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  Earnings, Evaluations and Sectors
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 takes a good look ahead.
 
Posted on Thursday, March 23, 2017 @ 2:20 PM • Post Link Share: 
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  S&P 500 Index’s Dividend Payout Topped $100 Billion In Q4’16
Posted Under: Stock Dividends

 

View from the Observation Deck 

  1. S&P 500 Index companies paid out $103.82 billion in cash dividends in Q4'16 (1st $100 billion quarter in the history of the S&P 500 Index), up 4.46% from the $99.39 billion distributed in Q4'15.
  2. It marked the ninth consecutive quarter in which cash dividend distributions exceeded $90 billion. Over the past 37 quarters through Q4'16, the average quarterly dividend payout was $72.35 billion.
  3. The low point in the chart was the $47.21 billion paid out in Q3'09, the first quarter of the current economic expansion. From Q3'09 to Q4'16, the index's quarterly dividend payout more than doubled (+119.91%).
  4. In 2016, S&P 500 Index companies paid out $397.2 billion in cash dividends, up 3.9% from the $382.3 billion distributed in 2015, according to S&P Dow Jones Indices.
  5. The steady rise in dividend distributions throughout the current economic recovery suggests that Corporate America is still on solid footing, in our opinion.
  6. As of 12/30/16, five sectors contributed 63.13% of the S&P 500 Index's dividend payout. Here was the breakdown: 15.49% (Information Technology); 12.49% (Consumer Staples); 12.15% (Financials); 12.02% (Health Care); and 10.98% (Industrials), according to S&P Dow Jones Indices.
  7. S&P 500 Industrials (Old), defined as the S&P 500 minus Financials, Utilities and Transportation companies, had cash and equivalent holdings totaling $1.48 trillion in Q4'16, just below the all-time high of $1.49 trillion in Q3'16, according to S&P Dow Jones Indices.
  8. Investors should be encouraged by the fact that companies are not only distributing billions of dollars more each quarter to shareholders via dividends, 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. 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 (currently 505) used to measure large-cap U.S. stock market performance.

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Posted on Thursday, March 23, 2017 @ 10:31 AM • Post Link Share: 
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  Investors Continue To Favor Passive Funds Over Actively Managed Funds
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. Those investors directing capital into mutual funds and exchange traded funds (ETFs) favored passive investing over active management for the 12-month period ended February 2017.
  2. Passive mutual funds and ETFs reported estimated net inflows totaling $613.6 billion, compared to estimated net outflows totaling $307.4 billion for those actively managed (see chart).
  3. The one area of the market where investors actually sought out active management was municipal bonds.
  4. Over the past 12 months, investors funneled the most money into bond funds. Estimated net flows to the Taxable Bond and Municipal Bond categories totaled $283.5 billion (see chart).
  5. Here is a link (click here) to a recent blog post showing that the bias toward passive investing has been growing for the past nine years.
  6. We intend to monitor net flows moving forward.

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 Tuesday, March 21, 2017 @ 3:02 PM • Post Link Share: 
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  US Stocks Ended March 17, 2017

 
The Dow Jones Industrial average closed at 20,914 this week. The index registered a slight gain from last week, but off the high of 21,115 that was touched on March 1st. The Federal Reserve raised its benchmark lending rate a quarter point and disseminated the expectation of two more increases in 2017. Equity markets were expecting more than two increases. This move by the Fed caused Utilities and Real Estate stocks to move higher while Financials were the only sector to turn negative on Wednesday. Financials stocks had comeback on Thursday, but ultimately fell lower on Friday along with Health Care to both close lower than last week. Despite the uncertainty in the political landscape, US companies continue to exceed profit and sales estimates as earnings season is nearing its end. In the S&P 500 about 80% of the companies have reported results that have exceeded earnings expectations. The stock market took its cue from the rallying bond markets to close out the week after stocks peaked on Wednesday following the Fed rate announcement. Most of the selling came from large cap names as the smaller stocks in the Russell 2000 were up almost 2% for the week. Mid Cap names represented by the S&P 400 also turned in a good week with a 1.23% gain and the large caps in the S&P 500 were up 0.28%. Wynn Resorts Ltd, a casino and hotel company, had the best return in the S&P 500 with 10.69% gain. The company jumped on rumors of a takeover by Las Vegas Sands Corp. NVIDIA Corp and Oracle Corp were the next best performers in the index. NVIDIA announced it was working with Paccar, maker of Kenworth and Peterbilt trucks, on artificial intelligence for self-driving trucks. Oracle moved higher after reporting a 62% growth in sales of cloud-based services that compete with Amazon.com and Salesforce.com.
Posted on Monday, March 20, 2017 @ 8:35 AM • Post Link Share: 
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  US Economy and Credit Markets Ended March 17, 2017
Posted Under: Weekly Market Commentary

