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Bob Carey
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  US Stocks Week Ended March 27, 2015
Posted Under: Weekly Market Commentary

 
Equity markets moved lower this week as the S&P 500 returned -2.2%, the second worst week of 2015 for the index. The S&P 500 has now gone 28 consecutive trading sessions without back to back gains, the longest streak since 1994.  Federal Reserve Chair, Janet Yellen, toned down last week’s hawkish talk as she indicated once the Fed Funds rate is lifted, subsequent raises should be slow. Growth in Gross Domestic Product was announced on Friday at 2.2% for 4Q2014, which was in line with the Commerce Department’s previous estimates. The announcement was led by the largest gain in consumer spending in over eight years. The Nasdaq Biotechnology Index was down over 5% this week, the index’s worst return in a year. Leading the Biotech fall was Biogen Inc., down nearly 10%, Vertex Pharmaceuticals Inc. down over 8% and Celgene Corp. down over 7% for the week. The Philadelphia Stock Exchange Semiconductor Index dropped over 5% for the week, the largest weekly drop since October. The fall was the result of analyst downgrades on suppliers in the personal computer portion of the market. Kraft Foods Group Inc. announced that Warren Buffet’s Berkshire Hathaway Inc., which owns H.J. Heinz, would be acquiring the packaged food maker for cash and stock, which sent Kraft’s stock up nearly 36%. The merger would result in “The Kraft Heinz Company” which would be the third largest food and beverage company in North America. SanDisk Corp. fell nearly 26% for the week after the flash memory producer preannounced weaker than expected revenue from the enterprise market. Tenet Healthcare Corp. soared nearly 5% on Monday, as the company announced a joint venture with United Surgical Partners International to combine outpatient surgery centers as they continue to grow in popularity among patients. Altera Corp. jumped over 28% Friday on rumors that chip giant Intel Corp. was interested in acquiring the company.
Posted on Monday, March 30, 2015 @ 8:18 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended March 27, 2015
Posted Under: Weekly Market Commentary

 
Treasury prices rose during the week ending a two-week rally. On Monday, February existing home sales rose from January’s nine-month low. New home sales unexpectedly climbed to a seven-year high on Tuesday with an improving economy and labor market. On Wednesday, Treasury prices rose after the February Durable Goods Orders report was below expectations. On Thursday, jobless claims fell to the lowest level in five weeks. On Friday, the fourth quarter annualized GDP showed the U.S economy expanded by a 2.2% pace, with consumer spending seeing the largest gain in eight years. Oil prices rose, despite rising tensions in the middle east, helping high yield bonds post positive returns last week. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: February Personal Income (0.3%), February Personal Spending (0.2%) Tuesday: March Consumer Confidence Index (96.5) Wednesday: March 27 MBA Mortgage Applications, March ADP Employment Change (225k), March Markit US Manufacturing PMI (55.2), March ISM Manufacturing (52.5) Thursday: Prior Week Initial Jobless Claims (285k), February Trade Balance (-$41.0B), February Factory Orders (-0.3%) Friday: March Change in Nonfarm Payrolls (250k), March Unemployment Rate (5.5%).
Posted on Monday, March 30, 2015 @ 8:15 AM • Post Link Share: 
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  Biotechnology Continues To Attract Big Bucks From Venture Capitalists
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. From 2011-2014, of the 16 major categories tracked, the only one that raised more money from the venture capital (VC) industry than Biotechnology was Software.
  2. Biotechnology VC funding clearly outpaced funding for Medical Devices & Equipment and Health Care Services (see chart).
  3. The number of Biotechnology deals was fairly consistent over the four calendar years. The totals were as follows: 468 (2011); 478 (2012); 490 (2013) and 470 (2014).
  4. Biotechnology funding, which totaled $5.97 billion in 2014, surpassed the $4.0 billion mark in each of the four calendar years. Software VC funding ranged from $7.5 billion (2011) to $19.8 billion (2014).
  5. The strong interest in Biotechnology from VCs may be a signal that the momentum this sector has built up in recent years has legs, in our opinion. 
This chart is for illustrative purposes only and not indicative of any actual investment.

