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  A Snapshot of Bond Valuations
Posted Under: Bond Market

 

View from the Observation Deck 

  1. Today's blog post is one we do on an ongoing basis so that investors can monitor fluctuations in bond prices relative to changes in interest rates and the global economy.
  2. From 3/15/16 through 8/23/16 (chart period), the yield on the benchmark 10-year Treasury note (T-Note) declined 42 basis points, from 1.97% to 1.55%, according to Bloomberg. It was as low as 1.36% (7/8/16) in the period.
  3. The current interest rate climate has helped push bond prices higher in all seven of the major index categories featured in the chart, in our opinion.
  4. Leveraged loans (senior loans) and high yield corporate bonds, which are still priced at a discount to par value (see chart), have likely benefitted from the rebound in energy and commodity prices since these industries are heavily represented in those indices. Energy and commodity prices hit their respective near-term lows on 2/11/16, according to Bloomberg.
  5. Year-to-date through July, investors funneled an estimated net $12.52 billion into High Yield Bond mutual funds and exchange-traded funds (ETFs), while liquidating an estimated net $5.36 billion from Bank Loan (leveraged loan/senior loan) mutual funds and ETFs, according to Morningstar. It is not surprising that investors have favored fixed-rate high yield corporate bonds over leveraged loans in the current low interest rate climate (see point #2), 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 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 BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The S&P/LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The BofA Merrill Lynch 7-10 Year 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.

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Posted on Thursday, August 25, 2016 @ 2:16 PM • Post Link Share: 
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  S&P 500 Index Stock Prices Relative To Their 52-Week Highs

 

View from the Observation Deck 

  1. Today's blog post updates three previous posts done on 7/7/16 (click here to view), 5/17/16 (click here to view) and on 2/16/16 (click here to view).
  2. The S&P 500 Index, which is capitalization-weighted, posted a total return of 13.22% for the 12-month period ended 8/22/16, according to Bloomberg. On a price-only basis, which excludes dividends, the index was up 10.74%.
  3. While some equity investors may subscribe to the philosophy of "sell in May and go away," it has not worked so far in 2016. The S&P 500 Index posted a total return of 6.48% from 4/29/16 through 8/22/16, according to Bloomberg. 
  4. The averages in the chart simply reflect where each of the 500 stocks stood, by sector, relative to their 52-week high as of the close on 8/22/16. Their respective cap-weightings were not factored into the calculations.
  5. As of 8/22/16, the S&P 500 Index, on a cap-weighted basis, stood 0.34% below its all-time high of 2,190.15, which was established on 8/15/16.
  6. As indicated by the percentages in the chart, two (Consumer Staples & Utilities) of the three sectors reflecting the least damage over the past 52 weeks are considered to be defensive in nature, down from three sectors on 7/7/16.

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 Tuesday, August 23, 2016 @ 1:42 PM • Post Link Share: 
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  The Critical Importance of Asset Allocation
Posted Under: Weekly Market Commentary • Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments in the market and explains the importance of asset allocation.
 
Posted on Monday, August 22, 2016 @ 2:09 PM • Post Link Share: 
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  Stocks Ended Aug. 19, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index moved within a 25 point range but closed flat for the week with a 6 basis point return. The index is currently up 8.39% for 2016 and 0.67% for the month of August. The index started the week in positive territory returning 0.29% on Monday and posting a new all-time closing high of 2,190.15. Materials and industrials showed strength while utilities and telecommunication services were the weakest sectors in the trading day. Equity markets soured on Tuesday on mixed economic data and weakness in foreign markets. Housing starts increased, building permits declined and the US Consumer Price Index came in flat for July. The S&P 500 Index posted a -0.53% return, the worst performance for the week with energy being the only positive sector for the day. Utilities showed strength on Wednesday with most sectors in the green and little economic news to digest. While the index gapped down at the open, it reversed early and climbed the remainder of the day returning 0.21%. July Federal Open Market Committee meeting minutes were released and indicated little urgency for a rate hike. On Thursday, equities moved up slightly returning 0.22% with energy and utilities outperforming other sectors. US initial jobless claims of 262K were lower than the consensus estimate of 265K and lower than the previous week's 266K. Stocks opened down on Friday as European markets showed weakness. The S&P 500 Index climbed back throughout the day, but was cut short from even returning -0.13%. Crude oil closed the week at $48.52 a barrel, increasing 9.06% from the previous week's close. Five of the ten economic sectors had positive performance for the week. The energy sector was the best performing sector with a 2.16% return. The materials and industrials sectors followed with 1.28% and 0.78% returns, respectively. The telecommunications services sector's -3.84% return was the worst performance of all the sectors and was followed by utilities and consumer discretionary which returned -1.26% and -0.67%, respectively. Urban Outfitters Inc., an operator of fashion and accessory retail stores, turned in the best performance in the S&P 500 Index with a 23.36% gain. The next two best performers were NetApp Inc. and Chesapeake Energy Corp. with returns of 22.00% and 21.31%, respectively.
Posted on Monday, August 22, 2016 @ 8:08 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Aug. 19, 2016
Posted Under: Weekly Market Commentary

