September 23, 2014 @ 3:38 PM • Post Link Share: 
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  Looking Forward to the 4th Quarter
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 to 4th quarter earnings reports.
Posted on Monday, September 22, 2014 @ 11:07 AM • Post Link Share: 
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  US Stocks Week Ended Sept. 19, 2014
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index closed in positive territory with a 1.27% return. The index closed slightly down on Monday with a -0.07% return as U.S. manufacturing data showed output fell for the first time in seven months. The health care, utilities and energy sectors led the day as Tuesday returned 0.75% on minimal news. Stocks held on to their previous days’ gains on Wednesday as the index returned 0.13%. The FOMC made statements suggesting that their asset purchases may be coming to an end if the outlook on the labor market continues to improve. The FOMC also “reaffirmed its view that a highly accommodative stance on monetary policy remains appropriate”, by continuing to keep interest rates low for a considerable time. While economic data showed mixed results on Thursday, the Index followed the two previous days’ upward trend with a 0.50% return. This helped the S&P 500 Index hit a new all-time closing high of 2,011.36, surpassing the previous high two weeks prior of 2,007.71 on September 5. August annualized housing starts data came in at 956K, well below the expectations of 1,037K. However, positive data came from US initial jobless claims of 280K, which was a decrease from the previous week’s 315K and was lower than the consensus estimate of 305K. Friday closed just below the previous close for a -0.05% return as information technology and financial stocks weighed on the Index. All ten economic sectors had positive performance for the week. The telecommunication services sector was the best performing sector with a 3.40% return. The health care and materials sectors followed with 2.01% and 1.90% returns, respectively. The information technology sector’s 0.52% return was the worst performance of all the sectors and was followed by consumer discretionary and energy which returned 0.58% and 0.96%, respectively. Vertex Pharmaceuticals Inc., a pharmaceutical company that discovers and develops drugs for diseases with limited treatments, turned in the best performance in the S&P 500 Index with an 11.57% gain. The next two best performers were E.I. du Pont de Nemours &Co. and Darden Restaurants Inc. with returns of 9.99% and 7.59%, respectively. This week will bring earnings news from Nike Inc., Accenture PLC, Micron Technology Inc., Carnival Corp., AutoZone Inc., Paychex Inc., Bed Bath & Beyond Inc. and others.
Posted on Monday, September 22, 2014 @ 7:51 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Sept. 19, 2014
Posted Under: Weekly Market Commentary

 
U.S. Treasuries rallied Friday as Investors took advantage to buy debt at cheaper prices due to recent selloffs. The selloffs occurred over concerns regarding the Federal Reserve’s interest-rate outlook and Scotland’s referendum rejecting independence from the U.K. On Monday, the Empire State Manufacturing report beat expectations, driven by a strengthening in new orders and shipments. Industrial Production failed to meet expectations, declining for the first time in seven months as automakers scaled back. As expected, the August Price Index Final Demand remained unchanged on Tuesday. On Wednesday, the Consumer Price Index declined for the first time since April 2013 and Mortgage applications reached a three month high as home owners refinanced their homes amid rising interest rates. On Thursday, Initial Jobless Claims were below expectations and the August Housing Starts declined after reaching a seven year high. On Friday, the Conference Board’s index of leading economic indicators expects positive economic output over the next few months. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: August Existing Home Sales (5.20M, 1.0% MoM); Wednesday: August New Home Sales (430K, 4.4% MoM); Thursday: August Durable Goods Orders (-17.8%); Friday: GDP Annualized QoQ, September University of Michigan Confidence (84.9).
Posted on Monday, September 22, 2014 @ 7:47 AM • Post Link Share: 
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  S&P 500 Top-Line Growth Estimates (Updated)
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. When the stock market is setting new all-time highs, as it did on 9/5/14 (S&P 500 at 2007.71), investors are naturally going to wonder what catalysts are potentially capable of pushing equity prices higher.
  2. We believe that corporate earnings determine the direction of the stock market over time.
  3. World events, geopolitics, and corporate cost-cutting, to name just three, are also potential catalysts, in our opinion, but tend to be more short-term in scope.   
  4. We believe investors should be looking for estimated top-line revenue growth rates that are positive and accelerating. At this stage of the bull market (5½ years), many corporations have likely exhausted their cost-cutting opportunities. 
  5. The latest estimates in the chart are encouraging looking out through 2016, in our opinion.

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. 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 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.

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

Posted on Thursday, September 18, 2014 @ 2:33 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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A Lot Of Capital Is Still Sitting In Money Market Funds Earning Next To Nothing
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