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Posted on Thursday, March 26, 2015 @ 1:49 PM • Post Link Share: 
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  S&P 500 Dividend-Paying Stocks Distributing Record Levels Of Cash To Investors
Posted Under: Equity Income

 

View from the Observation Deck  

  1. S&P 500 companies paid out a record-high $92.80 billion in stock dividends in Q4’14, up 9.2% from the $84.98 billion distributed in Q4’13. This is an indication of how healthy Corporate America was heading into 2015, in our opinion.
  2. The $92.80 billion distributed in Q4’14 was 96.6% higher than the $47.21 billion in Q3’09 (see chart). Stock dividend distributions are now well above pre-financial crisis levels.
  3. The cash and marketable securities balance of the S&P 500 (ex-Financials) stood at a record-high $1.43 trillion at the end of Q4’14, according to FactSet.
  4. Investors should be encouraged by the fact that companies are not only distributing billions of dollars more each quarter to shareholders via stock dividends, but 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. 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, March 24, 2015 @ 1:37 PM • Post Link Share: 
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  Don't Fear the Dollar
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., speaks to the issue of a strong dollar and its significance in the market. He also takes a look ahead at the coming earnings season.
Posted on Monday, March 23, 2015 @ 2:11 PM • Post Link Share: 
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  US Stocks Week Ended March 20, 2015
Posted Under: Weekly Market Commentary

 
Equity markets rallied for the week after the Federal Reserve said growth has “moderated somewhat”, leading to speculation that a rate increase would likely be pushed out to the latter half of the year. Janet Yellen, Chair of the Federal Reserve, reassured the market that the Fed will not be quick to raise rates until the labor market improves further and inflation returns to targeted levels, despite removing the word “patient” from the statement. Economic data came in mainly below expectations as a strong dollar, cold weather, and delays from West Coast ports had a negative impact on industrial production, which came in below expectations. In addition to weak manufacturing data, housing starts declined the most since February 2011 due to the harsh weather in February. In corporate news, Apple Inc. gained after it was reported they are in talks with programmers to offer a TV package to consumers later this year. Target Corp. will increase all workers pay to at least nine dollars an hour next month, matching moves by Wal-Mart Stores Inc. and TJX Cos. Homebuilders Lennar Corp. and KB Home posted strong orders for new homes as the spring sales season is off to a strong start for both firms. In merger news, Valeant Pharmaceuticals Intl. increased its price for Salix Pharmaceuticals Ltd. to $173 a share, ending Endo Intl. PLC’s bid to buy the company. LifeTime Fitness Inc., a premium gym operator, agreed to be bought out by private equity for $2.8 billion. We remain constructive on the equity markets as slightly slower growth, partially due to the West Coast strike and a cold winter, should be met with continued easy policy by the Fed. With low inflation due to the strong dollar and a 50% drop in oil prices, the Fed has plenty of leeway to keep rates low.
Posted on Monday, March 23, 2015 @ 7:59 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended March 20, 2015
Posted Under: Weekly Market Commentary

 
Bonds had a volatile week as investors continue focusing on the Federal Reserve and its language regarding possible rate hikes. Wednesday’s Federal Reserve meeting left rates unchanged; they continue to fall between 0% and .25% and while it removed the ‘patient’ language, the Fed continued to display patient behavior as the policy statement lowered forward interest rate estimates. United States Treasuries continue to have higher yields than many developed countries globally and so remain relatively attractive placing continued upward pressure on the dollar. The current global interest rate environment, global low-inflation environment and strong dollar represent headwinds which make aggressive interest rate increases by the Federal Reserve unlikely. Monday’s industrial production report showed production rising .1% in February even in the face of poor winter weather, a west coast port strike and falling oil prices. Tuesday’s report on housing starts was weak as starts fell 17% for the prior month, the largest drop in four years. Additionally, the NAHB index, measuring confidence in home builders, fell to 53 in March. Readings above 50 indicate positive conditions. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: February Existing Home Sales; Tuesday: February CPI (+.2% MoM), February New Home Sales (-2.6%); Wednesday: February Durable Goods Orders (+.2%); Thursday: Prior Week Initial Jobless Claims (290K); Friday: Annualized QoQ GDP (+2.4%) and University of Michigan March Sentiment (92).
Posted on Monday, March 23, 2015 @ 7:56 AM • Post Link Share: 
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  A Snapshot From The Longest & Best Bull Market Ever
Posted Under: Conceptual Investing

