Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 

  Both Are Investing and Delivering Record Highs
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., focuses on both the individual and institutional investing communities and explains how both are delivering record highs in the stock market.
 
Posted on Tuesday, February 21, 2017 @ 3:12 PM • Post Link Share: 
Print this post Printer Friendly
  Some Perspective On The Performance Of The S&P 500 Index
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Are U.S. stocks overvalued? While there are many metrics that can be used to argue one side or the other, we believe there is room for an eyeball test using historical returns.
  2. The last bar in the chart (shaded gold) represents the average annual total return for the S&P 500 Index since 1926. Since it covers such a long period, it tends to change modestly with each passing year.
  3. Bar #1 is simply extraordinary because it reflects an average annual total return that is way beyond the historical norm. Performance was enhanced substantially by the Internet Revolution (1995-1999).
  4. Bar #2 reflects the fallout after the Internet bubble burst late in Q1'00. This is your so-called "Lost Decade" in stocks.
  5. Bar #3 shows the average annual total return for the two decades captured in Bar #1 and Bar #2. The 8.2% average gain for the 20-year period is below the historical 10.0% benchmark return since 1926.
  6. Bar #4 (striped) extends the period measured in Bar #3 by another seven calendar years through 2016. The 9.4% average annual total return for the period is closer to the 10.0% historical norm, but still falls short.

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, February 21, 2017 @ 1:14 PM • Post Link Share: 
Print this post Printer Friendly
  US Stocks Ended Feb. 17, 2017
Posted Under: Weekly Market Commentary

 
Strong economic data, positive commentary from Federal Reserve Chairwoman Janet Yellen, and robust corporate profits led the S&P 500 higher for the week, marking the fourth consecutive weekly gain. Janet Yellen signaled the central bank might raise interest rates in March, citing rising inflation and a strong job market.  Wholesale prices increased by 0.6% in January, the largest monthly increase since September 2012, led by an increase in gasoline prices. Consumer data points remained strong as retail sales advanced 0.4% versus consensus of 0.1%, and U.S. housing starts exceeded expectations. With earnings season nearing completion, the S&P 500 is on pace to grow by 5% for the 4th quarter of 2016. To date, information technology and financials grew earnings by 11.2% and 9.1% in the 4th quarter, while energy remained a drag with earnings down by 9.3%. However, energy earnings are expected to recover and be incremental to S&P 500 profits in 2017.  In stock specific news, Deere & Co. continued to see weak demand for its capital equipment for the quarter, but did raise 2017 sales guidance for farm and construction machinery as management sees end markets stabilizing after a three-year slide. CBS Corp. saw advertising revenue fall by 2.8% due to fewer Thursday Night Football games and disappointing ratings for NFL games. Unilever N.V. spurned a $143 billion takeover offer from Kraft Heinz Co. that would be the largest-ever acquisition for a food or beverage stock. Both stocks jumped by more than 10% on Friday as further consolidation among consumer-goods companies could result in further cost cutting and shareholder value. Looking ahead to next week, a number of retailers will report earnings including Macy's Inc., Nordstrom, Inc., and Wal-Mart Stores. Economic data is relatively light for the holiday-shortened week.
Posted on Tuesday, February 21, 2017 @ 8:21 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended Feb. 17, 2017
Posted Under: Weekly Market Commentary

 
Treasury prices dropped slightly over the course of the week as investors speculated that the Federal Reserve is more likely to raise rates during the March meeting than previously thought. Earlier in the month the Fed sounded dovish on the possibility of raising interest rates in March, but more recent comments by Fed officials have suggested that a rate hike in March is still on the table, leading Treasury prices to fall during the first half of the week. Fed Chairwoman Janet Yellen said that the risks of waiting too long to raise rates outweighed the risks of a hike too soon. The consumer price index reading of 2.5% showed strong inflation and was well ahead of the Fed's target of 2% and was widely believed to strengthen the Fed's case to raise rates. Treasury prices decreased the most on the long end of the curve as indicators of long-term inflation expectations have been rising. Philadelphia Fed President Patrick Harker also said that three rate hikes were likely in 2017 if the economy remains on track. Altogether, this led to an increase in the market implied probability of a rake hike in March of 34%, which was up moderately from 28% a week ago. However, Treasury prices did rebound in the 2nd half of the week as the market took a risk-off approach and the equity market cooled off on economic data that was in line with expectations. Major economic reports (and related consensus forecasts) for the upcoming holiday-shortened week include: Tuesday: February Prelim. Markit US Manufacturing PMI (55.2); Wednesday: February 17 MBA Mortgage Applications, January Existing Home Sales (5.55M); Thursday: February 18 Initial Jobless Claims (240,000); Friday: January New Home Sales (573,000), February Final University of Michigan Sentiment (96.0).
Posted on Tuesday, February 21, 2017 @ 8:19 AM • Post Link Share: 
Print this post Printer Friendly
  How Some Traditional Asset Classes Have Fared Since Treasury Yields Peaked In 1981
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. The date was 9/30/81. That was the day that the yield on the benchmark 10-year Treasury note (T-note) reached its all-time closing high of 15.84%, according to data from Bloomberg. It stood at 2.45% on 1/31/17.
  2. The average annualized total returns and price changes in the chart represent the period from 9/30/81 through 1/31/17 (35.4 years).
  3. As indicated in the chart, of the five traditional asset classes, excluding the Consumer Price Index (CPI), only real estate (FTSE NAREIT All Equity REITs Index) and stocks (S&P 500 Index) posted double-digit average gains.
  4. One of the most basic goals in investing is to outpace the rate of inflation over time. On average, all five asset classes outpaced inflation, as measured by the CPI, though the price of gold bullion just barely edged it out.
  5. The 2.90% average annualized rate on the CPI was not far off the historical norm. From 1926 through 2016, the average was 3.00%, according to data from Bloomberg.
  6. As noted in point #1, the yield on the 10-year T-note stood at 2.45% on 1/31/17. That is up from the all-time low of 1.36%, set on 7/6/16, but still below the typical rate of inflation over time, 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. The Consumer Price Index (CPI) measures the prices paid by consumers for a market basket of goods and services. The BofA Merrill Lynch US 6-Month Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month that issue is sold and rolled into a newly selected issue. 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 S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The FTSE NAREIT All Equity REITs Index is a free float adjusted market capitalization-weighted index that includes all tax qualified REITs listed on the major U.S. exchanges.

