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  Health Care Has Momentum And The Earnings Projections To Back It Up
Posted Under: Sectors

 

View from the Observation Deck  

  1. The only sector that has outperformed the S&P 500 Index in each of the past five calendar years (including this one) is Health Care, according to S&P Dow Jones Indices.
  2. From 12/31/14-7/29/15, the S&P 500 Health Care Index posted a total return of 12.25%, the highest of any sector and well above the 3.61% gain posted by the S&P 500 Index, according to Bloomberg. Past performance is no guarantee of future results.
  3. For the 12-month period ended June 2015, investors funneled a net $30.76 billion into Health mutual funds and exchange-traded funds, according to Morningstar.
  4. Venture capital (VC) firms invested $2.3 billion (126 deals) into the field of biotechnology in Q2'15, according to FierceBiotech and the MoneyTreeTM Report from PricewaterhouseCoopers LLP and the National Venture Capital Association.
  5. It was the largest quarterly dollar amount for biotechnology since record-keeping began in Q1'95. VC firms poured approximately $4 billion into the sector in the first half of 2015. The sector is on track to crush last year's VC funding record of $6 billion.
  6. As of 7/30/15, the estimated price-to-earnings (P/E) ratios on the S&P 500 Health Care Index for 2015 and 2016 were 18.63 and 16.62, respectively, according to Bloomberg. Both are well below the index's 20-year average P/E of 21.66.

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 Health Care Index is a capitalization-weighted index comprised of S&P 500 constituents operating in the health care sector. 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, July 30, 2015 @ 2:01 PM • Post Link Share: 
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  Profits Not Prophets
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 brings perspective on the importance of earning reports and company profits.
 
Posted on Tuesday, July 28, 2015 @ 2:54 PM • Post Link Share: 
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  Rising Interest Rates And Stock Performance
Posted Under: Conceptual Investing

 
View from the Observation Deck
  1. Today's blog post provides some historical perspective on how the S&P 500 Index has performed in calendar years when the yield on the benchmark 10-Year Treasury Note (T-Note) finished the year higher than where it began.
  2. From 1975-2014, there were 18 such years (see chart). The S&P 500 Index posted a positive total return in 15 of those 18 years.
  3. The yield on the 10-Year T-Note increased in excess of 100 basis points in 10 of the 18 years, with the most recent being 2013.
  4. Monitoring the yield on the 10-Year T-Note is commonplace for equity investors, in our opinion. The higher the yield trends the more competitive Treasuries become as an alternative investment opportunity to equities.
  5. Standard & Poor's (S&P) reported that, since 1953, U.S. stocks posted their best returns when the yield on the 10-year T-Note rose to around 4.0%, according to Businessweek. Its yield stood at 2.22% on 7/27/15.
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.

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Posted on Tuesday, July 28, 2015 @ 1:32 PM • Post Link Share: 
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  US Stocks Week Ended July 24, 2015
Posted Under: Weekly Market Commentary

 
Last week, the S&P 500 fell 2.19% after a series of companies considered economic bell weathers had disappointing earnings. The price of Gold also fell with equity markets. The precious metal sank 3.09% falling to lows the market hasn't seen since February of 2010.; Also joining in the rout was Copper and Oil. Both commodities may have fallen in reaction to weaker-than-expected economic data originating from China. In week three of earnings season, Caterpillar, IBM and Apple all disappointed investors. Caterpillar shares fell 8.49% last week after announcing disappointing earnings and lowering 2015 sales guidance to $49 billion from $50 billion. Shares in IBM fell 7.40% after failing to meet sales estimates while revenues fell 13% from last year. Apple disappointed investors after missing sales expectations by more than 2%. Shares in the company dropped 4.23% after the announcement. However, the biggest surprise of the week probably came from Amazon.com. The web retailer frequently doesn't report positive earnings and investors were expecting to see the company lose $.14/share this quarter. Instead, the company reported shocking positive earnings of $.19/share. Shares in the company advanced 9.61% last week. Also late Friday, Cigna agreed to be acquired by Anthem. Shareholders will receive $103.40 per share in cash and .5152 shares of Anthem valuing the company at $47.1 billion. This represents a more than 24% premium to the unaffected share price of Cigna. Looking ahead to this week, we'll be entering a busy fourth week of earnings season. Norfolk Southern, UPS, Cummins, and US Steel will all be reporting results.
Posted on Monday, July 27, 2015 @ 8:39 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended July 24, 2015
Posted Under: Weekly Market Commentary

