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  The Best-Performing Sectors Since 5/21/15, 8/25/15 and 2/11/16
Posted Under: Sectors

 

View from the Observation Deck 

  1. Today's blog post features the total return performance of the S&P 500 Index and its 10 major sectors over three specific time periods. All three periods ended on 7/19/16.
  2. With the kickoff of the 2016 Summer Olympics just 15 days away (8/5/16), we have identified the top three performing sectors in each period using gold, silver and bronze.
  3. We chose 5/21/15 because it had marked the all-time closing high (2,130.82) for the S&P 500 Index prior to being supplanted by a new all-time high on 7/11/16 (2,137.16), according to Bloomberg. The index then went on to set four more records, eventually closing at an all-time high of 2,166.89 on 7/18/16 (as of 7/19/16). The index had gone 418 days before setting the new record high on 7/11/16.
  4. The 8/25/15 date is symbolic because it marked the last day of a 12.35% price-only correction (10.00% to 19.99% price decline), in the S&P 500 Index, according to Bloomberg. The calculation did not include dividends. While the index recovered nearly all of its price decline by 11/3/15 (2,109.79), it fell short of the 2,130.82 high mark and then proceeded to fall by 13.31% to 1,829.08 on 2/11/16, according to Bloomberg.
  5. The 2/11/16 date is important because it not only marked the bottom of the second sell-off in the S&P 500 Index, it marked the low in the price of crude oil ($26.21 per barrel) since it began its plunge on 6/20/14, according to Bloomberg.
  6. Our takeaway from the chart is that investors favored defensive sectors (Utilities, Telecommunication Services & Consumer Staples) after the S&P 500 Index hit an all-time high on 5/21/15 and continued to favor them after the first correction ended on 8/25/15. Notice, however, that investors have not been as defensive since the price of crude oil began rising after 2/11/16, 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 Thursday, July 21, 2016 @ 2:50 PM • Post Link Share: 
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  The Search For Yield In the Bond Market
Posted Under: Bond Market

 

View from the Observation Deck 

  1. Today's blog post shows where some major bond index yields stood at the close of 6/30/16, and also where they closed in June over the past three, five and seven years. 
  2. The U.S. economic recovery began in Q3'09, according to the National Bureau of Economic Research.
  3. We believe that the information in the chart can help investors establish realistic expectations with respect to the amount of risk one needs to assume in the current climate in order to capture a desired rate of return (yield).
  4. There are eight major index categories in the chart and five of the seven that hold taxable bonds were either near or below the Consumer Price Index − Core Rate, which excludes food and energy prices, at the end of June. That rate stood at 2.30%, according to Bloomberg. 
  5. One of the goals of investing in bonds is to generate enough yield to outpace the rate of inflation. Despite that being easier said than done in the current climate, investors have not shied away from investing in bond funds.
  6. Investors funneled an estimated net $45.18 billion into Taxable Bond mutual funds and exchange-traded funds for the 12-month period ended June 2016, according to Morningstar. That figure was $47.87 billion for the Municipal Bond category.

This chart is for illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index. The U.S. Treasury: Intermediate Index includes public obligations of the U.S. Treasury with maturities ranging from 1 to 9.9999 years. The GNMA 30-Year Index covers agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by the Government National Mortgage Association (GNMA). The U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. The U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM Passthroughs), ABS, and CMBS. The U.S. Intermediate Corporate Index is a broad-based benchmark with maturities ranging from 1 to 9.9999 years that measures the investment grade, U.S. dollar-denominated, fixed-rate, taxable corporate bond market. The U.S. Corporate High-Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. The Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-three different local currency markets. The Barclays Emerging Markets Hard Currency Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD, EUR, and GBP-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.

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Posted on Tuesday, July 19, 2016 @ 1:10 PM • Post Link Share: 
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  Stocks at All-Time Highs But It's Just Second Hand News
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 Monday, July 18, 2016 @ 3:10 PM • Post Link Share: 
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  Stocks Ended July 15, 2016
Posted Under: Weekly Market Commentary

