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Bob Carey
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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 $82.51 billion in Q1'09 to $257.65 in Q1'16 (preliminary), or an increase of 212.27%.
  3. For the 12-month period ended Q1'16 (not in chart), S&P 500 Index companies spent a combined $974.58 billion – a record amount, according to S&P Dow Jones Indices.
  4. As of Q1'16, 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 $1.34 trillion, according to S&P Dow Jones Indices.
  5. The S&P 500 Index closed 6/22/16 at 2,085.45, which was 2.13% below its all-time high of 2,130.82 established on 5/21/15, according to Bloomberg.
  6. Bloomberg's 2016 and 2017 earnings growth rate estimates for the S&P 500 Index were 8.82% and 13.42%, respectively, as of 6/23/16.
  7. The S&P 500 Index's estimated price-to-earnings (P/E) ratios for 2016 and 2017 were 17.90 and 15.79, respectively, as of 6/23/16, according to Bloomberg. It's average P/E over the past 50 years (thru 6/23/16) was 16.57.

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 23, 2016 @ 1:04 PM • Post Link Share: 
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  How Some Major Bond Indices Have Fared Over The Past Five Years
Posted Under: Bond Market

 

View from the Observation Deck 

  1. Today's blog post is a simple exercise we can do to quickly assess how the various major bond categories are performing. 
  2. We are using a five-year time frame because it has historically been characterized as a long-term holding period for securities.
  3. Bonds tend to perform well when interest rates decline. From 6/17/11 through 6/17/16, the yield on the benchmark 10-Year Treasury Note declined by 134 basis points to 1.61%, according to Bloomberg.  
  4. The yield to maturity column shows what the major indices were yielding at the start (6/17/11) of the five-year period featured in the chart.   
  5. When investing in a bond portfolio structure, such as an open-end mutual fund or exchange-trade fund, that does not have a stated maturity date like an individual bond, one of the goals should be to earn a total return that is at least commensurate with the portfolio's yield.
  6. As indicated in the chart, five of the six major bond indices posted annualized total returns that exceeded their respective yields on 6/17/11. The only one that lagged invests in U.S. high yield corporate bonds. High yield corporate bonds issued by energy and mining companies, in particular, have succumbed to some selling pressure following the steep decline in crude oil and commodity prices over the past two years.
  7. Investors funneled an estimated net $28.09 billion into Taxable Bond mutual funds and exchange-traded funds for the 12-month period ended May 2016, according to Morningstar. That figure was $39.67 billion for the Municipal Bond category.

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 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 7-10 Year Global Government (Ex U.S.) Index includes all securities with a remaining term to final maturity greater than or equal to 7 years and less than 10 years, and excludes those denominated in U.S. dollars. 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 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 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.

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Posted on Tuesday, June 21, 2016 @ 1:54 PM • Post Link Share: 
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  Stocks Week Ended June 17, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index posted a -1.12% return. The index has returned 2.42% YTD, but has declined in the month of June returning -1.11%. The equity markets showed weakness on Monday as they started the negative trending week with a -0.78% return on the S&P 500 Index. Caution was the mood as investors waited for retail sales data, industrial production data, housing data and the Federal Open Market Committee (FOMC) meeting later in the week. May retail sales data reported higher than expected on Tuesday and small business optimism also reported slightly higher than expected. With investors' concerns over foreign markets and the FOMC meeting the following day, the positive data did little for the index as it declined 17 basis points. Wednesday brought mixed economic data with better than expected manufacturing, but slightly worse than expected industrial production. The FOMC kept rates unchanged and the S&P 500 Index declined 18 basis points. The S&P 500 Index had its only positive day of the week on Thursday returning 0.33% with all sectors showing positive performance excluding energy. US initial jobless claims of 277K were higher than the consensus estimate of 270K and higher than the previous week's 264K. Stocks were back on the decline on Friday as the S&P 500 Index returned -0.33%. Crude oil closed the week at $47.98 a barrel, declining -2.22% from the previous week's close. Eight of the ten economic sectors had negative performance for the week. The telecommunication services sector was the best performing sector with a 1.42% return. The utilities and energy sectors followed with 0.72% and -0.02% returns, respectively. The health care sector's -1.98% return was the worst performance of all the sectors and was followed by information technology and financials which returned -1.93% and -1.89%, respectively. Symantec Corp., an information technology company that offers security and storage solutions through software and services, turned in the best performance in the S&P 500 Index with a 15.43% gain. On Monday, the company announced their agreement to acquire Blue Coat System Inc. from Bain Capital for $4.65 billion. The next two best performers were Freeport-McMoRan Inc. and Host Hotels & Resorts Inc. with returns of 7.53% and 6.75%, respectively.
Posted on Monday, June 20, 2016 @ 7:57 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 17, 2016
Posted Under: Weekly Market Commentary

