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Bob Carey
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  2016 & 2017 Earnings Snapshot
Posted Under: Broader Stock Market

 
View from the Observation Deck 
  1. Today's blog features corporate earnings projections for 2016 and 2017. We provide updates on an ongoing basis.
  2. The plunge in the price of crude oil since mid-2014 has resulted in a sharp decline in the projected earnings of energy-related companies in 2016 and a subsequent triple-digit projected surge in 2017.
  3. With respect to the 2016 earnings growth rate estimates, the indices in the chart with positive double-digit projections (9 indices) are as follows (Highest-Lowest): MSCI Europe; MSCI World (ex U.S.); S&P 500 Health Care; Nikkei 225; S&P SmallCap 600; MSCI Emerging Markets; S&P 500 Information Technology; S&P 500 Consumer Discretionary; and S&P 500 Telecom. Services.
  4. With respect to the 2017 earnings growth rate estimates, the indices in the chart with positive double-digit projections (12 indices) are as follows (Highest-Lowest): S&P 500 Materials; S&P SmallCap 600; MSCI Emerging Markets; S&P 500; S&P 100; MSCI Europe; S&P MidCap 400; S&P 500 Consumer Discretionary; S&P 500 Financials; MSCI World (ex U.S.); S&P 500 Information Technology; and S&P 500 Health Care.

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. There can be no assurance that any of the projections cited will occur. 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 MidCap 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. 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 excluding the U.S. 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.

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Posted on Tuesday, May 03, 2016 @ 12:58 PM • Post Link Share: 
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  Stocks Week Ended April 29, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index remained flat through midweek, but began a steep decline midday Thursday and continued to fade on Friday. The index posted a -1.24% return for the week closing April with a positive 39 basis point return. The index has gained 1.74% YTD through the end of April 2016.  Monday showed a slight decrease with stocks declining 18 basis points as energy, materials and industrials created a drag on stocks. On Tuesday, index traded flat most of the day showing investor's caution ahead of the Federal Open Market Committee's rate decision. Stocks gained back the previous days' loss as the S&P 500 Index returned 19 basis points led by energy, materials and industrials, the previous day's losers. Apple missed earnings creating a drag on the information technology sector on Wednesday, though stocks were still able to return 17 basis points as the FOMC kept rates unchanged. Energy stocks were the big winners for the second straight day as oil prices jumped 6.31% over the two trading days. For the second straight day, information technology stocks led the way down on Thursday as activist Carl Icahn removed his exposure to Apple over concerns of the company's ability to expand in China due to their government's policies. Stocks had their worst day of the week returning -0.92%. US initial jobless claims of 257K were lower than the consensus estimate of 259K, but higher than the previous week's 247K.  Stocks continued to decline on Friday on mixed company earnings and economic data as the S&P 500 Index returned -0.51%. Crude oil closed the week at $45.92 a barrel, increasing 5.01% from the previous week's close. Six of the ten economic sectors had negative performance for the week. The utilities sector was the best performing sector with a 2.28% return. The telecommunication services and consumer staples sectors followed with 1.14% and 0.75% returns, respectively. The information technology sector's -3.57% return was the worst performance of all the sectors and was followed by health care and financials which returned -2.95% and -1.24%, respectively. St. Jude Medical Inc., a cardiovascular medical device manufacturer and distributor, turned in the best performance in the S&P 500 Index with a 25.60% gain. The stock jumped over 25% on Thursday's announcement of their acquisition by Abbot Laboratories. The next two best performers were National Oilwell Varco Inc. and Freeport-McMoRan Inc. with returns of 23.13% and 19.97%, respectively.
Posted on Monday, May 02, 2016 @ 8:10 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 29, 2016
Posted Under: Weekly Market Commentary Video

