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  A Snapshot Of Major Emerging Market Stock Indices
Posted Under: International-Global

 
View from the Observation Deck  
  1. Emerging markets have been a mixed bag in 2014. As indicated in the chart, economies steeped in natural resources (Russia and Brazil) have performed quite poorly, particularly in the second half of the year.
  2. One of the biggest contributors to the downward pressure on commodity prices has been the strengthening U.S. dollar, especially with respect to the plunge in crude oil, in our opinion.
  3. The U.S. Dollar Index (DXY), which was essentially unchanged in the first half of 2014, surged 10.9% in value from 6/30/14 to 12/15/14, according to Bloomberg.
  4. India and China’s equity markets, which tend to be grounded more in manufacturing and services, have performed quite well. The results of India’s national election held earlier in the year were well-received by equity investors.
  5. With the exception of Russia (oil-based economy), Bloomberg’s consensus earnings growth rate estimates for 2015 forecast double-digit growth, while 2015 P/E ratio estimates indicate potential value relative to respective 3-Year average P/Es.
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 Tuesday, December 16, 2014 @ 3:19 PM • Post Link Share: 
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  US Stocks Week Ended December 12, 2014
Posted Under: Weekly Market Commentary

 
Last week, after seven straight weeks of positive performance, the S&P 500 Index returned its worst one week performance of 2014 with a -3.47% return. With no real US economic data released on Monday, the index was led down -0.71% by energy stocks as they slid -3.90%. Stocks were flat on Tuesday with the index returning -0.02% as sectors were mixed. Energy was the winning sector for the day as it got back a little of the previous day’s big loss while Verizon and AT&T warned about shrinking holiday season margins as the S&P 500 Telecommunication Services Index returned -3.21%. Wednesday’s -1.63% return was the worst performance of the week for the index. All sectors were under pressure with the energy sector leading the decline again as crude oil closed at $60.94 a barrel. Thursday brought positive economic data and the only positive day of the week for the S&P 500 Index with a 0.48% return as all sectors were up for the day. November US retail sales advanced 0.7% and US initial jobless claims came in at 294K, which was a slight decrease from the previous week’s 297K and the consensus estimate of 297K. The S&P 500 Index slid further on Friday as it returned -1.62%, led by the materials and energy sectors. Crude oil closed at $57.81 a barrel on Friday, the lowest price since May 15, 2009 when crude was $56.34 a barrel. Nine of the ten economic sectors had negative performance for the week. The utilities sector was the best performing sector with a 0.18% return. The consumer staples and consumer discretionary sectors followed with -1.98% and -2.17% returns, respectively. The energy sector’s -7.98% return was the worst performance of all the sectors and was followed by materials and telecommunication services which returned -6.18% and -5.75%, respectively. Staples Inc., an office supplies, furniture, and technology retailer, turned in the best performance in the S&P 500 Index with a 14.57% gain. The stock jumped 8.67% on Thursday as news broke that Starboard Value purchased a 5.1% stake in the company. Starboard Value has a 9.9% stake in Office Depot Inc. and may push for a merger. The next two best performers were Diamond Offshore Drilling Inc. and Walgreens Co. with returns of 11.67% and 8.60%, respectively.
Posted on Monday, December 15, 2014 @ 8:45 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended December 12, 2014
Posted Under: Weekly Market Commentary

 
Yields continue to defy expectations for going up as the long-end of the yield curve fell. This week’s Treasury auctions were strong as continued foreign demand keeps yields low. Oil continued to fall as the EIA released 2015 supply and demand estimates on Friday which reflected sluggish global growth vs. robust supply. While some US firms have reduced 2015 CAPEX budgets, the EIA is anticipating strong supply growth in the face of tepid demand. Wednesday’s MBA Mortgage Applications from the prior week were up 7.3% as the Thanksgiving holiday weighed down the prior week applications. On Thursday Retail Sales numbers for November were released and they showed an increase in Retail sales of .7% and the report included a positive1.1% revision to September and October retail sales. Autos and Building Materials led the increase but excluding Autos, Building Materials and Gas Stations (which have falling sales due to lower prices) the retail numbers including prior revisions were up .8%. Strong demand for the new iphone supplied a major tailwind to the tech sector, but consumers also spent more on eating out and non-store retailers. Friday’s PPI report for November recorded prices falling .2% vs. and expected .1%. Also on Friday, the Michigan Consumer Confidence survey was released and reported a preliminary December reading of 93.8 which was substantially more than the expected 89.5. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: Empire Manufacturing (12, +1.84) and November Industrial Production (.7%, +.8%); Tuesday: November Housing Starts (1,040K, +31k); Wednesday: December 12 MBA Mortgage Applications, November CPI (-.1%, -.1%) and FOMC Interest Rate Decision (0-.25%, unch); Thursday: December 13 Jobless Claims (295K, +1K) and the November Leading Index (.6%, +.3%).
Posted on Monday, December 15, 2014 @ 8:44 AM • Post Link Share: 
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  Fixed-Rate Bond Total Returns Are Trending Lower
Posted Under: Bond Market