 
The S&P 500 hit all-time highs this week on Monday, Tuesday, Wednesday and Thursday before falling slightly on Friday to close the week with a 1.5% return. This is the third consecutive week the S&P 500 has been positive. Since the fallout from the Brexit vote, which sent the S&P 500 down -5.3% between Friday June 24th and Monday June 27th, the index has rallied 8.2%. Britain is facing Brexit head on as the country has a new Prime Minister, Theresa May, two months before they expected to. According to Bloomberg, analysts have projected a 5.8% decline in S&P 500 earnings in the 2nd quarter. If earnings do in fact fall this quarter, it would mark the 5th straight quarterly drop for the index. The unofficial kick off to earrings season started Monday when Alcoa Inc. announced revenue and earnings ahead of analyst consensus estimates. Shares of the aluminum company rallied over 5% as a result. Transportation player CSX Corp. bested earnings and revenue estimates and rallied 4.4%. Then to close the week we had a slew of banks announce positive earnings which buoyed the Financial sector to be the second best performing sector for the week. JPMorgan Chase & Co announced profits and sales ahead of estimates as credit card write-offs and delinquencies came in better than expected. US Bancorp also announced earnings and revenue ahead of estimates as credit losses and their overall return on assets improved. Not all was positive, Wells Fargo & Co. and Citigroup Inc. both saw the price of their stocks fall slightly with earnings announcements. Wells stated that they saw a small but unexpected uptick in energy defaults and stated that the bank is deciding what to do with excess reserves. Citigroup announced a slight uptick in credit card delinquencies and reminded investors that Brexit is a headwind for the bank. Looking ahead to next week, earnings season will continue as over 92 S&P 500 companies are expected to release their quarterly results. Among those are: General Electric, General Motors, Southwest Airlines, The Travelers Cos Inc., Starbucks Corp., Chipotle Mexican Grill Inc., Visa Inc., AT&T Inc., QUALCOMM Inc., Intel Inc., Lockheed Martin Corp., The Goldman Sachs Group Inc. and Bank of America Corp.
Posted on Monday, July 18, 2016 @ 8:56 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 15, 2016
Posted Under: Weekly Market Commentary

 
U.S. Treasury yields increased last week as marginal bond yields drove investors to riskier markets for income. Japan's monetary stimulus and the Bank of England's signal of monetary stimulus later this summer also encouraged investors to lighten up on bond holdings. On Tuesday, yields on the 10 year note suffered the largest two-day increase since December 2015, signaling buying fatigue after bond yields fell to record lows toward the end of last week. U.S. government bonds strengthened on Wednesday as a $12 billion auction drew the strongest demand ever recorded from foreign investors. Investors have been piling into government debt as yields from developed countries hit historic lows after the U.K.'s decision to leave the European union. Initial jobless claims remained unchanged last week, adding further support that the May payroll-stall was an anomaly as the pace of layoffs remains relatively low. U.S. PPI beat consensus expectations, rising for a third consecutive month in June, driven by a rebound in energy and food prices. U.S. Government bonds pulled back on Friday as upbeat consumer spending and industrial production weakened demand for safe haven bonds. Sales excluding autos increased 0.7% in June, beating the consensus expected 0.4%. Excluding both autos and gas, sales are up 4.6% versus a year ago. The increase in sales in June was led by building materials, non-store retailers (internet and mail orders), and gas stations. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: June Housing Starts (1170k); Wednesday: July 15th MBA Mortgage Applications; Thursday: July 16th Initial Jobless Claims (270k), June Existing Home Sales (5.47m), June Leading Index (0.2%); Friday: July Markit US Manufacturing PMI (52.0).
Posted on Monday, July 18, 2016 @ 8:53 AM • Post Link Share: 
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  Health Care Stocks Are Mending Slowly
Posted Under: Sectors

 

View from the Observation Deck 

  1. Since the price of crude oil hit its multi-year low on 2/11/16, the U.S. stock market has been in rally mode. The S&P 500 Index closed at an all-time high of 2,137.16 on 7/11/16. Its previous record high was 2,130.82 (5/21/15), according to Bloomberg.
  2. The S&P 500 Health Care Index registered its all-time closing high of 892.26 on 7/20/15. As of 7/11/16, the index stood 5.04% below that all-time closing high, according to Bloomberg. 
  3. The health care sector, particularly pharmaceutical and biotechnology companies, tend to make good wedge issues for politicians running for office, in our opinion.
  4. As indicated in the chart, on 9/21/15, presidential candidate Hillary Clinton spoke out on drug pricing practices after two companies were called out for "price gouging," according to Forbes. Her pledge to keep therapeutic costs in check if elected has been a bit of a drag on the performance of health care stocks, particularly the drug makers. While drug prices make for good wedge issues, innovation tends to win out in the end, in our opinion. 
  5. From 9/21/15 through 7/11/16, the S&P 500 Health Care Index ranked 9th out 10 sectors based on total return performance. The index was up 6.45% during that period, compared to 10.60% for the S&P 500 Index, according to Bloomberg.
  6. The slower recovery pace could be an opportunity for investors. The S&P 500 Health Care Index's 2016 and 2017 estimated price-to-earnings ratios were 16.52 and 14.95, respectively, as of 7/13/16, well below the three-year average of 21.55, according to Bloomberg. 