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

Posted on Thursday, February 16, 2017 @ 2:08 PM • Post Link Share: 
Print this post Printer Friendly
  A Snapshot Of Fixed-Rate Bond Yields & Total Returns

 

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 bond index categories in the chart. Six of them are domestic, one is global in scope and one tracks emerging market bonds.
  4. By matching up the columns via color, investors have the ability to identify those indices that have posted total returns either approaching or exceeding their respective yields at the start of a given period.
  5. One of the primary goals of any fixed-income investors is to at least "earn your coupon," in our opinion. Looking ahead, that may become more difficult if interest rates trend higher. 
  6. We intend to monitor the direction of interest rates closely moving forward.

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 Download a PDF of this post, please click here.

Posted on Tuesday, February 14, 2017 @ 1:49 PM • Post Link Share: 
Print this post Printer Friendly
  US Stocks Ended Feb. 10, 2017
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index returned 0.87%. Equities continue their 2016 upward trend, pushing past January's highs to a new all-time closing high of 2,316.10 on Friday. The index is up 3.66% YTD. Crude oil dropped 3.08% the first two days of the week on fears of a continuing buildup of motor gasoline inventories which are near their February 2016 highs. This showed weakness in the energy sector which declined 2.25% over Monday and Tuesday. Crude recovered and closed the week at $53.86 a barrel, advancing 0.06% from the previous week's close. Many media outlets were focused this past week on President Trump's travel-ban fight and the confirmation hearings of his cabinet selections. Investors continue to be optimistic of President Trump's intent of creating a pro-growth business environment. The US initial jobless claims of 234K were below the consensus estimate of 249K and the previous week's 246K. 357 companies in the S&P 500 Index have already reported their fourth quarter 2016 earnings with 262 showing higher EPS and 239 reporting positive earnings surprise. Ten of the eleven economic sectors had positive performance for the week with the industrials sector showing the best performance returning 1.65%. Hasbro Inc., a designer and manufacturer of toys and games, had the best performance in the S&P 500 Index for the week with an 18.15% return. The consumer discretionary stock jumped 14.14% on Monday after reporting and beating fourth quarter earnings estimates. Activision Blizzard Inc., an entertainment software developer and publisher, also helped the sector after reporting earnings on Thursday night. The stock jumped 18.88% on Friday. Arconic Inc., a lightweight material provider to the aerospace and automotive industry, climbed 14.36%. Pressure continued to increase on the company from hedge fund Elliott Management, which owns over 12% of the stock, to fire the CEO for poor past performance. This week will bring earnings news from Cisco Systems Inc., PepsiCo Inc., The Kraft Heinz Co., Charter Communications Inc. and others.
Posted on Monday, February 13, 2017 @ 8:06 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended Feb. 10, 2017
Posted Under: Weekly Market Commentary