 
Bond prices ended the week higher as the equity markets chewed through many mixed earnings reports. In its Wednesday statement Federal Reserve officials left the interest rates unchanged. The benchmark federal-funds rate will continue to be held between 0.25% and 0.50%. Cited by the statement was continued concerns regarding low domestic inflation, slowing overseas economic growth and the uncertainty related to the British potential exit from the European Union but labor market conditions were referenced as a strength. They will again meet in June. The Tuesday new durable goods report showed an increase of .8% in March versus an expected gain of 1.9%. The Q1 GDP estimates showed an increase in real GDP growth of .5% at an annual rate. This was less than the .7% consensus expectations. The price index increased at a .7% annual rate in Q1. Friday's Personal income report showed an increase of 0.4% in March and personal consumption rose .1% in March. Both were slightly below expectations but were positive indicating consumers continue enjoying stronger purchasing power. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: Final April Markit US Manufacturing PMI (50.8, unch.) and ISM Manufacturing (51.4, -.4); Wednesday: prior week MBA Mortgage Applications, April ADP Employment Change (196K, -4K), March US Trade Balance (-41.5B, +5.6B), March Factor Orders (.6%, +2.3%) and March Durable Goods Orders; Thursday: Prior week Initial Jobless Claims (263K, +6K); Friday: April Change in Nonfarm Payrolls (200K, -15K) and April Unemployment Rate (5%, unch.).
Posted on Monday, May 02, 2016 @ 8:06 AM • Post Link Share: 
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  A Snapshot Of Major Emerging Market Stock Indices
Posted Under: International-Global

 

View from the Observation Deck 

  1. Emerging markets continue to be a mixed bag. As indicated in the chart, economies steeped in natural resources, such as Russia and Brazil, have performed quite well due in part to the rebound in the price of crude oil.
  2. Year-to-date through the close on 4/27, the price of a barrel of crude rose by 22.38% to $45.33, according to Bloomberg. The price of crude oil was up 72.95% from this year's closing low of $26.21 per barrel on 2/11. 
  3. Y-T-D, the U.S. Dollar Index (DXY) was down 4.30%, according to Bloomberg. The weakness in the U.S. dollar helped push crude oil and other commodity prices higher, in our opinion.
  4. In Q1'16, investors funneled a net $3.14 billion into Diversified Emerging Markets equity mutual funds and exchange-traded funds, according to Morningstar. These same funds reported net outflows totaling $2.25 billion in Q4'15.

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. There can be no assurance that any of the projections cited will occur. 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 Emerging Markets Small Cap Index includes small-cap representation across 23 emerging market nations. The Ibovespa Index is weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Russian Trading System Index is a cap-weighted composite index calculated based on prices of the 50 most liquid Russian stocks on the Moscow Exchange. The S&P BSE 500 Index is a free-float weighted index that represents nearly 93% of the total market capitalization on the BSE India exchange. The Shanghai Stock Exchange Composite Index is cap-weighted and it tracks the daily price performance of all A-shares and B-shares listed on the exchange. The U.S. Dollar Index (Symbol: DXY) indicates the general value of the U.S. dollar relative to other major world currencies.


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Posted on Thursday, April 28, 2016 @ 1:42 PM • Post Link Share: 
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  Sell in May and Go Away! What is so Scary?
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint.
  2. When the U.S. was more of an industrialized economy it was not uncommon for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation.
  3. The theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings.
  4. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.
  5. Since 2003, which was the first year of a bull market, there have been just two instances (2008 & 2011) where the S&P 500 Index posted a negative total return from May through October, and the 2008 occurrence was during the financial crisis.
  6. The average total return for the S&P 500 Index for the May through October periods in the chart was 3.24%, which is nothing to run from, 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 10 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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Posted on Tuesday, April 26, 2016 @ 1:49 PM • Post Link Share: 
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  Good Earnings. Yet Investors Not Partying Like It's 1999.
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 comments on the better than expected earnings season.
 
Posted on Tuesday, April 26, 2016 @ 6:16 AM • Post Link Share: 
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  Stocks Week Ended April 22, 2016
Posted Under: Weekly Market Commentary

 
Broad-based equity indexes advanced for the week amid earnings reports, while the tech heavy Nasdaq-100 index lost ground following disappointing results from Microsoft Corp., Netflix Inc. and Alphabet, Inc. Energy shares were the top performers for the week as oil jumped after Iraq's oil minister said OPEC and other petroleum producers could meet next month to freeze supply. With 130 of the S&P 500 members reporting results to date, 76% have exceed expectations on the bottom-line, above the 5 year average of 67%. Earnings results have been mixed with Hasbro, Inc. exceeding expectations due to strong sales of "Star Wars" and Walt Disney Co. princesses. However, Mattel, Inc. reported a wider-than-expected loss. Goldman Sachs Group Inc. and Morgan Stanley, the last of the big six banks to report, posted sharp declines in revenue as market volatility curtailed investment-banking fees and trading revenue. General Motors Co. posted record results in North America and net income more than doubled for the automaker on strong demand for sport utility vehicles and pickups. Looking ahead to next week, a number of bellwethers are expected to report results including Halliburton Co., Lockheed Martin Corp., Aflac, Inc., United Technologies Corp., Ford Motor Co. and Apple Inc.
Posted on Monday, April 25, 2016 @ 9:24 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 22, 2016
Posted Under: Weekly Market Commentary