 
Treasury prices rose slightly over the course of the week on Brexit fears and statements from the Federal Reserve. Investors had all but ruled out a rate hike announcement from this week's Fed meeting, and this was confirmed on Wednesday as the focus shifted to the Fed's "dot plot," which is a chart that shows the outlook for interest rates from each of the Federal Reserve's policy makers. The Fed took a more cautious, dovish stance on Wednesday as the "dot plot" implied a lower expectation for interest rate increases this year. The Fed said that economic growth "appeared to pick up" despite saying that job gains have diminished while market measures for inflation have declined. Janet Yellen also said that the Brexit vote was one of the factors leading to the decision not to increase rates. Uncertainty grew regarding next week's vote in the United Kingdom of whether or not Great Britain should leave the European Union. The polling is very close and fears that Britain will in fact vote to leave has caused investors to seek the safety of U.S. Treasuries. A 2% drop in oil prices also contributed to the demand for Treasuries. Treasuries did experience a slight pullback near the end of the week, causing Treasury prices to only have modest gains. Major economic reports (and related consensus forecasts) for the upcoming week include: Wednesday: Jun 17 MBA Mortgage Applications, May Existing Home Sales (5.55M); Thursday: June 18 Initial Jobless Claims (270,000), June Prelim. Markit US Manufacturing PMI (50.7), May New Home Sales (560,000), May Leading Index (0.2%); Friday: May Prelim. Durable Goods Orders (-0.4%), June Final U. of Michigan Sentiment (94.2).
Posted on Monday, June 20, 2016 @ 7:54 AM • Post Link Share: 
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  The Corporate Cash Stash Continues To Inch Higher
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. S&P 500 Index companies have been rewarding shareholders in recent years by increasing stock dividend payouts as well as repurchasing company stock in an effort to boost earnings-per-share growth.
  2. For example, in Q1'16, preliminary data indicates that S&P 500 companies spent $160 billion on stock buybacks, the second highest amount on record behind the $172 billion spent in Q3'07, according to S&P Dow Jones Indices.
  3. Keep in mind that S&P 500 companies also utilize capital for such things as mergers and acquisitions, investment in plants and factories, and to purchase software and equipment. 
  4. In Q1'16, preliminary data puts cash and equivalents at a record $1.34 trillion (see chart).
  5. Despite the sluggish pace of economic growth that has plagued the current recovery since it began in the second half of 2009, cash and equivalents increased by approximately $350 billion from Q2'12-Q1'16. 
  6. Our take on this is that despite all of the negative news bombarding investors on an ongoing basis, there are silver linings if you look for them. And we do.

This chart is for illustrative purposes only and not indicative of any actual investment. 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.