 
View from the Observation Deck  
  1. The purpose of today’s blog post is simply to show investors how traditional fixed-rate bonds have performed over the past 1-, 3- and 5-years.
  2. We believe that the information in the chart can help investors establish realistic expectations with respect to fixed-rate bond yields and performance potential moving forward.
  3. There are eight major index categories in the chart and all eight of them have experienced a consistent decline in total return performance over the past 1-, 3- and 5-years.
  4. Nearly all of the index total returns posted over the past year were below where their respective yields stood on 11/30/13.
  5. Despite the fact that bond yields declined throughout most of the globe over the past year, three of the index categories posted negative total returns for the 1-year period ended 11/30/14.
  6. We encourage investors to spend some time analyzing the figures in the chart.
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 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.

To view this as a PDF click here.
Posted on Thursday, December 11, 2014 @ 3:36 PM • Post Link Share: 
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  The US Dollar and the Strength of the Economy
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P. provides perspective on the strength of both the U.S. Dollar and the economy. Bob also presents an update on several solid performing market sectors.
Posted on Wednesday, December 10, 2014 @ 7:58 AM • Post Link Share: 
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  S&P 500 Stock Dividends Are Rising But Its Dividend Yield Isn’t
Posted Under: Equity Income

 

View from the Observation Deck

  1. Over the past 20 calendar quarters, the S&P 500 stock dividend payout rose from $49.04 billion in Q4’09 to $89.02 billion in Q3’14, or increase of 81.5% (see chart).
  2. The stock dividend yield (quarter-end) on the S&P 500 went from 1.97% to 1.96% over the same period, which essentially is unchanged. The dividend yield as of midday 12/9/14 was 1.95%.
  3. The number of companies paying a quarterly dividend rose from 363 on 12/31/09 to 423 today, according to S&P Dow Jones Indices.
  4. What has not changed very much for S&P 500 companies is their average payout ratio. It has remained well below average since 1999.
  5. The dividend payout ratio (percentage of a dollar’s worth of earnings paid out as a dividend) for the companies in the S&P 500 stood at 32.5% in October 2014, slightly below its 32.9% average since 1999.
  6. The payout ratio has averaged closer to 52% since the 1930s, according to S&P Dow Jones Indices.
  7. S&P 500 companies, in aggregate, have been raising their stock dividend payouts just enough to offset the increase in stock prices.
  8. From 12/31/09-09/30/14 (period in chart), the S&P 500 posted a price-only return of 76.87%, just below the 81.5% increase in stock dividend distributions.
  9. Low bond yields have made it easier for companies to maintain their low dividend payout ratios, in our opinion. It will be interesting to see if that changes should bond yields rise in the months and years ahead.

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.

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

Posted on Tuesday, December 09, 2014 @ 2:07 PM • Post Link Share: 
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  US Stocks Week Ended December 5th, 2014
Posted Under: Weekly Market Commentary

 
The S&P 500 posted its seventh consecutive week of gains, with the S&P 500 closing at another all-time high on Friday, as better-than-expected U.S. payroll and manufacturing data overshadowed weakness in the global economy. The November improvement in payrolls of 321,000 exceeded even the most optimistic estimates, while wages improved by the largest amount since June 2013. Unlike the U.S. where GDP growth estimates have increased, Mario Draghi lowered the euro zone’s forecast for growth and warned of possible deflation. Volatility continued for energy stocks as EOG Resources, Inc., regarded as a best in class unconventional E&P, recovered some of its losses after OPEC and Saudi Arabia decided to leave production unchanged last week. However, Whiting Petroleum Corp. continued to trade lower due to its leveraged balance sheet and lack of hedging for 2015 production. Weaker-than-expected post-Thanksgiving spending by consumers sent Macy’s and Amazon Inc. shares lower for the week. Cyber Monday sales increased by only an estimated 8.5% versus over 20% last year partially due to earlier discounting by retailers. In merger news, NextEra Energy Inc., North America’s largest generator of renewable energy, announced the acquisition of Hawaiian Electric Industries to further expand its footprint. NextEra Energy Inc. plans to cut rates in Hawaii by 20% over the next 15 years as Hawaiian citizens pay the highest electrical rates in the nation. Looking ahead to next week, retail sales for November and Univ. of Michigan Sentiment Index will be key data points.
Posted on Monday, December 08, 2014 @ 8:47 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended December 5th, 2014
Posted Under: Weekly Market Commentary