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. 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 Thursday, July 14, 2016 @ 1:02 PM • Post Link Share: 
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  A Snapshot Of S&P 500 Index Dividend Increases In The Current Bull Market
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post is just one perspective of the recovery that Corporate America has staged since the end of the financial crisis in 2009, as measured by dividend increases of S&P 500 Index component companies. The current bull market in stocks commenced on 3/9/09.     
  2. Stock dividend distributions are one measure of a company's financial well-being. Dividend increases are an important barometer because companies are not likely to raise their dividend payouts unless they can sustain it for an extended period of time, in our opinion.  
  3. On a rolling 12-month basis, S&P 500 Index dividend increases rose from a period-low of 141 in September 2009 to a period-high of 380 in April 2015. Increases stood at 326 in June 2016.
  4. In the current bull market, measuring from 3/9/09 through 6/30/16, the S&P 500 Index posted a cumulative total return of 262.12%, according to Bloomberg.
  5. Year-to-date through 7/11, the index was up 5.81%, on a total return basis, according to Bloomberg.
  6. Ironically, despite these performance results, retail investors, in general, are moving capital out of U.S. equity mutual funds. 
  7. Investors liquidated a net $64.1 billion in the first five months of 2016, according to the Investment Company Institute.

This chart is for illustrative purposes only and not indicative of any actual investment. 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. Past performance is not an indication of future results.

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

Posted on Tuesday, July 12, 2016 @ 1:31 PM • Post Link Share: 
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  Stocks Ended July 8, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index opened lower on Tuesday after the Independence Day holiday, but rallied for the rest of the week. The index posted a 1.33% return for the week and has gained 5.45% YTD as we start the second half of 2016. Concerns over global growth and prolonged financial turbulence due to the "Brexit" vote kept stocks at bay during the beginning of the week. This fear subsided at the Wednesday open as stocks rallied for the rest of the week. Stocks and commodities rallied Friday and two-year Treasuries slumped as strength in the June jobs report showed the US economy is still strong. Oil closed the week at $45.41 a barrel, decreasing -7.31% from the previous week. The decline in oil price is the biggest weekly decline in five months. Eight of the ten economic sectors had positive performance for the week. The consumer discretionary sector was the best performing sector with a 2.32% return. The health care and information technology sectors followed with 2.02% and 1.78% returns, respectively. The energy sector -1.12% return was the worst performance of all the sectors and was followed by telecommunication services at -0.13%. NVIDIA Corp, a graphics processor manufacturer, turned in the best performance in the S&P 500 Index with a 8.98% gain. The company unveiled a highly anticipated new product that will be on sale mid-July. The next two best performers were Viacom Inc and Synchrony Financial with returns of 8.84% and 7.73%, respectively.
Posted on Monday, July 11, 2016 @ 7:58 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 8, 2016
Posted Under: Weekly Market Commentary

 
The Treasury yield curve flattened over the course of the week as short-term yields rose on strong jobs numbers and increased expectations of a rake hike. Yields began the week plunging to all-time lows on Tuesday as fears over the United Kingdom's vote to leave the European Union re-emerged and caused investors to seek the perceived safety of government debt, with long-term yields falling the most. Treasury yields then rebounded slightly on Wednesday and Thursday, which the exception of the 30-year yield dropping slightly both days. On Thursday, Initial Jobless Claims fell to a 3-month low and private-sector employment picked up slightly in June. The official jobs report on Friday significantly beat expectations, which renewed suggestions that the economy is growing at a moderate pace and the Federal Reserve may revisit increasing interest rates sooner than expected. Short-term treasury yields rose as they are most sensitive to changes in the federal-funds rate, however, long-term treasury yields fell. Oil also dropped 8% throughout the week. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: May Wholesale Inventories (0.2% MoM); Wednesday: July 8th MBA Mortgage Applications; Thursday: July 9th Initial Jobless Claims (265,000), June PPI Final Demand (0.3% MoM, -0.1% YoY); Friday: June Retail Sales Advance (0.1% MoM), June CPI (0.2% MoM, 1.1% YoY), July Empire Manufacturing (5.00), June Industrial Production (0.2% MoM), July Preliminary U. of Michigan Sentiment (93.0).
Posted on Monday, July 11, 2016 @ 7:56 AM • Post Link Share: 
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  S&P 500 Index Stock Prices Relative To Their 52-Week Highs
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post is an update of one we did on 5/17/16 (click here to view) and on 2/16/16 (click here to view). Today's chart reflects improvement relative to both of those previous snapshots. 
  2. The S&P 500 Index, which is capitalization-weighted, posted a total return of 3.78% for the 12-month period ended 7/6/16, according to Bloomberg. On a price-only basis, which excludes dividends, the index was up 1.50%.
  3. The averages in the chart simply reflect where each of the 500 stocks stood, by sector, relative to their 52-week high as of 7/6/16 (midday). Their respective cap-weightings were not factored into the calculations.
  4. As of 7/6/16, the S&P 500 Index, on a cap-weighted basis, stood 1.46% below its all-time high of 2130.82, which was established on 5/21/15. That is an improvement from 3.01% on 5/17/16.
  5. As indicated by the percentages in the chart, the three sectors reflecting the least damage over the past 52 weeks are all considered to be defensive in nature. No change from 5/17/16.

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.


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Posted on Thursday, July 07, 2016 @ 3:12 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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