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Posted on Thursday, June 16, 2016 @ 11:48 AM • Post Link Share: 
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  The Outlook For 2016 Earnings Indicates Recovery Mode For Q2, Q3 & Q4
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's chart is intended to give investors some visual perspective on where equity analysts think earnings are headed following a disappointing showing by the S&P 500 Index in Q1'16.
  2. As indicated in the chart, the consensus estimates from equity analysts tracked by Bloomberg reflect an upward trajectory for earnings over the next three quarters. Earnings estimates are subject to change. 
  3. We believe that corporate earnings drive the direction of stock prices over time, especially when the major indices are trading at or near record highs.
  4. The S&P 500 Index closed 6/13/16 at 2,079.06, which was 2.43% below its all-time high of 2,130.82 established on 5/21/15, according to Bloomberg.
  5. The estimated price-to-earnings ratio on the S&P 500 Index for 2016 was 17.56 as of 6/14/16, slightly below its three-year average of 17.85, according to Bloomberg.
  6. For the three-year period ended 6/13/16, the S&P 500 Index posted a cumulative total return of 35.30% (10.59% annualized), according to Bloomberg.
  7. From 1926 through 2015, the S&P 500 Index posted an average annual total return of 10.02%, according to Morningstar/Ibbotson Associates.
  8. Despite the positive data, Domestic Equity funds experienced net outflows totaling $46.48 billion in the first four months of 2016, according to the Investment Company Institute.

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.


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

Posted on Tuesday, June 14, 2016 @ 2:05 PM • Post Link Share: 
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  Stocks Week Ended June 10, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index rallied through mid-week, but cut those gains Thursday and Friday. The index posted a -0.44% return for the week and is up 0.02%% through the first part of June. The index has gained 3.59% since the beginning of the year. Monday opened with stocks higher as investors search for quality assets, against an uncertain global economic backdrop. Commodities entered a bull market as crude oil closed at a 10-month high. The rally in stock continued through Wednesday with the S&P 500 closing near an all-time high. Bond yields continued to decline as the ECB began purchasing corporate bonds on Wednesday. The global credit rally indicates investors are not concerned about a weakening US labor market. Global stocks rose to near record levels of 2016 as commodities continued to push into bull market territory. Uncertainty on multiple fronts caused increased volatility through the end of last week. Stocks and crude oil declined while the dollar rallied as investors brace for slower global growth and a possible exit by Britain from the European Union. The latest poll favoring a "Brexit" caused bank and energy stocks to decline though the end of the session on Friday. The CBOE Volatility Index climbed 16% to 17.03 on Friday as US Treasury yields fell to a 3-year low. Oil closed the week at $48.88 a barrel, increasing 0.53% from the previous week. Six of the ten economic sectors had positive performance for the week. The telecomm sector was the best performing sector with a 2.78 % return. The energy and consumer staples sectors followed with 1.43% and 1.05% returns, respectively. The financials sector -1.50% return was the worst performance of all the sectors and was followed by consumer discretionary and health care which returned -0.84% and -0.78%, respectively. H&R Block, a tax services provider, turned in the best performance in the S&P 500 Index with a 11.87% gain. The stock jumped over 4.3% on Thursday's earning release. The next two best performers were Transocean and Helmerich & Payne Inc. with returns of 10.37% and 10.17%, respectively.
Posted on Monday, June 13, 2016 @ 8:27 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 10, 2016
Posted Under: Weekly Market Commentary

 
US government bond yields remain at historic lows as the United States has a relative yield which is greater than many of its European counterparts and economic conditions that are stable but leave many investors anxious about the state of global, and domestic, growth. The ECB extended its debt purchase program last week to include the purchase of corporate bonds. It is purchasing 80 billion Euros a month in bonds. Last week's Tuesday Nonfarm Productivity report showed an annualized decline of .6% for the first quarter of 2016. This was revised up from the previous month's estimate for a decline of 1%. Compensation per hour was up 4.2% at an annual rate, versus 2.6% in the prior year, and productivity was up at a 1.3% annualized rate in the first quarter. On Thursday, the June 4th Labor Department data on jobless claims reported an unexpected decrease in first time jobless claims and also reported continuing claims falling to 2.1 million. While the rate at which employers add workers fell for April, jobless claims are still very low as employers have been holding onto their existing workers. Next week will be a busy week of economic reports and includes the June Federal Reserve meeting with the expectation of no change to the current interest rates. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: May Retail Sales (.3%, -1%); Wednesday: June 10th MBA Mortgage Applications, May Final PPI demand (.3%, +.1%), June Empire Manufacturing report (-4.95), May Industrial Production (-.2%, -.9%) and the FOMC Rate Decision (.25%-.5%, unch.); Thursday: June 11th Initial Jobless Claims (270k, +6K) and May CPI (.3%, -.1%); Friday: May housing starts (1150K, -22K).
Posted on Monday, June 13, 2016 @ 8:23 AM • Post Link Share: 
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  Snapshot of U.S. Equity Styles/Market Caps