 
Poor company earnings that dragged down the equity market, along with a slump in commodity prices, caused Treasury prices to rise over the course of the week. Treasury prices opened the week lower on Monday as investors made room for an influx of new corporate debt. However, Treasury prices had erased those losses and then some by the end of Tuesday, thanks to the selloff of commodities and Tuesday's drop in the equity markets due to technology company declines and a drop in crude oil. Treasury prices were mixed on Wednesday with May home prices and June existing home sales both exceeding expectations. Treasury prices then spiked on Thursday as investors had an appetite for safety after several poor earnings announcements in the equity market. This was despite fewer initial jobless claims than expected, which caused investors to believe the data-dependent Federal Reserve may increase interest rates at the next meeting. The week ended with Treasury prices rising modestly again on Friday as June New Home Sales were lower than expected. The slump in commodity prices over the course of the week saw oil drop 5% and gold drop 3.09%. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: June Durable Goods Orders (3.1%); Tuesday: July Consumer Confidence Index (100.0); Wednesday: July 24 MBA Mortgage Applications, June Pending Home Sales (1.0% MoM), July 29 FOMC Rate Decision (0.25% upper bound, 0.00% lower bound); Thursday: 2Q A GDP Annualized (2.6% QoQ), 2Q A Personal Consumption (2.7% QoQ), 2Q A GDP Price Index (1.5% QoQ), July 25 Initial Jobless Claims (272,000); Friday: July Chicago Purchasing Manager (50.7), July U. of Michigan Sentiment (94.0).
Posted on Monday, July 27, 2015 @ 8:37 AM • Post Link Share: 
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  The Stock Market Doesn’t Go Up In A Straight Line…Nor Do Earnings
Posted Under: Conceptual Investing

 

View from the Observation Deck  

  1. It's earnings reporting season. Today's blog post uses the S&P 500 Information Technology Index to illustrate how tricky investing can be using only three months of corporate earnings as a measuring stick.
  2. From 12/31/10-12/31/14, the cumulative price-only return (dividends not included) on the S&P 500 Information Technology Index was 71.04%, or an average return of 14.35% per year, according to Bloomberg.
  3. There are 16 green bars in the chart representing the index's percent change in sequential quarterly earnings. They run from Q1'11 through Q4'14. Eight of them were positive and eight were negative.
  4. Ironically, while half of the quarters were negative on a percent-change basis, all 16 quarters were positive when measured in dollar terms.
  5. Those earnings results were as follows: $6.92 (Q1'11); $7.97 (Q2'11); $6.85 (Q3'11); $8.98 (Q4'11); $8.18 (Q1'12); $8.17 (Q2'12); $6.94 (Q3'12); $8.75 (Q4'12); $9.33 (Q1'13); $7.81 (Q2'13); $8.01 (Q3'13); $9.68 (Q4'13); $8.28 (Q1'14); $8.55 (Q2'14); $8.43 (Q3'14); and $11.34 (Q4'14), according to Bloomberg.
  6. Here were Bloomberg's quarterly earnings estimates, as of 7/22/15, for 2015 and 2016: $9.03 (Q1'15); $8.85 (Q2'15); $9.89 (Q3'15); $12.66 (Q4'15); $10.83 (Q1'16); $10.95 (Q2'16); $11.15 (Q3'16); and $14.04 (Q4'16).
  7. We believe that corporate earnings determine the direction of stock prices over time.

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 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector.


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Posted on Thursday, July 23, 2015 @ 12:53 PM • Post Link Share: 
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  The Biotechnology Sector Is Clearly Outperforming "Big Pharma"
Posted Under: Sectors

 

View from the Observation Deck  

  1. From 1995-2014, biotechnology stocks outperformed their pharmaceutical counterparts in 13 of the 20 calendar years (see chart).
  2. Over that 20-year period, the NYSE Arca Biotechnology Index posted an average annual return of 20.55%, compared to 12.00% for the S&P 500 Pharmaceuticals Index, according to Bloomberg.
  3. When you break down the 20-year period into two decades, it shows two things: the outperformance of biotechnology stocks has been consistent and its average annual total returns were fairly consistent. 
  4. From 1995-2004, the NYSE Arca Biotechnology Index posted an average annual return of 20.80%, compared to 14.24% for the S&P 500 Pharmaceuticals Index, according to Bloomberg.
  5. From 2005-2014, the NYSE Arca Biotechnology Index posted an average annual return of 20.29%, compared to 9.81% for the S&P 500 Pharmaceuticals Index, according to Bloomberg.
  6. Year-to-date through 7/20, the NYSE Arca Biotechnology Index posted a total return of 28.95%, compared to 11.11% for the S&P 500 Pharmaceuticals Index, 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 NYSE Arca Biotechnology Index is an equal-dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry. The S&P 500 Pharmaceuticals Index is a capitalization-weighted index that tracks the performance of the pharmaceutical companies in the S&P 500 Index.

