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Bob Carey
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  Looking Forward to the 4th Quarter
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 look ahead to 4th quarter earnings reports.
Posted on Monday, September 22, 2014 @ 11:07 AM • Post Link Share: 
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  US Stocks Week Ended Sept. 19, 2014
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index closed in positive territory with a 1.27% return. The index closed slightly down on Monday with a -0.07% return as U.S. manufacturing data showed output fell for the first time in seven months. The health care, utilities and energy sectors led the day as Tuesday returned 0.75% on minimal news. Stocks held on to their previous days’ gains on Wednesday as the index returned 0.13%. The FOMC made statements suggesting that their asset purchases may be coming to an end if the outlook on the labor market continues to improve. The FOMC also “reaffirmed its view that a highly accommodative stance on monetary policy remains appropriate”, by continuing to keep interest rates low for a considerable time. While economic data showed mixed results on Thursday, the Index followed the two previous days’ upward trend with a 0.50% return. This helped the S&P 500 Index hit a new all-time closing high of 2,011.36, surpassing the previous high two weeks prior of 2,007.71 on September 5. August annualized housing starts data came in at 956K, well below the expectations of 1,037K. However, positive data came from US initial jobless claims of 280K, which was a decrease from the previous week’s 315K and was lower than the consensus estimate of 305K. Friday closed just below the previous close for a -0.05% return as information technology and financial stocks weighed on the Index. All ten economic sectors had positive performance for the week. The telecommunication services sector was the best performing sector with a 3.40% return. The health care and materials sectors followed with 2.01% and 1.90% returns, respectively. The information technology sector’s 0.52% return was the worst performance of all the sectors and was followed by consumer discretionary and energy which returned 0.58% and 0.96%, respectively. Vertex Pharmaceuticals Inc., a pharmaceutical company that discovers and develops drugs for diseases with limited treatments, turned in the best performance in the S&P 500 Index with an 11.57% gain. The next two best performers were E.I. du Pont de Nemours &Co. and Darden Restaurants Inc. with returns of 9.99% and 7.59%, respectively. This week will bring earnings news from Nike Inc., Accenture PLC, Micron Technology Inc., Carnival Corp., AutoZone Inc., Paychex Inc., Bed Bath & Beyond Inc. and others.
Posted on Monday, September 22, 2014 @ 7:51 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Sept. 19, 2014
Posted Under: Weekly Market Commentary

 
U.S. Treasuries rallied Friday as Investors took advantage to buy debt at cheaper prices due to recent selloffs. The selloffs occurred over concerns regarding the Federal Reserve’s interest-rate outlook and Scotland’s referendum rejecting independence from the U.K. On Monday, the Empire State Manufacturing report beat expectations, driven by a strengthening in new orders and shipments. Industrial Production failed to meet expectations, declining for the first time in seven months as automakers scaled back. As expected, the August Price Index Final Demand remained unchanged on Tuesday. On Wednesday, the Consumer Price Index declined for the first time since April 2013 and Mortgage applications reached a three month high as home owners refinanced their homes amid rising interest rates. On Thursday, Initial Jobless Claims were below expectations and the August Housing Starts declined after reaching a seven year high. On Friday, the Conference Board’s index of leading economic indicators expects positive economic output over the next few months. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: August Existing Home Sales (5.20M, 1.0% MoM); Wednesday: August New Home Sales (430K, 4.4% MoM); Thursday: August Durable Goods Orders (-17.8%); Friday: GDP Annualized QoQ, September University of Michigan Confidence (84.9).
Posted on Monday, September 22, 2014 @ 7:47 AM • Post Link Share: 
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  S&P 500 Top-Line Growth Estimates (Updated)
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. When the stock market is setting new all-time highs, as it did on 9/5/14 (S&P 500 at 2007.71), investors are naturally going to wonder what catalysts are potentially capable of pushing equity prices higher.
  2. We believe that corporate earnings determine the direction of the stock market over time.
  3. World events, geopolitics, and corporate cost-cutting, to name just three, are also potential catalysts, in our opinion, but tend to be more short-term in scope.   
  4. We believe investors should be looking for estimated top-line revenue growth rates that are positive and accelerating. At this stage of the bull market (5½ years), many corporations have likely exhausted their cost-cutting opportunities. 
  5. The latest estimates in the chart are encouraging looking out through 2016, 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 10 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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Posted on Thursday, September 18, 2014 @ 2:33 PM • Post Link Share: 
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  A Lot Of Capital Is Still Sitting In Money Market Funds Earning Next To Nothing
Posted Under: Conceptual Investing

