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  A Snapshot Of Health Care Stocks
Posted Under: Sectors

 

View from the Observation Deck 

  1. Of the 30 total returns referenced in the table, only seven (23.33%) were less than double-digits. As we have often noted, from 1926 through 2016, the S&P 500 Index posted an average annual total return of 10.04%, according to Ibbotson Associates/Morningstar.
  2. All 23 of the double-digit total returns in the table exceeded the 10.04% long-term average of the broader stock market.
  3. For comparative purposes, the S&P 500 Index posted the following total returns for the same periods featured in the table: 9.98% (Y-T-D); 17.81% (1-Year); 9.80% (3-Year); 15.24% (5-Year); 7.25% (10-Year); and 8.40% (15-Year), according to Bloomberg.
  4. Ironically, with all of the attention garnered by the rising cost of health care, including the current effort to repeal the Affordable Care Act, the subsector with the best showing in the table was Managed Health Care (a type of health insurer).
  5. The Kaiser Family Foundation reported in March 2017 that 43% of adults with health insurance admit they have difficulty affording their deductible, and close to 33% say they have trouble covering their premiums and other cost sharing. Affordability remains a serious problem in need of a strategic remedy, in our opinion.
  6. Under the existing Affordable Care Act, which again has the potential of being repealed and replaced by Congress in the months ahead, the Centers for Medicare & Medicaid Services estimate that health care spending as a share of GDP is expected to grow from 17.8% in 2015 to 19.9% in 2025, according to its own release.
  7. Taking into account how big of a role health care spending plays in the U.S. economy, this is the kind of sector that investors may want to consider for their portfolio, in our opinion. As of 5/31/17, Health Care represented 13.9% of the S&P 500 Index, according to S&P Dow Jones Indices.

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, S&P 500 Biotechnology Index, S&P 500 Pharmaceuticals Index, S&P 500 Managed Health Care Index and S&P 500 Health Care Equipment Index are all capitalization-weighted indices focused on either the health care sector or its subsectors. 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 Tuesday, June 27, 2017 @ 12:47 PM • Post Link Share: 
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  Earnings are Coming!
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, June 26, 2017 @ 2:48 PM • Post Link Share: 
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  US Stocks Ended June 23, 2017
Posted Under: Weekly Market Commentary

 
Equities ended the week marginally higher as health-care and information technology firms offset losses in energy and financial companies. Shares of biotechnology and pharmaceutical corporations posted their largest weekly gain since the November elections as positive clinical trial results from a few drug companies and the unveiling of the Senate Republicans' plan to overhaul the Affordable Care Act drove shares higher. Clovis Oncology Inc. jumped 58% for the week, after the company reported positive trial results for its ovarian cancer drug. After two straight weeks of selling, technology shares recovered with Apple Inc. gaining nearly 3% for the week as investors picked up shares at a discount to recent prices. Falling oil prices and inflation expectations sent energy and financial shares lower for the week. In economic news, both new and existing home sales beat consensus expectations, despite higher prices from inventory constraints. In other stock news, Bed Bath & Beyond Inc. was the latest brick-and-mortar retailer to announce disappointing results on declining store traffic and fierce competition from Amazon.com Inc. and Wal-Mart Stores Inc. Shares of Chipotle Mexican Grill Inc. fell after the fast-casual burrito chain announced increased marketing and cyber security costs, which are likely to hurt margins. For the week ahead, key economic data points will be durable goods orders, personal income data, and the final reading of first quarter GDP.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person.  By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
Posted on Monday, June 26, 2017 @ 8:42 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 23, 2017
Posted Under: Weekly Market Commentary

 
The yield curve has flattened over the past four week period as short-term rates have risen along with the Federal Reserve's current tightening cycle but long-term rates have sagged as the market seemingly lacks conviction that economic expansion will support higher inflation and growth rates. Last week's existing home sales report trundled higher 1.1% and exceeded consensus expectations. Single-family homes drove the beat and median home sales prices were up as well. The supply continues to be constrained at just 4.2 months of inventory at the current sales pace, which, coupled with rising prices could represent difficulties towards further sales pace expansion. There was also a New Home Sales report released Friday for the previous month which easily exceeded consensus expectations as well. The strength in new and existing home sales is aided by the current low unemployment rate and any potential wage gains resulting from tighter labor markets would potentially aid continued sales price expansion. Major economic reports (related consensus forecasts; prior data) for the upcoming week include: Tuesday: June Consumer Confidence (116, -1.9); Wednesday: June 23 MBA Mortgage Applications; Thursday: Q1 QoQ GDP (1.2%, unch.), Q1 Personal Consumption (.6%, unch.), Q1 GDP Price Index (2.2%, unch.), Q1 Core PCE (2.1%, unch) and June 24 Initial Jobless Claims (240K, -1K); Friday:  May Personal Income (.1%, -.3%), June Chicago Purchasing Manager (58, -1.4) and June University of Michigan Sentiment (94.5, unch.).