 
Treasury prices slumped on Friday after John Williams, a Federal Reserve regional chief, noted a rate hike was "in play" for the September meeting. Following his comments yields spiked and the dollar rose; but stocks did not. Also speaking out last week was William Dudley who told the Fox Business Network that it's possible that a rate hike could occur as early as the mid-September policy meeting. Wednesday and Thursday had seen Treasuries, stocks and oil prices all improve amid positive economic data. Oil entered a bull market as investors responded to speculation that OPEC would discuss a potential output freeze. Tuesday saw a bevy of reports and some good economic news. Housing starts rose 2.1% in July representing an increase of 5.6% over the prior year. July industrial production was shown to increase .7% in July which was ahead of consensus estimates. While the CPI was unchanged for July, matching expectations, it is up .8% versus a year prior and the "core" CPI (excludes food and energy) is up 2.2% versus a year ago. Thursday saw the release of the prior week Jobless Claims report which was better than expected. Last week ended with the July US Index of Leading Economic Indicators also coming in better than expected at .4%. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: July New Home Sales (577K, -15K); Wednesday: Aug 19 MBA Mortgage Applications, July Existing Home Sales (5.5M, -.7M); Thursday: Aug 20 Initial Jobless Claims (265K, +3K) and preliminary July Durable Goods Orders (3.5%, +7.4%); Friday: preliminary July Wholesale Inventories, QoQ Annualized GDP (1.1%, -.1%) and the University of Michigan Sentiment survey (90.7, +.3)

Posted on Monday, August 22, 2016 @ 8:03 AM • Post Link Share: 
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  The U.S. Crude Oil Rig Count Is Rising But The Natural Gas Rig Count Is Not
Posted Under: Sectors

 

 

View from the Observation Deck 

  1. Today's blog post illustrates the dramatic reduction in the number of active U.S. crude oil and natural gas rigs since energy prices peaked in 2014.
  2. Rig count cuts are generally done in an effort to curb production in response to declining energy prices. Rig counts tend to rise when energy producers sense that higher prices are not only coming, but are sustainable.    
  3. Since the beginning of 2014, the peak (6/20/14) in the price of crude oil was $107.26 per barrel, while the peak (2/19/14) in the price of natural gas was $6.15 per million British thermal units (BTUs), according to Bloomberg.
  4. As of 8/12/16, the price of a barrel of crude oil stood at $44.49 per barrel, down 58.5% from its peak in 2014, while the price of natural gas stood at $2.59 per million BTUs, down 57.9% from its peak in 2014. 
  5. From 6/13/14-8/12/16, the number of active crude oil rigs tracked by Baker Hughes declined by 74.3%, from 1,542 to 396, while the number of active natural gas rigs declined by 73.2%, from 310 to 83, according to Bloomberg.
  6. With respect to the period depicted in the chart, the 83 active natural gas rigs registered on 8/12/16 sat just above the period low of 81, which was posted a week earlier (8/5/16). The 396 active crude oil rigs registered on 8/12/16, however, was up notably from the period low of 316, posted on 5/27/16.
  7. Rig counts are just one barometer investors can use to assess both the crude oil and natural gas markets. U.S. investors should keep in mind that the crude oil market is more global in scope (foreign competition), while the natural gas market tends to be more domestic in scope, in our opinion.

The charts and performance data referenced are for illustrative purposes only and not indicative of any actual investment.

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

Posted on Thursday, August 18, 2016 @ 2:03 PM • Post Link Share: 
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  S&P 500 Index Top-Line Growth Estimates
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post provides investors with a three-year look into the expected revenue growth rates of the companies that comprise the S&P 500 Index.
  2. The S&P 500 Index closed the trading session on 8/15/16 at an all-time high of 2,190.15, according to Bloomberg.
  3. As indicated in the chart, as of 8/12/16, the estimated revenue growth rate for the S&P 500 Index for 2016 was 1.8%. When you exclude Energy, the rate bumps to 2.9% (not in chart), according to Bloomberg.
  4. Energy, Materials, and Industrials, which had negative growth rate estimates for 2016 as of 8/12/16, are expected to rebound in 2017.
  5. Estimates for the S&P 500 Index and 8 of the 10 major sectors that comprise the index reflect stronger year-over-year (y-o-y) revenue growth for 2017, and five out of the 10 sectors have higher y-o-y estimates for 2018.
  6. The forecast for revenue growth is relatively optimistic, in our opinion.