 
The yield on the U.S. 10-year Treasury note rose on Thursday and Friday after three straight days of declines. President Trump told airline executives on Thursday in a meeting at the White House that an announcement concerning tax reform will be made in the coming weeks. The potential fiscal policy move renewed expectations of higher economic growth and inflation. The breakeven rate, which is a proxy for the market's forecast of inflation by measuring the difference in yield between a nominal bond and an inflation-indexed bond, rose on Thursday and Friday as investor's expectations for inflation increased.  Meanwhile, U.S. equities finished the week at record highs, lowering demand for government bonds and sending yields higher. Earlier in the week, Treasuries rose as demand was spurred by heightened political uncertainty in Europe. In particular, the upcoming French presidential election in April increased fears that France could leave the European Union. Notably, the spread between French and German government bond yields climbed to a four-year high during the week. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: January PPI Final Demand (0.3% MoM, 1.5% YoY); Wednesday: Feb 10 MBA Mortgage Applications, February Empire Manufacturing (7.0), January CPI (0.3% MoM, 2.4% YoY), January Retail Sales Advance (0.1% MoM), January Industrial Production (0% MoM); Thursday: January Housing Starts (1.2M), Feb 11 Initial Jobless Claims (245K), February Philadelphia Fed Business Outlook (18.0); and Friday: January Leading Index (0.5%).
Posted on Monday, February 13, 2017 @ 8:03 AM • Post Link Share: 
Print this post Printer Friendly
  Investors Would Like To See Bank Margins Rise Along With Interest Rates
Posted Under: Sectors

 

View from the Observation Deck 

  1. For banking institutions, net interest margin (NIM) is essentially the spread between the interest earned from the bank's loan portfolio and the amount of interest the bank pays on its deposits.
  2. The time period in the chart captures the current economic recovery in the U.S. through the latest NIM release.
  3. From 9/30/09-9/30/16, NIM declined from 3.50% to 3.18% (see chart), but did reach as high as 3.84% in Q1'10. When NIM declines it negatively impacts profits.
  4. Over that same period, the yield on the 10-year T-note declined from 3.31% to 1.60% (see chart). It stood at 3.83%, however, at the close of Q1'10, when NIM hit 3.84% (see previous point). The fluctuation in the yield on the 10-year T-note influences the interest rates that banks charge on various loans. 
  5. With respect to what banks pay on deposits, that is influenced more by the federal funds rate (not shown in chart). That rate was already near zero following the 2008-2009 financial crisis, dropping from 4.25% in Q4'07 to 0.25% in Q4'08, according to Bloomberg. It stood at 0.50% in Q3'16.
  6. U.S. Commercial Bank Assets Loans & Leases (SA) stood at a record high $9.07 trillion in Q3'09, compared to $11.36 trillion in U.S. Commercial Bank Deposits (SA), also a record high at the time, according to the Federal Reserve.
  7. While banks are lending at record levels in dollar terms, the amount loaned out is down on a percentage basis relative to the size of bank deposits. This indicates that banks have money to lend. 
  8. As of 9/30/16, the loan-to-deposit ratio was 79.8%, down from 89.2% on 9/30/09. For comparative purposes, as of 9/30/07, the ratio stood at 100.3%.
  9. While there is no guarantee that interest rates are going up in the near future, we believe the chances of it happening are rising. Should it occur, NIM has better chance of increasing if intermediate and long-term interest rates rise faster than short-term rates, 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 Thursday, February 09, 2017 @ 2:50 PM • Post Link Share: 
Print this post Printer Friendly
  A Snapshot of Growth vs. Value Investing
Posted Under: Themes

 

View from the Observation Deck 

  1. Today's blog post is an update of one we do on an ongoing basis. Investors can compare today's snapshot to the one we did on 10/27/16 (click here to view).
  2. Growth style investing tends to outpace value style investing when the earnings growth rates of companies accelerate faster than the broader market, such as right after the economy exits a recession.
  3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in two of the six periods. Growth investing topped value investing for the 10-year and year-to-date periods through 2/6/17.
  4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (10.63% vs. 9.45%); 10-yr. average annualized (7.94% vs. 9.92%); 5-yr. average annualized (15.76% vs. 14.09%); 3-yr. average annualized (9.78% vs. 8.67%); 1-yr. (32.85% vs. 24.05%) and Y-T-D (1.83% vs. 3.85%).
  5. In 2016, the Large Value and Large Growth fund categories tracked by Morningstar, which include both open-end mutual funds and exchange-traded funds, reported estimated net flows totaling $15.38 billion and -$101.78 billion, respectively,  according to its own release. Large Blend funds and ETFs reported estimated net inflows totaling $86.87 billion over the same period, an indication that many investors may not currently favor one style over the other, in our opinion.
  6. It will be interesting to see if President Trump's pro-growth, pro-U.S. agenda tilts investor sentiment towards growth stocks in 2017 and 2018. We intend to monitor this moving forward.  

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 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. Constituents are drawn from the S&P 500 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.

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

Posted on Tuesday, February 07, 2017 @ 2:06 PM • Post Link Share: 
Print this post Printer Friendly

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.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Weekly Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
It's Called Winning!
US Stocks Ended Feb. 3, 2017
US Economy and Credit Markets Ended Feb. 3, 2017
S&P 500 Index Stock Prices Relative To Their 52-Week Highs
Back to Earnings: Back to the Basics
Biotechnology Stocks Have Not Been This Cheap In A Decade
US Stocks Ended Jan. 27, 2017
US Economy and Credit Markets Ended Jan. 27, 2017
Corporate Earnings Expected To Trend Higher in 2017
The Meaning of 20,000
Archive
Skip Navigation Links.
Tags
 
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2017 All rights reserved.