 
Treasury prices rose moderately over the course of the week as the Federal Reserve did not signal a more aggressive approach to increasing interest rates at Wednesday's meeting. It was widely expected that the Fed would increase rates on Wednesday. However, Treasuries began the week down slightly as many investors thought the Fed might signal a possible 4th rate hike in 2017. The Fed announced the widely anticipated increase in the upper bound of the Fed Funds rate from 0.75 to 1.00 on Wednesday, but said that they are sticking to their outlook of only three total rate hikes in 2017. This caused Treasury prices to rally significantly. Investors will now look to the data before the May and June meetings, such as labor data or more clarity on the Trump administration's policies for taxes and infrastructure. Also leading to an appetite for the safety of Treasuries was a large increase in Saudi Arabia oil production, back up to over 10 million barrels a day, in a report on Tuesday. However, the Dutch elections showed weaker than expected support for the populist candidate, which gave investors more support for risky assets. Gold also jumped over 2% on increased rates, uncertainty and a higher reading in the Producer and Consumer Price Indexes than expected. Major economic reports (and related consensus forecasts) for the upcoming week include: Wednesday: March 17 MBA Mortgage Applications, February Existing Home Sales (5.56M, -2.4% MoM); Thursday: March 18 Initial Jobless Claims (240,000), February New Home Sales (567,000, 2.1% MoM); Friday: February Prelim. Durable Goods Orders (1.2%), March Prelim. Markit US Manufacturing PMI (54.7).
Posted on Monday, March 20, 2017 @ 8:30 AM • Post Link Share: 
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  Health Care Stock Returns Outpacing Rise In Health Care Spending
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. Today's blog post is an attempt to show that investors have a potential long-term remedy for mitigating rising health care costs – owning health care stocks.
  2. As indicated in the chart, from 2005 through 2015 (11 years), the total cost of health care consumption in the U.S. rose by 58.9%, to $3.21 trillion. 
  3. Health expenditures are projected to rise another 30.8%, from $3.21 trillion in 2015 to an estimated $4.20 trillion in 2020 (see chart).
  4. In 2015, out-of-pocket spending grew by 2.6% to $338.1 billion, according to the Centers for Medicare & Medicaid Services. Out-of-pocket represented 10.5% of the $3.21 trillion in total spending. 
  5. From 2005-2015, the S&P 500 Health Care Index posted a cumulative total return of 193.7%, or an average annual total return of 10.3%, according to Bloomberg.  
  6. Health Care was the second-best performing sector for the period behind Consumer Staples, up 195.3%, as measured by the S&P 500 Consumer Staples Index, according to Bloomberg. For comparative purposes, the S&P 500 Index was up 112.3%. 
  7. A survey conducted by NPR, The Robert Wood Johnson Foundation and Harvard's T.H. Chan School of Public Health in 2015 revealed that 26% of those polled claimed that health care expenses sustained within the most recent two-year period  caused a serious financial problem.

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 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. 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 Consumer Staples Index is a capitalization-weighted index comprised of S&P 500 constituents operating in the consumer staples sector.

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Posted on Thursday, March 16, 2017 @ 2:34 PM • Post Link Share: 
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  The Fed Sees Market Strength
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 comments on the Fed rate hike.
 