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.

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

Posted on Tuesday, August 16, 2016 @ 2:20 PM • Post Link Share: 
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  What's It Going to Take?
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments and the record highs in the market. He then considers the question what it will take for investors to get back in the market.
 
Posted on Tuesday, August 16, 2016 @ 12:24 PM • Post Link Share: 
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  Stocks Ended Aug. 12, 2016
Posted Under: Weekly Market Commentary

 
Equity markets hovered near record-highs and were little changed for the week as investors pivot their focus to economic data as earnings season nears the end. Better-than-expected earnings, improving economic data and continued optimism the Federal Reserve will remain supportive have led to a series of record-highs for the S&P 500 over the past month. In economic news, consumer confidence remained strong as the University of Michigan's index of consumer sentiment rose slightly to 90.4, but missed consensus expectations. After wholesale prices gained 0.5% last month, the Producer Price Index unexpectedly declined 0.4% in July, reflecting the lasting impact of lower commodity prices and muted global growth. Retail sales were unchanged in July, below the consensus expected gain of 0.4%. As we near the tail end of earnings season, a number of department stores reported earnings results that beat low expectations. Macy's, Inc. gained over 16% for the week as the department store announced plans to shutter about 100 of their 728 locations and same-store-sales declined by 2%, better than the 4.6% drop expected by analysts. Shares of Nordstrom Inc. also surged for the week, helped by its off-price channel and its anniversary sale. Walt Disney Co. announced it will pay $1 billion for a one-third stake in BAMTech, a technology and streaming business formed by Major League Baseball, as earnings revealed a continued slide in ESPN subscribers. Looking ahead to next week, Home Depot Inc., Wal-Mart Stores Inc, and Cisco Systems Inc. will release earnings. Key economic data points will be the release of the Federal Reserve's minutes from July, housing data and U.S. consumer prices.
Posted on Monday, August 15, 2016 @ 8:28 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Aug. 12, 2016
Posted Under: Weekly Market Commentary

 
Treasury prices rose slightly over the course of the week as the markets were mostly stable with modest movements on economic data and bond sales. Treasuries were flat on Monday with low volume as investors expected that the Federal Reserve would want to see more data before raising rates despite the prior week's strong jobs report. Treasury prices then rose moderately on Tuesday as a well-received auction of Japanese government bonds showed that there is an appetite for bonds. Short-term bonds sat out the rally as investors have been reluctant to buy short-term Treasuries ahead of the Jackson Hole conference of top central bankers on August 26th. Treasuries continued to climb modestly on Wednesday as a large drop in oil prices led to a pullback in equities and investors were seeking the perceived safety of bonds. The Bank of England also failed to buy as many bonds as it wanted Wednesday in its latest attempt at quantitative easing, highlighting their limitations to execute their QE programs. On Thursday, Treasuries lost most of the week's gains as Initial Jobless Claims dropped slightly from the prior week while the import price index and exports both rose slightly. Oil also rose significantly on Thursday as investors had a more risk-on appetite. Treasuries then rebounded modestly on Friday to end higher for the week as retail sales and wholesale prices both were reported lower than analysts had expected. Oil continued to rise on Friday and finished up 7% on the week. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: August Empire Manufacturing (2.00); Tuesday: July Housing Starts (1.18M), July CPI (0.0% MoM, 0.9% YoY), July Industrial Production (0.3% MoM), July Capacity Utilization (75.6%); Wednesday: Aug 12 MBA Mortgage Applications; Thursday: Aug 13 Initial Jobless Claims (268,000), July Leading Index (0.3%).
Posted on Monday, August 15, 2016 @ 8:25 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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A Snapshot of Growth vs. Value Investing
Retail Investors Continue To Invest In Foreign Stocks
Stocks Ended Aug. 5, 2016
US Economy and Credit Markets Ended Aug. 5, 2016
The Best-Performing Sectors Spanning The Past 12 Months, Brexit Fallout & Post-Brexit Fallout
Utilities Looking A Bit Rich After Staging Strong Rally In 2016
Stocks Ended July 29, 2016
US Economy and Credit Markets Ended July 29, 2016
Expected Earnings and Future Profitability
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