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Bob Carey
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  A Potential Remedy For A Nagging Problem That Could Get Worse
Posted Under: Conceptual Investing

 

View from the Observation Deck  

  1. A study released yesterday (4/22) from TransUnion revealed that out-of-pocket medical costs for U.S. patients rose by 11% in 2014, according to MarketWatch.com.
  2. That represents a considerable jump from the typical annual percentage changes registered from 2004 through 2013 (see chart).
  3. One of the reasons cited in the study for the spike in out-of-pocket medical costs in 2014 was higher deductibles associated with the 16.4 million people securing coverage under the Affordable Care Act.
  4. A Gallup poll released in January 2015 revealed that Americans put health care costs as the “most important financial problem” facing their families, according to The Daily Signal. 

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 Health Care Index is a capitalization-weighted index.

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Posted on Thursday, April 23, 2015 @ 2:29 PM • Post Link Share: 
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  S&P 500 Top-Line Growth Estimates
Posted Under: Broader Stock Market

 

View from the Observation Deck  

  1. The S&P 500 closed the trading session on 4/17/15 at 2081.18. It stood 1.71% below its all-time high of 2117.39 (3/2/15), according to Bloomberg.
  2. The energy sector’s hefty negative revenue growth projection for 2015 is clearly a providing drag on the 2015 estimate for the S&P 500 (see chart).
  3. As indicated in the chart, the estimated revenue growth rate for the S&P 500 for 2015 was just 1.2%, as of 4/17/15. When you exclude Energy, however, the rate jumps to 4.6%, according to Bloomberg.
  4. Ironically, the energy sector’s 14.7% revenue growth rate estimate for 2016 provides a nice boost to the S&P 500’s 2016 revenue growth rate projection (see chart).
  5. As of 4/17/15, the only sector with higher revenue growth rate estimates than the S&P 500 for both 2015 and 2016 was Health Care.

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.

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Posted on Tuesday, April 21, 2015 @ 2:37 PM • Post Link Share: 
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  US Stocks Week Ended April 17, 2015
Posted Under: Weekly Market Commentary

 
Early in the week equity markets inched higher before retreating on Friday, when U.S. inflation concerns and declining global equity markets drove the S&P 500 down nearly 1% for the week. Stocks retreated on news that the Consumer Price Index Ex. Food and Energy, year over year, ticked up to 1.8% from an expected 1.7%, which drove concerns that a Federal Reserve interest rate hike may come sooner than previously anticipated. Oil closed the week up 8% and hit a calendar year high on Thursday with a close of $56.71. Higher oil prices lifted the S&P 500 Energy index by more than 2%, with Southwestern Energy Co. jumping 12%, Range Resources Corp. 10%, Transocean LTD 8.5%, CONSOL Energy Inc. 8.5%, Ensco PLC 5% and Schlumberger Ltd 4.2%. Delta Air Lines Inc. rallied over 3.5% for the week after reporting earnings above expectations. NetFlix Inc. announced that their subscriber base outpaced company and analyst expectations sending the stock up 26% for the week. JPMorgan Chase & Co. rallied 1.9% to a 15 year high on Wednesday, after the company announced earnings and revenue above estimates. SanDisk sank over 5% this week as they guided their 2015 sales below analyst estimates. American Express Co. closed Friday at a 52 week low, down 3% on the week, after disappointing first quarter revenue. Johnson & Johnson announced earnings and revenue in line with expectations, leaving the stock flat on the news. This was notable only because ~50% of the company’s sales are from international markets (hurt by the strong dollar) and the company still met revenue and earnings expectations. Looking ahead to next week, earnings season accelerates as 144 companies in the S&P 500 are expected to announce quarterly results, including 16 mega-cap companies (market cap $100b+): Google Inc., Microsoft Corp., Facebook Inc., Procter & Gamble Co., Verizon Communications Inc., Coca-Cola Co., Amazon.com Inc., AT&T Inc., International Business Machines Corp., PepsiCo Inc., Amgen Inc., QUALCOMM Inc., Boeing Co., United Technologies Corp., 3M Co., and Altria Group Inc.
Posted on Monday, April 20, 2015 @ 9:00 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 17, 2015
Posted Under: Weekly Market Commentary

