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Bob Carey
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  US Stocks Ended Jan. 20, 2017
Posted Under: Weekly Market Commentary

 
Stocks moved lower this week and rebounded on Friday as the Dow Jones Industrial Average closed out the week at 19,827, down 58 points from last week. Financial stocks were the worst performing sector this week in the S&P 500 as inflation and dollar concerns crippled the sector on Tuesday. The biggest move came on Thursday when the S&P 500 lost 0.36% after comments by Mario Draghi calling for Germany to stay calm while the European Central Bank continues to add stimulus to the Euro region. The increased stimulus added to inflation concerns as the dollar has weakened for the past four consecutive weeks. Stocks rose on Friday as Donald Trump was sworn in to become the 45th President of the United States. Oil also rose on Friday to $52.42 per barrel after sliding lower each day during the week. Consumer Staples led the S&P 500 for the week after favorable results from Proctor & Gamble Co. Telecommunication Services stocks also had a good week after AT&T announced growth in pay-TV customers for the first time in seven quarters due to its new live streaming service. Netflix, the leader in online streaming, announced it added a record number of new customers in the fourth quarter which demonstrates how the market is moving to an on-demand programming standard. CSX Corp., a freight transportation company, turned in the best performance in the S&P 500 Index with a 14.25% gain. The company moved higher on news that outgoing Canadian Pacific CEO Hunter Harrison is teaming up with an activist investor to help turn around the company. The next two best performers were Skyworks Solutions and NRG Energy Inc. with returns of 13.02% and 10.34%, respectively.
Posted on Monday, January 23, 2017 @ 8:05 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Jan. 20, 2017
Posted Under: Weekly Market Commentary

 
Treasury prices dropped moderately over the course of the week as investors speculated on Trump's policies and economic data suggested rising inflation and a more aggressive Federal Reserve. Treasuries began the week with gains on Tuesday as comments from President-elect Donald Trump on the Republicans border tax plan foreshadowed possible clashes on his policies. Investors are uncertain about which of Trump's policies will be implemented and how quickly. Treasury prices then dropped significantly on Wednesday as the Consumer Price Index rose more than expected with its highest year-over-year reading since 2011, and industrial production rose by the largest amount in two years. The Fed views improved inflation as a sign of a healthy economy and investors believe that they may increase rates a faster pace. Strong economic data was released again on Thursday including strong housing starts, lower initial jobless claims and higher a Philadelphia Fed Business Outlook, which contributed to the belief that the Fed will view the economy as strengthening. In Europe, speculation of increased inflation has led to belief that the European Central Bank may have tighter monetary policy but Mario Draghi played down this at a news conference on Thursday. Treasury prices rose slightly on Friday as Donald Trump was sworn in as President. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: January Preliminary Markit US Manufacturing PMI (54.5), December Existing Home Sales (5.5M); Wednesday: January 20 MBA Mortgage Applications; Thursday: December Preliminary Wholesale Inventories (0.1% MoM), January 21 Initial Jobless Claims (245,000), December New Home Sales (585,000), December Leading Index (0.5%); Friday: 4th Quarter Annualized GDP (2.2% QoQ), 4th Quarter Annualized Personal Consumption (2.5% QoQ), December Preliminary Durable Goods Orders (2.6%), January Final U. of Michigan Sentiment (98.1).
Posted on Monday, January 23, 2017 @ 8:02 AM • Post Link Share: 
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  Gold & Silver Miners Have Outperformed The Underlying Metals Since The End of 2015
Posted Under: Commodities

 

View from the Observation Deck                                  

  1. Today's blog post illustrates the wide disparities that often exist between the annual price performance of an ounce of gold bullion and silver and the equity returns posted by the mining companies.
  2. Since precious metals are priced in U.S. dollars, investors should also be aware of the relative strength of the U.S. dollar against other major global currencies, in our opinion. For this reason, we have included the U.S. Dollar Index (DXY) in the table.
  3. From 2007 through 2016, the Philadelphia Stock Exchange Gold & Silver Index only posted a positive total return in four of the 10 years, but 2016 was a big rebound year following five consecutive down years (2011-2015).
  4. From 12/31/06-12/30/16, the cumulative total return on the Philadelphia Stock Exchange Gold & Silver Index was -37.63%, according to Bloomberg.
  5. Precious metals have historically been considered potential inflation hedges by investors. The Consumer Price Index stood at 2.1% in December 2016, up from 0.7% in December 2015, according to the Bureau of Labor Statistics.
  6. In 2016, investors funneled an estimated net $9.93 billion into U.S. Commodities Precious Metals mutual funds and exchange-traded funds, according to Morningstar.
  7. Bloomberg's earnings for 2015 and estimated earnings for 2016-2018 (in dollars) for the Philadelphia Stock Exchange Gold & Silver Index were -$1.72 (2015), $0.80 (2016 Est.), $3.50 (2017 Est.) and $4.02 (2018 Est.), as of 1/18/17.