 
Treasury prices saw large declines last week, as higher oil prices and improving sentiment towards global economic outlook steered investors towards riskier assets. Bonds saw initial gains early Monday, as major oil suppliers failed to reach an agreement to freeze production in Doha, but pulled back after a strike caused half of Kuwait's production to be taken offline. On Tuesday, housing starts and building permits for March fell well below expectation, declining 8.8% and 7.7% respectively. Single-family units were the primary factor for the decline but remain 22.6% higher for the year. Existing home sales for March exceeded expectations on Wednesday, with single-family units leading the way. Inventories also rose but remain well below its average for 2015, which continue to push prices higher. Initial jobless claims unexpectedly fell last week to the lowest level since 1973. Yields continued to rise on Friday as crude oil prices increased a fourth consecutive day. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: March New Home Sales (520k); Tuesday: Preliminary March Durable Goods Orders (1.9%), April Consumer Confidence Index (95.6); Wednesday: April 22nd MBA Mortgage Applications, April 27th FOMC Rate Decision (Upper Bound) (0.50%); Thursday: April 23rd Initial Jobless Claims (258k), First Quarter GDP Annualized (0.6k QoQ); Friday: March Personal Income (0.3%), March Personal Spending (0.2%), April Chicago Purchasing Manager (53.0), April University of Michigan Sentiment (90.0).
Posted on Monday, April 25, 2016 @ 9:14 AM • Post Link Share: 
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  Health Care Stock Returns Outpacing Rise In Health Care Expenses
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. Today's blog post is another attempt to show that investors have a potential long-term remedy for mitigating rising health care costs – owning health care stocks.
  2. As indicated in the chart, the total cost of health care consumption in the U.S. rose by 50%, to $3.03 trillion, for the 10-year period ended 2014. 
  3. Over that same period (2005-2014), the S&P 500 Health Care Index posted a cumulative total return of 174.79%, or an average annual return of 10.63%, according to Bloomberg.   
  4. Even after factoring in the broader level of insurance coverage stemming from the Affordable Care Act, the average American has out-of-pocket expenses amounting to 11% of their health spending, according to MarketWatch.
  5. HealthView Services, a company that provides health care cost-projection software, estimates that the average American couple could spend $395,000 in health expenses, including dental, vision, copays and out-of-pocket expenses, in retirement, according to Bankrate.
  6. In 2013, medical debt was the leading cause of personal bankruptcy in the U.S., according to USA TODAY. It also cited a survey by the Commonwealth Fund that found that 64 million Americans struggled to pay medical bills in 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. There can be no assurance that any of the projections cited will occur. The S&P 500 Health Care Index is a capitalization-weighted index comprised of S&P 500 constituents operating in the health care sector.


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Posted on Thursday, April 21, 2016 @ 1:32 PM • Post Link Share: 
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  A Snapshot of Growth vs. Value Investing
Posted Under: Themes

 

View from the Observation Deck 

  1. Today's blog post is an update of a previous one. Investors can compare today's snapshot to the one we did on 2/11/16 (click here to view).
  2. Growth tends to outpace value investing when the earnings growth rates of said companies accelerate faster than the broader market, such as right after the economy exits a recession. Growth has slowed of late.
  3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in three of the six periods. Growth investing topped value investing for the 1-, 3- and 10-year periods through 4/15/16. 
  4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (10.06% vs. 7.63%); 10-yr. average annualized (8.13% vs. 9.93%); 5-yr. average annualized (12.79% vs. 12.76%); 3-yr. average annualized (12.81% vs. 14.87%); 1-yr. (-6.36% vs. -3.81%) and Y-T-D (4.15% vs. -0.50%).
  5. The Large Value and Large Growth fund categories tracked by Morningstar, which include both open-end mutual funds and ETFs, reported net outflows totaling $100.00 million and $15.27 billion, respectively, in Q1'16, according to its own release.

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 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. Constituents are drawn from the S&P 500 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.

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Posted on Tuesday, April 19, 2016 @ 2:25 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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