Posted on Wednesday, March 15, 2017 @ 3:03 PM • Post Link Share: 
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  S&P 500 Index Top-Line Growth Estimates
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post provides investors with a three-year look into the expected revenue growth rates of the companies that comprise the S&P 500 Index.
  2. On 3/10/17, the S&P 500 Index stood at 2,372.60, or 0.97% below its all-time high of 2,395.96, set on 3/1/17, according to Bloomberg. The current bull market in stocks entered its 9th year after the close of trading on 3/9/17.
  3. For the market to trend higher, we believe that corporate earnings will need to grow, and perhaps the best catalyst for growing earnings is to increase revenues. 
  4. As indicated in the chart, as of 3/10/17, the estimated revenue growth rate for the S&P 500 Index for 2016 was 1.8%. When you exclude Energy, the rate bumps to 2.9% (not shown in chart), according to Bloomberg.
  5. Energy, Materials, Industrials and Utilities, which had negative revenue growth rate estimates for 2016, are expected to rebound in 2017. Energy revenues are expected to surge 25.5% year-over-year (y-o-y) in 2017.
  6. Estimates for the S&P 500 Index and eight of the 11 major sectors that comprise the index reflect stronger potential y-o-y revenue growth for 2017. Four sectors have 2017 estimates in excess of 5.0%.
  7. With respect to 2018, seven of the 11 major sectors that comprise the index reflect stronger potential y-o-y revenue growth. Six sectors have 2018 estimates in excess of 5.0%.
  8. The forecast for revenue growth is relatively optimistic, 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, while the 11 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 Tuesday, March 14, 2017 @ 12:24 PM • Post Link Share: 
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  US Stocks Ended March 10, 2017

 
Last week the S&P 500 Index had its worst week in 2017 returning -0.40%. Though equities were down, the index has had a great start to the year being up 6.42% YTD.; The real estate and energy sectors led the decline with most sectors in negative territory. On Wednesday crude oil dropped $2.86 per barrel or -5.38%, the largest one day percentage decline since February 2, 2016. This sharp drop came on increased inventories as the U.S. Energy Department stated that oil reserves increased by 8 million barrels the previous week. Crude declined 9.08% for the week. Economic news last week showed factory and durable goods orders were up more than expected. The ADP employment data showed an increase of 298k private nonfarm payrolls last month. The U.S. Bureau of Labor Statistics also reported positive nonfarm payrolls for the month. The US initial jobless claims of 243K were higher than the consensus estimate of 238K and the previous week's 223K. As the jobs market continues to strengthen, investors await next week's Federal Open Market Committee meeting with the high expectation of an interest rate increase. Nine of the eleven economic sectors had negative performance for the week with the information technology sector showing the best performance returning 0.55%.H&R Block Inc., a provider of financial products and tax services, had the best performance in the S&P 500 Index for the week with a 14.16% return. The consumer discretionary stock jumped 14.88% on Wednesday after providing a positive update on the 2017 tax season by claiming an increase in market share. Incyte Corp., a biopharmaceutical company that focuses on drugs that inhibit enzymes related to cancer, diabetes and other diseases, jumped 8.13% Friday on reports that Gilead Science Inc. was close to an agreement to acquire them. Signet Jewelers Ltd., a jewelry and watch retail company climbed 8.73% on Thursday after reporting better than expected earnings. This week will bring earnings news from Oracle Corp., Adobe Systems Inc., Dollar General Corp. and others.
Posted on Monday, March 13, 2017 @ 8:09 AM • Post Link Share: 
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  US Economy and Credit Markets Ended March 10, 2017
Posted Under: Weekly Market Commentary Video

 
On Wednesday, the much ballyhooed March Federal Reserve meeting will occur and the implied probability of a rate increase has rocketed to 100% based upon the future markets. Yields have risen as the perceived likelihood of a more aggressive Federal Reserve is being priced in. Correspondingly, gold sold off last week as did oil; but for very different reasons. Oil tumbled as a result of domestic inventory builds which have markets concerned that any OPEC cuts will be offset by an increase in shale production. US crude stockpiles have increased for four straight weeks and the price of oil has now returned to where it was when OPEC initially agreed to an output cut. Tuesday of last week the US trade deficit matched expectations with imports outpacing exports. On Wednesday, ADP showed an increase in February payrolls and then on Friday the nonfarm payroll numbers were reported.  For the previous month the report showed an increase of 235,000 jobs as well as a small increase to earnings. The strength of this report largely put to bed any remaining concerns that the Federal Reserve may not cut rates next week. In fact, on the strength of February job creation, the US unemployment rate is now 4.7% and below the Fed's long-term target of 4.8%. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: February PPI Demand (.1%, -.5%); Wednesday: prior week MBA Mortgage Applications, March Empire Manufacturing (15, -3.7), February Retail Sales (.1%, -.3%) and Federal Reserve Rate Decision (upper bound 1%, lower bound .75%); Thursday: February Housing Starts and prior week Initial Jobless Claims (241K, -2K); Friday: February Industrial Production (.2%, +.5%) and the February Leading Index (.4%, -.2%).
Posted on Monday, March 13, 2017 @ 8:05 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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