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 Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver. 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, January 19, 2017 @ 2:36 PM • Post Link Share: 
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  The Fundamentals that Make Up the Valuations
Posted Under: Weekly Market Commentary
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 Wednesday, January 18, 2017 @ 12:10 PM • Post Link Share: 
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  A Snapshot Of The S&P 500 Index Earnings Beat Rate
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. As we head into corporate earnings season featuring Q4'16 results, we thought it would be a good time to review the percentage of S&P 500 Index companies that top their earnings estimates on a quarterly basis. The index currently has 505 constituents.
  2. From Q4'12 through Q3'16 (16 quarters), the average quarterly earnings beat rate for the 500 companies that comprise the index was 69.2%, matching the results posted a year ago in Q4'15.
  3. As indicated in the chart, the beat rate over the past three quarters has exceeded the 69.2% average over the past 16 quarters.
  4. Equity analysts adjust their corporate earnings estimates on an ongoing basis. Regardless of whether they adjust their estimates up or down, companies typically have a consensus target number or range to hit.
  5. The S&P 500 Index posted a total return of 11.96% in 2016, according to Bloomberg. From 12/31/12 through 12/30/16, the index posted an average annual total return of 14.33%.
  6. On a dollar basis, Bloomberg's 2016, 2017 and 2018 consensus earnings estimates for the S&P 500 Index stood at $107.15, $130.06 and $145.52, respectively, as of 1/17/17.

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


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Posted on Tuesday, January 17, 2017 @ 2:03 PM • Post Link Share: 
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  US Stocks Ended Jan. 13, 2017
Posted Under: Weekly Market Commentary

 
Equity markets fell slightly this week with the S&P 500 returning -0.1% and the Dow Jones Industrials -0.4%. Equity returns appear to be normalizing after the first month of the 'Trump Rally' where the S&P 500 returned 5.2%, but only 1.4% since. The same has been true in the small and mid-cap space, as the S&P 1000 Index returned 14.0% the first month, and -1.4% since. This week biotech stocks felt the full pressure of President-Elect Trump. The Nasdaq Biotechnology Index plunged as much as -3.2% during the President-Elect's first press conference since the election, the fall started after he stated the drug industry needed "more competitive drug bidding." Biotech names did recover to close the week slightly positive. Congress was also busy with both the Senate and House of Representatives passing a budget reconciliation bill which could pave the way for a quick repeal of Obamacare after next Friday's Presidential Inauguration. Turning to individual names, both the EPA and U.S. Justice department have been further investigating Fiat Chrysler Automobiles over allegations the auto maker was cheating emission standards. The news sent the stock down over -6.6% for the week. Illumina Inc. was up nearly 15% this week, after an announcement their new DNA sequencer could enable them to sequence a genome in less than an hour for merely $100. Mega-cap banks, Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. all had positive quarterly earnings news this week, as the sector continues to profit from higher interest rates. Looking ahead to next week, equity markets will be closed on Monday in honor of Martin Luther King Jr. The political landscape in America might soon look very different as President-Elect Trump will have his Inauguration on Friday. We expect a flurry of political activity the next few months which will likely impact equity markets. Some major campaign promises from the President-Elect include the repeal of Obamacare along with a replacement plan, personal and corporate tax reform, swaths of deregulation and significant trade negotiations.
Posted on Tuesday, January 17, 2017 @ 8:26 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Jan. 13, 2017
Posted Under: Weekly Market Commentary

