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  Master Limited Partnership (MLP) Distribution Rates Elevated Following Sell-Off
Posted Under: Sectors

 

View from the Observation Deck  

  1. If you exclude the financial crisis-induced bear market climate in 2008-2009, the distribution rates on MLPs are currently sitting at their highest level in more than 10 years (see chart).
  2. The spread between the distribution rate on MLPs and the yield on the benchmark 10-Year Treasury Note is also at an extremely wide level, in our opinion.
  3. MLPs are limited partnerships that are publicly traded on a U.S. securities exchange. They are traditionally high cash flow businesses that pay out a majority of that cash to investors, and a significant portion of that cash is typically deemed a return of capital for income tax purposes.
  4. Because MLPs distribute cash to the investor, their underlying value can be influenced by fluctuations in interest rates, particularly in the near-term. A rise in interest rates could have a negative influence on MLP prices. Interest rates, however, as measured by the 10-Year Treasury Note, haven't budged much this year.
  5. As we have learned over the past 12-15 months, MLP prices can also be influenced by a massive sell-off in the price of crude oil, particularly when it has traded over a sustained period of time at elevated levels, on a historical basis.
  6. As of 9/2/15, the price of a barrel of crude oil closed at $46.25, down 56.9% from its 2014 closing high of $107.26 (6/20/14), according to Bloomberg.
  7. As of 9/2/15, the Alerian MLP Index stood 34.5% below its all-time high set on 8/29/14, according to Bloomberg. This was somewhat of a surprise to investors, in our opinion, because MLP revenues tend to be based more on the demand for energy products than the price of said products.
  8. When considering any investment, it is important to understand all attributes and risks. There are materially greater risks with investing in MLPs than Treasury notes.

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 Alerian MLP Index is a capitalization-weighted composite of energy master limited partnerships.

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Posted on Thursday, September 03, 2015 @ 1:40 PM • Post Link Share: 
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  2015 & 2016 Earnings Snapshot
Posted Under: Broader Stock Market

 

View from the Observation Deck

  1. Today's blog is an update of a previous post. We refresh the data every couple of months or so. Investors can compare today's snapshot to the one we did at the start of the year on 1/6/15 (click here to view).
  2. With respect to the 2015 earnings growth rate estimates, the indices in the chart with positive double-digit projections (6 indices...down from 10 using data from 1/4/15) are as follows (Highest-Lowest): MSCI Europe; S&P 500 Health Care; MSCI World (ex U.S.); S&P SmallCap 600; S&P 500 Information Technology; and Nikkei 225.
  3. With respect to the 2016 earnings growth rate estimates, the indices in the chart with positive double-digit projections (11 indices...down from 15 using data from 1/4/15) are as follows (Highest-Lowest): S&P 500 Energy; S&P SmallCap 600; S&P 500 Materials; S&P 500 Consumer Discretionary; MSCI Emerging Markets; S&P MidCap 400; S&P 100; S&P 500; S&P 500 Health Care; MSCI Europe; and MSCI World (ex U.S.).

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, September 01, 2015 @ 1:08 PM • Post Link Share: 
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  What's Bothering Investors?
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the issues that are giving rise to recent market volatility and provides a set of reasons that continue to bother investor sentiment.
 
Posted on Monday, August 31, 2015 @ 1:42 PM • Post Link Share: 
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  US Stocks Week Ended August 28, 2015
Posted Under: Weekly Market Commentary