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person.  By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code.  First Trust has no knowledge of and has not been provided any information regarding any investor.  Financial advisors must determine whether particular investments are appropriate for their clients.  First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
Posted on Monday, June 26, 2017 @ 8:39 AM • Post Link Share: 
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  S&P 500 Index Companies Continue To Reward Shareholders
Posted Under: Broader Stock Market

 
View from the Observation Deck
  1. Today's blog post shows the surge in the amount of capital that S&P 500 Index companies have committed to stock dividends and stock buybacks since the quarter (Q1'09) in which the index bottomed in the last bear market.
  2. As indicated in the chart, using first quarter data points, the S&P 500 Index increased its combined outlays (dividends + buybacks) from $83 billion in Q1'09 to $234 billion in Q1'17 (preliminary), or an increase of 181.93%.
  3. With respect to the nine quarters referenced in the chart, 59.14% of the capital spent went to stock buybacks, while the other 40.86% was spent on dividends.
  4. Combined distributions have been above the $200 billion mark for 15 consecutive quarters (not in chart), according to S&P Dow Jones Indices. The all-time high for this combined distribution was $258 billion, set in Q1'16.
  5. As of Q1'17, preliminary data puts cash and equivalents held by the companies in the S&P Industrials (Old), defined as the S&P 500 minus Financials, Utilities and Transportation companies, at a record $1.496  trillion, according to S&P Dow Jones Indices.
  6. The S&P 500 Index closed 6/21/17 at 2,435.61, 0.73% below its all-time high of 2,453.46 established on 6/19/17, according to Bloomberg.
  7. Bloomberg's 2017 and 2018 earnings growth rate estimates for the S&P 500 Index were 15.37% and 12.04%, respectively, as of 6/21/17.
  8. Investors should be encouraged by the fact that companies are not only distributing hundreds of billions of dollars to shareholders via dividends and buybacks, but appear to have the wherewithal to keep this trend going, 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.


To Download a PDF of this post, please click here.
Posted on Thursday, June 22, 2017 @ 1:49 PM • Post Link Share: 
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  Retail Investors Have Shunned Domestic Equity Mutual Funds Since 2007
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post on equity mutual fund net cash flows is a follow-up to the one we did on bond mutual fund net cash flows on 6/15/17 (click here to view). 
  2. From 2007 through April 2017, investors liquidated a net $1.11 trillion from Domestic Equity funds, while pouring a net $481.02 billion into World Equity funds, according to the ICI.
  3. Year-to-date through April 2017, investors liquidated a net $47.80 billion from Domestic Equity funds, while funneling a net $13.09 billion into World Equity funds, according to the ICI.
  4. As indicated in the chart, Domestic Equity funds reported net cash outflows in every year except 2013, when they took in a net $18.10 billion. World Equity funds, on the other hand, only experienced net outflows twice (2008 & 2016).
  5. From 12/31/06 through 4/30/17, the S&P 500 Index posted a cumulative total return of 109.72%, compared to 18.86% for the MSCI Daily Total Return Net World ex U.S. (USD) and 36.66% for the MSCI Emerging Net Total Return USD, according to Bloomberg. The disparity in these returns implies that U.S. stocks were likely driven higher by institutional investors, not retail investors, in our opinion.
  6. Over the past decade, one source of institutional demand has been stock buybacks. From 2007-2016 (2016 data preliminary), the companies in the S&P 500 Index spent $4.31 trillion on buybacks, according to S&P Dow Jones Indices.
  7. While it is possible that some retail investors have shifted capital from Domestic Equity funds to exchange-traded funds (ETFs) of a similar type, World Equity fund investors can do the same. As of April 2017, there were 800 Domestic Equity ETFs, compared to 629 Global/International Equity ETFs, according to the ICI.

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. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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

Posted on Tuesday, June 20, 2017 @ 12:29 PM • Post Link Share: 
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  US Stocks Ended June 16, 2017

 
Equity markets were mixed for the week as investors digested a well telegraphed rate hike by the Federal Reserve on Wednesday. Among U.S. indices, the Dow Jones Industrial Average Index remained positive for the week, while smaller capitalization indexes lost ground. The NASDAQ 100 Index continued lower for the second consecutive week as investors rotated to other out of favor sectors and a number of cautions analyst reports cast doubt technology stocks could maintain their momentum. In economic news, retail sales declined by 0.3%, the largest decline since January 2016. Consumer prices fell 0.1% in May, leaving many analysts skeptical the Federal Reserve will move aggressively to increase rates. In stock news, Amazon.com Inc. agreed to buy Whole Foods Market Inc. in an all cash deal for $13.7 billion. Other grocery stores and big-box retailers with food sales fell on the news of increased competition in an already ultra-competitive market. Before Friday's sell-off, Kroger Co., the largest traditional grocer in the U.S., plunged earlier in the week after lowering guidance due to lower prices, increased wages, and food deflation. Shares of General Electric Co. jumped over 4% for the week after long-time CEO Jeff Immelt announced he will be stepping down as CEO. Looking ahead to next week, Fedex Corp and technology names Adobe Systems Inc. and Oracle Corp. are set to report earnings. In addition to earnings announcements, data on new and existing homes sales will be key economic data points.