 
Treasury yields fell last week as solid economic data boosted investor confidence in the economy and further support for higher interest rates. Yields fell below 3% for the first time in two months on Monday after the British Prime Minister stated the U.K. would seek a clean break from the European Union. A 3.8% decline in oil prices also added to the Treasury market strength. Yields fell on Thursday after President-elect Donald Trump's press conference provided little new information about his economic-stimulus proposal. The lack of policy details have increased concerns that stimulus could potentially be smaller than anticipated. U.S. government bonds pulled back on Friday as data on producer prices and retail sales showed U.S. economic growth intact, increasing speculation that the Fed will increase interest rates by its March meeting. The Producer Price Index rose 0.3% in December and finished with the largest calendar year increase since 2012. Prices rose in nearly each category and were led by a 0.7% increase in food prices. Retail sales increased by 0.6% in December, falling slightly short of the 0.7% consensus estimate, on strong demand for motor vehicles. Major economic reports (and related consensus forecasts) for the shortened upcoming holiday week include: Tuesday: January Empire Manufacturing (8.0); Wednesday:  January 13th MBA Mortgage Applications, December CPI (0.3% MoM), December Industrial Production (0.6% MoM); Thursday: December Housing Starts (1200k), January 14th Initial Jobless Claims (252k), January Philadelphia Fed Business Outlook (15.1).
Posted on Tuesday, January 17, 2017 @ 8:24 AM • Post Link Share: 
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  Some Insight Into The S&P 500 Index Dividend Payout
Posted Under: Stock Dividends

 

View from the Observation Deck 

  1. As of the close of 2016, 418, or 83%, of the constituents in the S&P 500 Index distributed a dividend to shareholders, up significantly from 351 at the end of 2002 (not shown in chart), according to S&P Dow Jones Indices. The bear market in stocks that proceeded the bursting of the bubble in the technology sector in March 2000 ended in October 2002.
  2. For comparative purposes, since 1980, the highest number of dividend-paying stocks in the S&P 500 Index at year-end was 469 (1980), according to S&P Dow Jones Indices.
  3. Ironically, those same growth-oriented technology stocks that were at the epicenter of the bear market mentioned above, contributed the most (15.49%) to the S&P 500 Index's dividend payout as of 12/30/16 (see table).
  4. A noteworthy change to the S&P 500 Index occurred in September 2016. Real Estate became its own sector, according to S&P Dow Jones Indices. There are now 11 sectors in the index. Prior to this change, real estate companies were classified as Financials.
  5. Within the S&P 500 Index, the average dividend increase in 2016 was 10.51%, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. The overall dividend growth rate for the index in 2016 was 5%.

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, while the S&P Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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Posted on Thursday, January 12, 2017 @ 12:45 PM • Post Link Share: 
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  2017 Forecast: Risk On, For Now
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., presents his forecast for 2017 and considers the many opportunities in the market in the new year.
 
Posted on Tuesday, January 10, 2017 @ 2:09 PM • Post Link Share: 
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  A Global Snapshot of Government Bond Yields
Posted Under: International-Global

 

View from the Observation Deck 

  1. While December's 25 basis point increase in the U.S. federal funds target rate may portend higher interest rates moving forward, interest rates around the globe are still very low, at least in the developed nations. Two of those countries, Japan and Germany, still sport negative yields on their 2-year government bonds. 
  2. As indicated in the table, the year-over-year (1/8/16-1/9/17) change in the yields on the U.S.'s 2-year Treasury-note (T-note) and 10-year T-note matched the 25 basis point hike in the federal funds rate. The Federal Reserve has stated that it is considering initiating another three quarter-point increases (75 basis points) in 2017, according to The Wall Street Journal.
  3. The impetus for rising interest rates stems from a belief that the U.S. economy could be entering a reflationary climate that would build from an acceleration in economic activity due to President-Elect Donald J Trump's desires for fiscal stimulus and tax cuts, according to Morningstar. A strong U.S. economy would likely benefit the global economy, in our opinion.
  4. Central banks around the globe have been aggressive with monetary policy in an effort to stimulate growth. JP Morgan Asset Management reported that, as of 12/22/16, the top 50 central banks had initiated a total of 690 interest rate cuts since the collapse of Lehman Brothers in September 2008, according to CNBC.
  5. Over the past 30 years (thru 1/9/17), the average yield on the 10-year T-note was 5.11%, according to Bloomberg. It stood at 2.37% on 1/9/17. Investors who own government bonds, or other types of investment grade bonds, should ready themselves for the possibility of rising interest rates in 2017, in our opinion.

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

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

Posted on Tuesday, January 10, 2017 @ 1:59 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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 PREVIOUS POSTS
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