 
The S&P 500 briefly entered correction territory, defined as a 10% decline from a recent peak, as markets extended last week's selling before recovering to end higher for the week. The Dow Jones Industrial Average posted its largest ever one day intraday point loss on Monday due to fears of Chinese growth slowing and its impact on the global economy. The selling was further exacerbated by automatic sales by retail investors, leading to one of the most volatile trading days ever. After China's central bank moved simultaneously to cut interest rates and lower the reserve requirement, U.S. markets opened sharply higher Tuesday before ending the day lower. The S&P 500 gained nearly 4% on Wednesday, posting its single best day since 2011, as durable goods orders increased by the most since June 2014 and New York Fed Bank President William Dudley said a rate hike in September is less likely due to the recent market volatility and foreign developments. Equity markets continued rallying on Thursday after the initial reading of 2nd quarter GDP was revised higher to 3.7%, beating expectations for a 3.2% gain. Stocks ended the see-saw week flat on Friday. In stock news, Toll Brothers Inc. shares fell after revenues and margins missed expectations due to disappointing sales in the south. Freeport-McMoRan Inc. shares gained over 28% on Wednesday after announcing plans to reduce capital expenditures by $1.6 billion to improve cash flow. In merger news, Schlumberger Ltd. agreed to purchase equipment maker Cameron International Corp. for $14.8 billion, creating one of the world's largest oilfield service and equipment providers. Despite increased volatility and uncertainty, the basic blueprint of the six-year bull market remains intact. The Federal Reserve continues to be accommodative and domestic economic data continues to improve. Even if the Fed raises rates in September, the move is likely to be shallow and remain far looser than any recent tightening cycles. While slowing growth in emerging economies does impact the U.S., fundamentals continue to improve domestically in housing, labor markets, and for the consumer. With cheaper valuations than a few weeks ago, corporations tied to the U.S. economy could offer an attractive entry point.
Posted on Monday, August 31, 2015 @ 8:11 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended August 28, 2015
Posted Under: Weekly Market Commentary

 
Treasury yields were very volatile last week as China's stock market continued to fall and investors endured a US market correction. Early in the week treasury yields fell but as markets rebounded and the GDP numbers were revised up, yields spiked (prices fell). By the week's end, yields ended higher as bonds sold off amid uncertainty regarding the global economy and how the Fed will react to the equity market's high volatility. Oil rallied over 10% during the week amid declining US crude oil inventories and high volatility. Tuesday's new single-family home sales report showed an increase of 5.4% for July but was slightly below consensus expectations. The month's supply of new homes fell to 5.2 months due to faster sales. July Durable Goods orders were up 2% as reported last Wednesday powered by strong auto sales. Thursday enjoyed a very positive Real GDP revision as the Q2 preliminary GDP number was revised up to 3.7% from the estimate of 2.3%. This beat the revision estimate of 3.2% handily and indicates the underlying economic growth of the US economy has continued into 2015. Nominal GDP growth, real GDP plus inflation, was revised to an annual 5.9% rate vs. an expected 4.4% rate. On Friday the July Personal Income numbers were released and matched expectations at .4% growth. It also showed consumption increasing .3%. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: August Markit US Manufacturing PMI (52.9, unch.), August Construction Spending (+.8%), ISM Manufacturing (52.8, +.1); Wednesday: August 28st MBA Mortgage Applications and August ADP Employment Change (200K, +15K) and July Factor Orders (.7%, -1.1%); Thursday: August 29 Initial Jobless Claims (273K, +2K) and July Trade Balance (-44.5B, -.66B); Friday: August Change in Nonfarm Payrolls (220K, +5K) and Unemployment Rate (5.2%, -.1%).
Posted on Monday, August 31, 2015 @ 8:08 AM • Post Link Share: 
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  S&P 500 Top-Line Growth Estimates
Posted Under: Broader Stock Market

 

View from the Observation Deck  

  1. Today's blog post is an update of a previous post. Investors can compare today's snapshot to the one we did on 6/9/15 (click here to view). 
  2. The S&P 500 closed the trading session on 8/26/15 at 1940.51. It stood 8.93% below its all-time high of 2130.82 (5/21/15), according to Bloomberg.
  3. While there have been some significant downward adjustments to 2015 revenue projections since 2/6/15 (excluding Health Care), the projections for 2016 indicate that a rebound in revenue growth is anticipated.   
  4. As indicated in the chart, the estimated revenue growth rate for the S&P 500 for 2015 was 0.0%, as of 8/21/15. When you exclude Energy, however, the rate jumps to 3.6%, according to Bloomberg.
  5. The first revision of real GDP for Q2'15 was released on 8/27/15 and it showed the U.S. economy grew by an annualized 3.7%, according to the Bureau of Economic Analysis. Its initial estimate was 2.3%.

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.


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Posted on Thursday, August 27, 2015 @ 12:24 PM • Post Link Share: 
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  The Big Picture With Respect To Global Equities
Posted Under: Conceptual Investing

 

View from the Observation Deck  

  1. The current correction in stocks is very much a global event. Today's chart reflects the changes in total world equity market capitalization (market cap) over the past 10 years (thru 8/24/15).
  2. This snapshot is a reminder to all investors that, while stocks have the potential to build wealth over time, stock markets do not go up in a straight line.
  3. The reference dates of 10/9/07 and 3/9/09 in the chart mark notable events that occurred in the U.S. stock market. 
  4. As of 8/24/15, the U.S. accounted for the largest share of the total world equity market cap at 36.79%, followed by China, Japan and the United Kingdom at 8.97%, 7.77% and 5.57%, respectively, according to Bloomberg.