 

View from the Observation Deck

  1. The chart reflects the amount of capital investors have held in money market mutual funds since 10/9/02, which represented the end of the technology stock-induced bear market (3/24/00-10/9/02).
  2. From 10/9/02-9/10/14, total money market fund assets increased from $2.22 trillion to $2.59 trillion. Total assets rose despite short-term interest rates plummeting to the 0.25% level.
  3. Total assets in the period topped out at $3.92 trillion (1/14/09), just prior to the end of the financial crisis. The low was $1.87 trillion (5/4/05), about a year before the peak in the housing market.
  4. We have included some Federal Funds Target Rates to provide a proxy for where short-term interest rates stood throughout the period.
  5. As of 9/8/14, the average U.S. money market fund yielded 0.01%, according to iMoneyNet.com. It was the same average for both taxable and tax-free money market funds.       
  6. Even if the Fed decides to tighten interest rates in the first half of 2015, it will likely take a while for short-term rates to climb back to historical norms, in our opinion.
  7. We intend to monitor money market fund asset levels moving forward to see if there are any signs of a shift in investor sentiment.
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.

To Download a PDF of this post, please click here.
Posted on Tuesday, September 16, 2014 @ 2:30 PM • Post Link Share: 
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  US Stocks Week Ended Sept. 12, 2014
Posted Under: Weekly Market Commentary

 
The S&P 500 posted its first weekly decline in over a month as investors speculated the Fed could raise rates sooner-than-expected due to strong economic data. Consumers are feeling better about the economy as August retail sales gained the most in four months and consumer confidence increased to its highest level in more than a year. In addition to concerns of an accelerated rate increase by the Fed, geopolitical fears weighed on investors as President Obama vowed to “dismantle and ultimately destroy” Islamic State militants. The European Union also announced new sanctions against Russia for their continued support of separatists in Ukraine. In stock news, energy shares were especially weak after the International Energy Agency lowered their global demand forecast for oil. Exxon Mobile Corp. and Chevron Corp. both fell over 3% for the week. Apple Inc. traded higher for the week after previewing a larger iPhone, a new mobile payment application and a watch that is slated to be launched next year. The new product offerings are the largest since Tim Cook became CEO in 2011. Shares of Palo Alto Networks Inc. jumped after announcing a 59% year-over-year increase in sales as the cyber security market continues to grow at a rapid pace. Boeing Co. shares moved higher after announcing an $11 billion order from Ryanair Holdings PLC for their 737 Max family of planes. In merger news, General Mills Inc. agreed to acquire Annie’s Inc. for $820 million to gain a strong foothold in the growing natural and organic foods market. The focus next week will be on the Fed’s meeting on Wednesday. The Fed is widely expected to lower its monthly bond purchases to $15 billion from $25 billion. Investors will be keyed in on whether the Fed changes its language promising low interest rates for a “considerable time” after quantitative easing ends. Despite the fears of higher rates, equity markets remain attractive if fundamentals remain strong. Domestic equities have performed well historically when long term rates rise from a low base. If rates do rise it is most likely due to a strong economy and since rates will still be low versus a historical context it will not have the same negative headwind on the economy like if rates started at five, six or seven percent.
Posted on Monday, September 15, 2014 @ 8:28 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Sept. 12, 2014
Posted Under: Weekly Market Commentary