 

View from the Observation Deck  

  1. The longest U.S. bull market in stocks spanned 4,494 days from 12/4/87-3/24/00, according to Bespoke Investment Group. The S&P 500 posted a cumulative total return of 841.11%, the best gain of any bull to date.
  2. The current bull market in stocks (S&P 500) just turned six years old on 3/9/15. It ranks as the fourth longest in history at 2,191 days (through 3/9/15), according data from Bespoke Investment Group.
  3. Since most bull markets do not last this long, we thought it might be interesting to show how the 10 major sectors performed over the 1-year period following the 72-month mark of the longest and best bull market ever.
  4. As indicated in the chart, the three best performing sectors in the S&P 500 for the stated period were Information Technology, Health Care and Consumer Staples. 
  5. What is not indicated in the chart is the fact that the Federal Reserve began raising the federal funds target rate on 2/4/94. From 2/4/94-2/1/95, it raised the funds rate by three percentage points to 6.00%.
  6. We calculated the total returns during the tightening phase from 2/1/94-2/1/95. The top three performing S&P 500 sectors were Health Care (+23.09%), Information Technology (+20.19%) and Consumer Staples (+13.30%), according to Bloomberg.
  7. These three sectors were among the top performers leading up to the Fed tightening phase as well as during the tightening phase.
  8. With respect to the current bull market, for the 12-month period ended 3/9/15, the top three performing S&P 500 sectors were Health Care (+22.62%), Information Technology (+20.78%) and Consumer Staples (+18.23%), according to Bloomberg.

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 Thursday, March 19, 2015 @ 2:27 PM • Post Link Share: 
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  Two Of The Sectors At The Epicenter Of The Financial Crisis Are Still Recovering
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. The U.S. bull market in stocks turned six years old on 3/9/15. Today’s post is intended to provide an update on two of the main sectors that were at the center of the financial crisis back in 2008-2009.
  2. While the broader stock market indices have been setting multiple record highs over the past 12 months, financial and homebuilding-related stocks still stand well below their respective all-time highs.
  3. Ironically, both the S&P 500 Financials Index and the S&P Homebuilding Select Industry Index stood approximately 35.7% below their respective all-time highs, though separated by 19 months, as of 3/9/15.
  4. U.S. housing starts totaled an annualized 897,000 in February, up from the 15-year low of 478,000 (annualized) in April 2009, but still well below the 1.28 million average annualized unit pace posted over the past 15 years, according to the U.S. Census Bureau.
  5. Banks, which constitute more than 40% of the S&P 500 Financials Index, just cleared an important regulatory hurdle that could enable many of them to increase their dividend payouts as well as initiate stock buybacks.
  6. The Federal Reserve announced on March 5, 2015, that all 31 major banks that participated in the recent Dodd-Frank Acts Stress Test possessed enough capital to withstand another financial downturn, according to Forbes.
  7. Looking out through 2016, homebuilding-related stocks currently have more optimistic growth expectations than do financial stocks, but investors should expect to pay a higher multiple to get that higher rate of growth, 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 and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Financials Index is a capitalization-weighted index comprised of S&P 500 constituents representing the financial sector. The S&P Homebuilding Select Industry Index provides investors with an equity benchmark for U.S. traded Homebuilding-related securities.

To Download a PDF of this post, please click here.
Posted on Tuesday, March 17, 2015 @ 3:23 PM • Post Link Share: 
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  Interest Rates, Valuations, and Free Ice Cream
Posted Under: Weekly Market Commentary Video
Bob Carey discusses the latest developments in the market and takes a look ahead.
Posted on Monday, March 16, 2015 @ 3:39 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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