 
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). Today's post updates the one we did on 4/12/16 (click here to view).
  2. At any given time, the equities markets are likely being led up or down by at least one of the three market cap classifications (large-cap, mid-cap or small-cap). 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, as measured by the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indices, 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 6/7/16, the S&P 500 Index slightly outperformed its two counterparts. The S&P 500, S&P MidCap 400 and the S&P SmallCap 600 indices posted cumulative total returns of 59.2%, 56.8% and 58.0%, respectively.
  5. Year-to-date through 6/7/16, value stocks held the edge, with the S&P MidCap 400 Value Index as the top performer. Growth stocks outperformed value stocks in each of the three respective market caps in 2015.
  6. With respect to earnings growth rate estimates, growth stocks have a significant edge in 2016, but the prospects for value stocks look a bit better in 2017 (see chart).
  7. Five of the six indices have 2016 and 2017 estimated P/E ratios below their respective three-year averages as of 6/8/16. The only one that does not is the S&P 500 Value Index.


    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 indices are capitalization-weighted indices designed to measure large-capitalization, mid-capitalization and small-capitalization U.S. stock market performance. The Growth and Value sub-indices of the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indices are designed to measure the performance of growth stocks and value stocks, respectively, within the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indices.

    To Download a PDF of this post, please click here.
Posted on Thursday, June 09, 2016 @ 11:03 AM • Post Link Share: 
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  A Snapshot Of European Equities
Posted Under: International-Global

 

View from the Observation Deck 

  1. Today's blog post is an update of one we did on 2/2/16 (click here to view).
  2. The 2016 earnings growth rate estimates (see chart) are in some cases much higher than they were back in February. This was due to 2015's earnings being revised lower.
  3. For the 12-month period ended 4/30/16, investors funneled an estimated net $6.6 billion into European stock funds and exchange-traded funds, according to Morningstar.
  4. The European Central Bank (ECB) is expanding its asset purchase program beyond government debt to include corporate bonds along with covered bonds and asset-backed securities, according to Bloomberg.
  5. The ECB has already done an effective job in helping to drive interest rates down in an effort to encourage investors to assume more risk, such as stock purchases. Bank of America Merrill Lynch reported that average yield on investment-grade company notes in euros stood at 1.002% on 6/6/16, according to Bloomberg. Historically, yields have rarely fallen below the 1.00% mark.

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 and other expenses incurred when investing. Investors cannot invest directly in an index. The MSCI Europe Index is a free-float weighted index designed to measure the equity market performance of the developed markets in Europe. The FTSE 100 Index is a capitalization-weighted index of the most highly capitalized companies traded on the London Stock Exchange. The CAC 40 Index reflects the performance of the 40 largest equities listed in France, measured by free-float market capitalization and liquidity. The DAX Index is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. The SMI Index (Swiss Market) is a capitalization-weighted index of the 20 largest (represents around 85% of Swiss equity market) and most liquid stocks of the SPI (Swiss Performance Index) universe. The IBEX 35 Index is the official index of the Spanish Continuous Market and is comprised of the 35 most liquid stocks. The OMX Stockholm 30 Index is a market-weighted price index consisting of the 30 most actively traded stocks on the Stockholm Stock Exchange. The AEX Index is a free-float adjusted market capitalization-weighted index of the leading Dutch stocks traded on the Amsterdam Exchange. The BEL 20 Index is a modified capitalization-weighted index of the 20 most capitalized and liquid Belgian stocks traded on the Brussels Stock Exchange. The OMX Helsinki Index includes all the shares listed on the Helsinki Stock Exchange.

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

Posted on Tuesday, June 07, 2016 @ 1:13 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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Let's Get Small: Focus on Small Caps
Stocks Week Ended June 3, 2016
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