 
The announcement by the President that he is authorizing airstrikes in Syria and expanding efforts to fight militants in the Middle East was not enough to keep Treasury prices from dropping significantly over the course of the week on speculation that the Federal Reserve will soon begin to increase rates. Yields climbed for the last seven days ahead of next week’s Fed meeting where investors expect a shift in the language from central bank officials about the timing of rate hikes and possibly announce that the key lending rates will be increased in the middle of the next year. After the President’s speech on Wednesday night announcing increased military action in the Middle East, Treasury prices rose Thursday morning before ending the day slightly down, marking the only day of the week that yields did not increase multiple basis points. Other events that impacted Treasury prices included strong retail sales but poor jobs numbers along with a poll that put Scotland’s pro-independence camp in the lead for the first time. Gold also dropped 3% over the week as investors looked away from safer investments. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: September Empire Manufacturing (16.00), August Industrial Production (0.3% MoM); Tuesday: August Producer Price Index Final Demand ( 0.0% MoM, 1.8% YoY); Wednesday: September 12 Mortgage Applications, August Consumer Price Index (0.0% MoM, 1.9% YoY); Thursday: September 13 Initial Jobless Claims (305,000), August Housing Starts (1,035,000); Friday: August Leading Index (0.4%).
Posted on Monday, September 15, 2014 @ 8:24 AM • Post Link Share: 
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  Growth-Oriented Stocks in the S&P 500 Outperforming Dividend-Payers (2012-Present)
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. One of the ways in which S&P Dow Jones Indices tracks the performance of the constituents in the S&P 500 is by separating those that pay a dividend from those that do not. 
  2. There are actually 502 stocks in the index at the present time, 424 of them distribute cash dividends to shareholders, while 78 do not.
  3. The number of S&P 500 companies that distribute dividends fluctuates over time. Since 1990, the numbers have ranged from a high of 438 in 1990 to a low of 351 in 2000 and 2001.
  4. From 1990-2013, the dividend-payers category outperformed the non-payers category, on a total return basis, in 13 of the 24 calendar years, or 54% of the time.
  5. Since 2000, however, the dividend-payers category outperformed the non-payers category, on a total return basis, in 10 of the 14 calendar years, or 71% of the time.  
  6. Historically, growth stocks have tended to assume the leadership role during bull markets when economic growth turns robust, or at least accelerates over a sustained period of time.
  7. In the 1990s, the non-payers category outperformed the dividend-payers category in 7 of the 10 calendar years, including a four-year run from 1991-1994.
  8. Real U.S. GDP growth averaged 3.3% per year in the 1990s, according to the Bureau of Economic Analysis. From 2000-Q2’14, real U.S. GDP growth averaged 1.9%.
  9. The International Monetary Fund is forecasting 3.0% real GDP growth for the U.S. in 2015 and 2016.
  10. The non-payers category outperformed, on a total return basis, the dividend-payers category in 2012, 2013 and year-to-date (thru August). This is the first multi-year streak since 1998-1999.

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. 

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

Posted on Thursday, September 11, 2014 @ 1:44 PM • Post Link Share: 
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  U.S. Natural Gas Rig Count No Longer A Barometer Of Production Capabilities
Posted Under: Sectors

 

View from the Observation Deck 

  1. Today’s blog post is an update of one we did on 6/26/12 (“Natural Gas Is A Perplexing Market”). We have updated the original chart through 9/5/14.
  2. From 6/25/10-9/5/14, the number of active natural gas rigs in the U.S. plunged from a high of 992 (8/13/10) to 340 (9/5/14), according to Baker Hughes. The number stood at 541 on 6/22/12.
  3. Looking at the chart one might think that the price of natural gas began to rise in the first half of 2012 due to lower production levels stemming from the steep decline in the active U.S. rig count, but that is not the case.
  4. Production levels of natural gas actually increased as the number active rigs were plunging. As it turns out, natural gas producers are garnering more from each rig, especially from such shale reserves as the Marcellus formation.
  5. In 2007, one active rig averaged approximately 422 million cubic feet of production per day (mcf/d) for Marcellus producers, compared to nearly 8,000 mcf/d, on average, in 2014, according to Chris Pederson at oilprice.com. 
  6. The point is that U.S. natural gas producers have the potential to increase output without necessarily having to significantly boost their active rig count.
  7. The Farmer’s Almanac correctly forecasted last year’s frigid winter season in the U.S., according to MarketWatch.com. The price of natural gas rose from $3.55 per million British thermal units on 8/22/13 to a high of $6.15 on 2/19/14.
  8. The 198-year-old publication is predicting more of the same for this winter.  

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.

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

Posted on Tuesday, September 09, 2014 @ 3:00 PM • Post Link Share: 
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  Stay Plugged In
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 closer look ahead at the 4th Quarter.
Posted on Monday, September 08, 2014 @ 11:54 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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