 
Treasury prices rose over the course of the week on several poor economic reports and strong demand in Treasuries from Asian investors. On Tuesday, retail sales were weaker than expected and producer prices were disappointing, leading investors to seek the safety of Treasuries. The lower inflation number could lead the Federal Reserve to be more patient in raising rates. Empire manufacturing and industrial production were also weaker than expected on Wednesday. On Thursday, housing starts and initial jobless both missed consensus expectations caused shorter term Treasuries to rise further, but the 10-year and 30-year Treasuries dropped slightly as Fed members had conflicting statements on whether the data is getting close enough to warrant a rate hike. Treasury prices rose the significantly on Friday, with the 30-year Treasury note rising the most, as equities tumbled on Greek default fears. Treasury prices also rose during the weak due to disappointing trade reports out of China on Monday, causing many in Asia to seek the safety of U.S. debt. Japan then surpassed China as the largest foreign holder of U.S. Treasuries on Wednesday as fatter U.S. yields and an effective zero-rate policy drove demand for U.S. Treasuries in Japan. Oil rebounded as it rose 9% over the week. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: March Chicago Fed Nat Activity Index (0.10); Wednesday: March Existing Home Sales (5.03M); Thursday: April 18 Initial Jobless Claims (290,000), April P Markit US Manufacturing PMI (55.7), March New Home Sales (510,000); Friday: March Durable Goods Orders (0.6%).
Posted on Monday, April 20, 2015 @ 8:56 AM • Post Link Share: 
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  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 did on 10/7/14. In that post, the S&P 500 Pure Growth Index had outperformed its value counterpart on a year-to-date basis, and for the 5- and, 10-year periods ended 9/30/14.
  2. Growth tends to outpace value investing when the earnings growth rates of said 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 on a year-to-date basis, and for the 1-, 5- and 10-year periods ended 4/15/15.
  4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (12.06% vs. 6.82%); 10-yr. avg. annualized (11.12% vs. 12.11%); 5-yr. avg. annualized (17.22% vs. 18.27%); 3-yr. avg. annualized (24.41% vs. 21.61%); 1-yr. (11.63% vs. 20.75%) and Y-T-D (2.17% vs. 6.24%).
  5. Despite posting positive total returns year-to-date through 4/15/15, the Large Value and Large Growth fund categories tracked by Morningstar, which include both open-end mutual funds and ETFs, reported net outflows totaling $3.36 billion and $12.02 billion, respectively, in Q1’15, according to its own release.

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 Pure Growth Index is comprised of 112 growth stocks selected via the following 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®. The S&P 500 Pure Value Index is comprised of 117 value stocks selected via the following 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®. 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, April 16, 2015 @ 12:47 PM • Post Link Share: 
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  Beat Rate Still Above 80%
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., provides an update on the latest developments in the market and discusses data that report continued solid earnings.
Posted on Thursday, April 16, 2015 @ 11:31 AM • Post Link Share: 
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  Some Government Bonds Yield Less Than Half Of What They Did In 2010
Posted Under: International-Global

 

View from the Observation Deck  

  1. With the exception of the three BRIC-member countries (Brazil, China and India) featured in the chart, yields on 10-Year government bonds issued by many of the world’s largest nations have declined substantially in the last five years. 
  2. One of the things that has contributed to the decline in government bond yields is the drop in inflation rates throughout much of the globe, in our opinion.
  3. Consumer prices in the U.S. declined from an average rate of 3.1% in 2011 to 1.6% in 2014, according to the International Monetary Fund (IMF). It estimates that consumer prices in the U.S. will average 0.1% and 1.5%, respectively, in 2015 and 2016.
  4. Consumer prices in the Euro Area declined from an average rate of 2.7% in 2011 to 0.4% in 2014, according to the IMF. It estimates that consumer prices in the Euro Area will average 0.1% and 1.0%, respectively, in 2015 and 2016.
  5. While also down from 2011 levels, consumer prices in Brazil and India remain at elevated levels, in our opinion. The IMF sees consumer prices in Brazil and India rising by an average of 7.8% and 6.1%, respectively, in 2015.

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.