The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
Posted on Monday, June 19, 2017 @ 8:27 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 16, 2017
Posted Under: Weekly Market Commentary

 
Treasuries rose during the week after it was announced on Wednesday that the Consumer Price Index (CPI) fell 0.1% in May. For the trailing twelve months, consumer prices rose 1.9%, the third straight month of declining annual gains. Excluding food and energy, prices were up 1.7%, which is the lowest level in two years. The sign of slowing inflation sent yields lower as investors expect less purchasing power to be eroded from their fixed-dollar investments. Notably, the yield on the U.S. 10-year Treasury note fell to its lowest level since November 10th in the days immediately following the U.S. presidential election. Later on Wednesday, the Federal Reserve raised the target range for the federal funds rate to 1.00% to 1.25%, which was widely expected. On Thursday, Treasuries gave back some of Wednesday's gains as investors expect the Fed to raise rates once more in 2017, despite the recent softness in inflation. At odds is the fact that inflation has slowed despite low unemployment, which could make it more difficult for the Fed to raise rates later this year. However, the Fed still expects the economy to evolve in a manner that will warrant gradual rate increases. In regards to its inflation forecast, the Fed expects inflation to remain below its 2% target in the short term, but to eventually stabilize around its target in the medium term. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Wednesday: June 16 MBA Mortgage Applications (--, 2.8%), May Existing Home Sales (5.55M, 5.57M); Thursday: June 17 Initial Jobless Claims (240K, 237K), May Leading Index (0.4%, 0.3%); Friday: May New Home Sales (591K, 569K), June Markit US Manufacturing PMI (52.9, 52.7).

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
Posted on Monday, June 19, 2017 @ 8:23 AM • Post Link Share: 
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  Still Waiting For The Great Rotation Out Of Bond Mutual Funds
Posted Under: Bond Market

 

View from the Observation Deck 

  1. As indicated in the chart, with the exception of 2013 and 2015, investors appear to have had a big appetite for bond mutual funds since 2007, which was just one-year prior to the punishing 2008-2009 financial crisis.
  2. From 2007 through April 2017, investors poured a net $1.31 trillion into bond funds, according to the ICI. Year-to-date through April 2017, net inflows totaled a whopping $89.33 billion, up from $36.35 billion over the same period in 2016.
  3. The ICI reported that total net assets in bond funds (not shown in chart) rose from $1.68 trillion in 2007 to $3.82 trillion in April 2017.
  4. While some investors may have been looking to take advantage of falling interest rates, others were seeking a safe haven from stocks, in our opinion.
  5. Bonds tend to perform well when interest rates decline. From 12/29/06 through 4/30/17, the yield on the benchmark 10-year Treasury note (T-Note) declined by 242 basis points, from 4.70% to 2.28%, according to Bloomberg. 
  6. We nearly experienced the start of the great rotation in 2013, when the yield on the 10-year T-Note spiked 127 basis points from 1.76% (12/31/12) to 3.03% (12/31/13). Interest rates, however, reversed course early in 2014 and trended lower  following the poor GDP showing in Q1'14. The initial report was -2.1% annualized, but it was later revised to -0.9%, according to the Bureau of Economic Analysis.
  7. In 2013, bond funds reported net outflows totaling $70.77 billion, the highest amount of net outflows from this group in the last 30 years (not shown in chart), according to data from the ICI. 
  8. Looks like the great rotation out of bond funds could be on hold until interest rates trend higher, 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, June 15, 2017 @ 1:04 PM • 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 do on an ongoing basis. Investors can compare today's snapshot to the one we did on 4/13/17 (click here).
  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 five of the six periods. Growth investing topped value investing for the 15-year, 10-year, 3-year, 1-year and year-to-date periods through 6/9/17.
  4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (10.05% vs. 11.04%); 10-yr. average annualized (7.74% vs. 10.44%); 5-yr. average annualized (18.53% vs. 16.73%); 3-yr. average annualized (5.84% vs. 8.54%); 1-yr. (16.37% vs. 16.43%) and Y-T-D (4.52% vs. 13.96%).
  5. For the 12-month period ended April 2017, estimated net inflows to Large Blend mutual funds and exchange-traded funds totaled $108.0 billion ($168.8 billion "Passive" vs. -$60.8 billion "Active"), according to Morningstar. It was the second-highest total behind the estimated net $116.9 billion taken in by Intermediate-Term Bond funds and ETFs.
  6. For comparative purposes, Large Growth mutual funds and ETFs reported estimated net outflows totaling $98.7 billion ($19.9 billion "Passive" vs. -$118.6 billion "Active"), while Large Value mutual funds and ETFs reported estimated net inflows totaling $12.7 billion ($43.3 billion "Passive" vs. -$30.6 billion "Active").

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, June 13, 2017 @ 1:14 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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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
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