This chart is for illustrative purposes only and not indicative of any actual investment.

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Posted on Tuesday, August 25, 2015 @ 2:01 PM • Post Link Share: 
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  Yes, it is a Correction. What are You going to do about it?
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 importance of this month's market correction.
 
Posted on Monday, August 24, 2015 @ 10:49 AM • Post Link Share: 
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  US Stocks Week Ended August 21, 2015
Posted Under: Weekly Market Commentary

 
The S&P 500 Index posted its worst performance of 2015 last week with a return of -5.71%, pushing the index into negative territory for the year. The index declined last week more than twice the previous worst performance of -2.75% for the week ending January 30, 2015.  Stocks opened lower on Monday on negative manufacturing data, but turned positive early after the release of July NAHB data which implied increased confidence in home builders. The index returned 0.54%, the only positive performance for the week. Positive July housing starts data released on Tuesday morning wasn't enough to push the index higher as the S&P 500 Index returned -0.24%. Equities continued to decline as they opened lower on Wednesday following weakness in Chinese and European stock markets. Stocks rose briefly midday after the release of the Federal Open Market Committee minutes, but quickly lost steam and declined as the index returned -0.82%. Thursday's higher than expected US initial jobless claims of 277K brought negative economic news, compounding investors' concerns over the global economy. Claims were higher than the previous week's 274K and the consensus estimate of 271K. US existing home sales of 5.59 million (SAAR) for July came in higher than expected and is the highest level in the last eight years. However, the positive housing data wasn't enough to change the trend as the index continued to sink and returned -2.11%, the second worst day of 2015. The equity slide continued on Friday as investors' concerns increased over the possible deceleration of global growth. Friday's -3.17% return was the worst performing day of the year for the index. Crude oil closed the week at $40.45 a barrel, a closing low for 2015 and a 34.15% decrease from the 2015 closing high price of $61.43 a barrel set on Wednesday, June 10. All ten economic sectors had negative performance for the week. The utilities sector was the best performing sector with a -1.16% return. The telecommunication services and consumer staples sectors followed with -2.63% and -4.79% returns, respectively. The energy sector's -8.48% return was the worst performance of all the sectors and was followed by information technology and financials which returned -7.30% and -5.88%, respectively. Newmont Mining Corp., a mining and gold producer, turned in the best performance in the S&P 500 Index with a 4.55% gain. The next two best performers were Lennar Corp. and Signet Jewelers Ltd. with returns of 1.73% and 1.63%, respectively.
Posted on Monday, August 24, 2015 @ 7:56 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended August 21, 2015
Posted Under: Weekly Market Commentary

 
Treasury yields fell sharply throughout the week, reaching three month lows, amid a global equity markets sell-off, declining oil prices, and declines in some currencies. On Monday, U.S treasury bonds rallied as the Empire manufacturing report showed a sharp drop in activity. Treasuries pulled back on Tuesday as U.S housing starts exceeded expectations. U.S Treasuries rallied on Wednesday as the federal reserve did not signal interest-rate increases next month and oil prices hit a six-year low, boosting demand for ultra-safe U.S. government debt. On Thursday, concerns over global economic growth sent the yield on the benchmark 10-year note to its lowest closing value since May. Purchases of previously owned homes unexpectedly rose in July, reaching the highest level since February 2007. Yields continued to decline on Friday with plunging global stocks, falling oil prices, and a report showing China's manufacturing sector dropped to the lowest level in over six years. The U.S. manufacturing purchasing index for August fell to its lowest reading since October 2013. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: July New Home Sales (5.8% MoM), August Consumer Confidence Index (93.1); Wednesday: August 21st MBA Mortgage Applications, July Durable Goods Orders (-0.4%); Thursday: Second Quarter GDP Annualized (3.2% QoQ), August 22nd Initial Jobless Claims (275k); Friday: July Personal Income (0.4%), July Personal Spending (0.4%), August University of Michigan Sentiment.

Posted on Monday, August 24, 2015 @ 7:52 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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