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

Posted on Tuesday, April 14, 2015 @ 2:38 PM • Post Link Share: 
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  Will an 83% Beat Rate Continue?
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments in the market and anticipates solid earning's reports this month.
Posted on Monday, April 13, 2015 @ 11:24 AM • Post Link Share: 
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  US Stocks Week Ended April 10, 2015
Posted Under: Weekly Market Commentary

 
Stocks grinded higher for the week on low volume as investors await further clarity from earnings reports over the next few weeks. On Wednesday, the Federal Reserve released the minutes from their March 17-18th meeting and Alcoa Inc. unofficially kicked off earnings season. The Fed notes showed officials were spilt on when to raise rates with some officials advocating for June, while others believe the appropriate timing is in the latter half of the year or even into 2016. With only a handful of names reporting earnings, overall reports were disappointing as Alcoa Inc. missed top line expectations on weak demand for aluminum and Bed Bath& Beyond Inc. posted a 4% decline in earnings. Investors cheered Walgreens Boots Alliance Inc. plan to close 200 U.S. drugstores to lower costs as profits have been squeezed by competition and lower reimbursement rates from pharmaceutical insurers. General Electric shares surged after announcing the sale of $26.5 billion of commercial real estate and plans to further shed financial assets. It has become increasingly difficult for the industrial conglomerate to earn returns above the cost of capital as the firm is currently classified as a “systemically important financial institution” and forced to hold additional capital. In merger news, Mylan NV tendered an offer to buy competitor Perrigo Co. for approximately $28.9 billion. Royal Dutch Shell Plc agreed to acquire BG Group Plc for $70 billon, creating Europe’s largest oil and natural gas company. FedEx Corp. advanced after announcing the acquisition of TNT Express NV for $4.8 billion. Looking ahead to earnings season, overall expectations are muted as profits are expected to fall by 5% in the first quarter versus last year, according to FactSet. This would be the first quarterly decline since 2009. The strong dollar, weather and a drop in oil prices, causing a decline in energy profits, have caused analysts to slash estimates. While earnings growth most likely will be negative in the first quarter, the bar is set low and could lead to upside surprises as estimates might be too negative. In addition, results will likely be bifurcated as multinational firms with currency exposure and stocks with oil and gas exposure will be most susceptible to weakness. Earnings season will get into full swing next week with Johnson & Johnson, JPMorgan Chase & Co, Fastenal Co., Wells Fargo & Co. and many others reporting results.
Posted on Monday, April 13, 2015 @ 8:11 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended April 10, 2015
Posted Under: Weekly Market Commentary

 
Bonds continue trading at historic price levels among falling global yields often approaching and reaching new lows, in many cases with negative yields for developed countries. Relative to other developed economies globally, US treasuries offer some of the highest yields available. During the week US Yields rose slightly with positive economic data and job reports. Oil rose during the week with the US Energy Information Agency Administration saying US crude oil production is set to peak in April or May and fall this Summer and Fall. Even so, US Crude-oil output hit a 42-year high in March. ISM Non-Manufacturing recorded a decline at the start of last week falling to 56.5 from 56.9 – in line with expectations. These levels indicate economic growth in the service sector. On Thursday, Initial Jobless claims were slightly less than anticipated at 281K but rose from the prior week by 14K.  The Treasury Department noted fewer Americans applied for unemployment benefits over the last four week period than at any time in nearly 15 years. Investors continue to watch employment changes closely to try and predict what rate decisions the Federal Reserve may make. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: March US Treasury Federal Budget Deficit Summary (-$43.4B, +$6.5B); Tuesday: March Retail Sales (+1%, +1.6%) and March PPI (.2%); Wednesday: March Industrial Production (-.3%); Thursday: Housing Starts (1040K, +143K) February Inventories (0.2% MoM), Prior Week Initial Jobless Claims (280K, -1K); Friday: March CPI (.2%, Unch) and March Leading Index (.3%, +.1%).
Posted on Monday, April 13, 2015 @ 8:07 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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 PREVIOUS POSTS
Will 2015 Be The Year The Fed Tightens?
U.S. Oil & Gas Rig Counts Plunge With Energy Prices
Comments on Interest Rates on the Cusp of Earnings Season
US Stocks Week Ended April 3, 2015
US Economy and Credit Markets Week Ended April 3, 2015
2015 & 2016 Earnings Snapshot
U.S. Retail Investors Continue To Invest In Foreign Stocks
US Stocks Week Ended March 27, 2015
US Economy and Credit Markets Week Ended March 27, 2015
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