 
Treasury prices dropped significantly over the course of the week on economic reports and comments from the Federal Reserve. On Monday manufacturing data was slightly better than expected and much stronger in comparison to similar measures in Europe and China, causing Treasury prices to drop as investors sold. The sell-off continued on Tuesday as two Federal Reserve speakers caused investors to believe that the Fed may raise interest rates sooner than expected. Fed Vice Chair Stanley Fischer said that the Fed was closer to dropping language from its policy statement about interest rates remaining low for a “considerable time.” This was compounded with New York Fed President William Dudley’s comments on Monday that the Fed would be more aggressive in raising rates than it was between 2004 and 2007. Treasuries rebounded slightly on Wednesday and Thursday on a weaker than expected ADP Employment Change report despite another strong report from the Institute for Supply Management. On Friday, the Change in Nonfarm Payrolls came in much better than expected and Treasury prices dropped significantly as yields soared on expectations that the strong data would cause the Fed to raise rates sooner than expected. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: October Wholesale Inventories (0.2% MoM); Wednesday: December 5 MBA Mortgage Applications; Thursday: November Advance Retail Sales (0.4% MoM), December 6 Initial Jobless Claims (296,000); Friday: November PPI Final Demand (-0.1% MoM), December U. of Michigan Confidence (89.6).
Posted on Monday, December 08, 2014 @ 8:45 AM • Post Link Share: 
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  Snapshot of U.S. Equity Styles/Market Caps
Posted Under: Themes

 

View from the Observation Deck

  1. Today’s blog post is intended to expose potential opportunities within the growth and value styles of investing, as well as by market capitalization (market cap). It updates the one we did on 8/7/14.
  2. At any given time, the equities markets are likely being led up or down by one of the three market cap classifications. Often this leadership role can be held for a multi-year period.
  3. From 1995-1999, large-cap stocks outperformed their mid- and small-cap counterparts by a sizable margin. From 2000-2012, mid- and small-caps outperformed large-caps by an even bigger margin.
  4. From 12/31/12 through 12/3/14, however, the S&P 500, S&P MidCap 400 Index and the S&P SmallCap 600 indices posted similar cumulative total returns of 51.44%, 45.62% and 46.31%, respectively.
  5. As indicated in the chart, large-caps have been the leaders thus far in 2014.
  6. Five of the six categories have double-digit 2015 earnings growth rate estimates and five of the six have 2015 estimated P/E ratios below their three-year averages.
  7. We encourage investors to spend some time analyzing the figures in the chart.

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, S&P MidCap 400 and S&P SmallCap 600 style indices are capitalization-weighted indices designed to measure large-capitalization, mid-capitalization and small-capitalization U.S. stock market performance.

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

Posted on Thursday, December 04, 2014 @ 3:25 PM • Post Link Share: 
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  The Risk-Return Tradeoff In The Bond Market
Posted Under: Bond Market

 
View from the Observation Deck  
  1. One of the negative side effects from the financial crisis (systemic meltdown) in 2008-2009 was that some investors lost trust in “Wall Street,” in our opinion. For some, the system looked broke.
  2. The risk-return tradeoff in investing implies that potential return rises with an increase in risk. In theory, investing in corporate bonds is inherently more risky, from a credit standpoint, than investing in government securities.  
  3. The Federal Reserve attacked the financial crisis primarily by lowering the federal funds target rate in the U.S. from 5.25% to 0.25% (9/18/07-Present) and by initiating three rounds of quantitative easing (11/25/08-10/31/14).
  4. While opinions may vary as to how influential/responsible these efforts were in getting the capital markets functioning properly, the Fed’s involvement likely played a role in tempering the panic that permeated the markets, in our opinion. 
  5. At a base level, investors should be encouraged that the risk-return tradeoff in the capital markets largely functioned as one would have expected over the period (see chart). Those investors who assumed more risk generally achieved higher returns.
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 BofA Merrill Lynch 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. The S&P/LSTA Leveraged Loan Index tracks the performance of a broad cross section of leveraged loans, including dollar-denominated loans to overseas issuers. The BofA Merrill Lynch U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market. The BofA Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The BofA Merrill Lynch U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The BofA Merrill Lynch Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets. The BofA Merrill Lynch All Convertibles All Qualities Index is a widely used index that measures the performance of U.S. dollar-denominated convertible securities not currently in bankruptcy with a total market value greater than $50 million at issuance.

To Download a PDF of this post, please click here.
Posted on Tuesday, December 02, 2014 @ 3:22 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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