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Posted on Tuesday, July 21, 2015 @ 1:28 PM • Post Link Share: 
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  Perspective on July Earnings
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 brings perspective on this month's earnings reporting.
 
Posted on Tuesday, July 21, 2015 @ 11:48 AM • Post Link Share: 
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  US Stocks Week Ended July 17, 2015
Posted Under: Weekly Market Commentary

 
The S&P 500 had a positive 2.4% return this week, the best weekly return for the index since March, on strong domestic corporate earnings and headlines that Greece struck a short term, Band-Aid deal with its creditors. Anacor Pharmaceuticals Inc. was up over 72% for the week, as the now $6b market cap company announced their experimental dermatitis drugs received positive phase 3 study results. The drugs are now pending FDA approval, which is expected in the first half of 2016. Earnings season continued this week as several large companies announced significant improvement in their operations. However, it was not all positive as several companies cut full-year guidance. Citigroup Inc. rallied nearly 8% on the week as they announced earnings that surprised analysts, bank profitability measures were higher year over year as the bank continues to see improvement from their poorly performing assets. Wednesday, Netflix Inc. shares climbed over 18% as subscriber growth of 3.3m topped estimates, bringing total subscribers to 65.6m worldwide for 2Q15. Sherwin-Williams Co. announced earnings slightly lower than expectations, but cut forward guidance for the year giving the paint company a -7% return on Thursday. Garmin LTD preannounced earnings and cut full-year earnings outlook which sent the stock down over 7% on Thursday, it was the company's sharpest fall since September 2013. The S&P 1500 Tobacco Sub Industry index was up nearly 4% this week headlined by an earnings announcement from Philip Morris International Inc., which was above expectations boosting the company share price over 4% for the week. Google Inc. saw its shares shoot up over 16% on Friday, as the search giant's new CFO, Ruth Porat, unveiled a 5 point plan for more disciplined spending with a focus on growing core earnings. Major earnings announcements continue next week, as mega cap companies (defined as $100b+ market cap) Apple Inc., Microsoft Corp., Amazon.com Inc., Verizon Communications Inc., AT&T Inc., Coca-Cola Co., Visa Inc., International Business Machines Corp., Comcast Corp., AbbVie Inc., Celgene Corp., QUALLCOMM Inc., Valeant Pharmaceuticals International Inc., and Boeing Co. are all expected to report.
Posted on Monday, July 20, 2015 @ 8:56 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended July 17, 2015
Posted Under: Weekly Market Commentary

 
Treasury bonds were up slightly on the week as yields fell amid mixed economic data and continued low inflation. Late last week the German parliament voted to give European officials the go ahead to negotiate a third bailout for Greece, which will allow Greece to receive 7.16B Euros on Monday, after Greece voted to accept austerity measures which were a prerequisite for the bailout negotiations. Crude oil prices were down last week as the specter of Iranian oil coming onto market weighs on crude oil prices as a result of a potential nuclear deal between the U.S. and Iran. Domestically, U.S. crude stockpiles continue to be high and domestic production is still strong despite a steep decline in the number of rigs in operation. Tuesday kicked-off a week with many major economic reports when retail sales were reported declining 0.3% in June, coming in below the 0.3% gain the consensus expected. This report disappointed Wall Street as stronger employment, improving consumer balance sheets and cheap energy have many analysts anticipating retail spending expansion. Wednesday reports included the Producer Price Index rising .4% and Industrial Production increasing .3% in June; both of which were above analyst expectations. The week wound down on Friday with the Consumer Price Index showing a June increase of .3% on the back of increased energy prices. Core prices are up 1.8% vs. the prior year. While retail sales are up through the year, they are only up marginally, and they are not providing a definitive sign of economic expansion as hoped. Major economic reports (and related consensus forecasts) for the upcoming week include: Wednesday: Prior Week MBA Mortgage Applications, June Existing Home Sales; Thursday: Prior Week Initial Jobless Claims and the June Leading Index (+.1%); Friday: June new home sales (-.9%).
Posted on Monday, July 20, 2015 @ 8:50 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
An Update On The High Yield Corporate Bond Market
Growth-Oriented Stocks in the S&P 500 Outperforming Dividend-Payers (2012-Present)
Greece, China, Alcoa and the Global Economy
US Stocks Week Ended July 10, 2015
US Economy and Credit Markets Week Ended July 10, 2015
It’s Not A Surprise That Utilities Are Down In 2015
Anticipating Continued Strength in Earnings
2015 & 2016 Earnings Snapshot
US Stocks Week Ended July 2, 2015
US Economy and Credit Markets Week Ended July 2, 2015
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