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  It Looks Like Gold & Silver Miners May Finally Be Joining The Bull
Posted Under: Commodities

 

View from the Observation Deck 

  1. Precious metals miners have not participated in the bull market that began on 3/9/09 (see chart). The Philadelphia Gold & Silver Index was actually down 4.78% (cumulative total return) from 3/9/09 through 7/18/14. 
  2. The miners, however, are off to a great start so far in 2014, with a total return of 22.04%, as of 7/18 (see chart). Gold bullion and silver were up 8.91% and 7.30%, respectively, over that period.
  3. One of the things that makes 2014 different than in recent years is the guidance from the Federal Reserve. The Fed has been tapering its monthly bond buying program since the start of the year.
  4. The Fed just recently announced that it would end its bond buying, also known as phase three of its quantitative easing strategy (QE3), in October 2014. An indication that the U.S. economic recovery is more self-sustaining. 
  5. Investors have funneled capital into gold bullion and silver in recent years, either directly or via ETFs, but we believe that a good percentage of the flows were in response to geopolitical events, not a serious fear of higher inflation.
  6. While the Consumer Price Index (CPI-Headline Rate) stood at 2.1% in June 2014, the most recent three-month annualized rate was 3.5%. The CPI has averaged 3.1% since 1926.
  7. Higher inflation, especially if it is sustained, could provide a much needed spark for the miners moving forward. 
  8. As is, Bloomberg’s 2015 earnings growth rate estimate for the Philadelphia Gold & Silver Index was 41.34%, as of 7/22.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or 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 Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver.

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Posted on Tuesday, July 22, 2014 @ 2:34 PM • Post Link Share: 
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  Companies Are Earning Their Keep
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest earnings' developments and comments on the continued strengths in the market.
Posted on Tuesday, July 22, 2014 @ 7:30 AM • Post Link Share: 
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  US Stocks Week Ended July 18, 2014
Posted Under: Weekly Market Commentary

 
Equity performance was mixed for the week, with large-cap stocks posting gains while small-caps lost ground as geopolitical fears overshadowed the start to earnings season. The crisis in Ukraine intensified after a surface-to-air missile struck a Malaysian Airlines passenger jet in Ukraine, killing all 298 passengers. The Ukrainian government accused pro-Russian rebels for the incident, while the separatists denied being involved. In addition to increased tensions in Ukraine, Israel launched a ground offensive against Hamas and other Palestinian militants to stop missile strikes against their country. In U.S. news, Janet Yellen sent shares of small-caps, biotechnology, and social-media stocks lower after commenting that valuations seem stretched in certain pockets of the market. While the Fed voiced some concern with valuation in certain asset classes, they continue to find monetary stimulus necessary due to the slack in the labor market and inflation remaining below targeted levels. It was a busy week for earnings season with a number of key banks reporting strong results. Goldman Sachs Group Inc. and Morgan Stanley both posted better-than-expected results as fixed-income trading revenue came in above expectations and deal revenue increased for both firms as merger and acquisition activity strengthened. Citigroup Inc. shares rose for the week after posting solid results and removing part of their litigation overhang by reaching a $7 billion mortgage-bond settlement. In tech earnings, Google Inc. beat top line expectations on strength in search. Looking ahead to next week, a number of companies are set to report earnings. Halliburton Co., Allergan Inc., Chipotle Mexican Grill Inc., Netflix Inc. and Coca-Cola Co. are all expected to announce earnings.
Posted on Monday, July 21, 2014 @ 8:12 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended July 18, 2014
Posted Under: Weekly Market Commentary

 
Treasury prices responded to the crisis in Ukraine with mixed results this week as longer duration Treasury prices rose while shorter duration Treasury prices fell. The largest move of the week came on Thursday as the civilian Malaysian airliner crashed in Ukraine after allegedly being shot down. This event caused fears of larger geopolitical turmoil, which shocked the markets and caused equities to tumble and Treasury prices to rise significantly. Poor Housing Starts numbers also contributed to the flight to safety on Thursday. However, those fears were tempered on Friday as the equity markets rebounded and Treasuries slid, except prices on longer duration Treasuries did not slide as much as shorter duration Treasuries. The week had started off with positive Empire Manufacturing data that caused Treasury prices to fall. Treasuries continued to slide on Tuesday as Federal Reserve Chairwoman Janet Yellen said that the Fed could raise rates sooner if economic data continues to beat expectations. Gold had fallen significantly on Monday’s positive data then rose again on Thursday’s geopolitical fears before settling back down on Friday for a 1.9% loss over the course of the week. Thursday’s events also caused oil prices to rise significantly, ending the week up 2.1%. Major economic reports (and related consensus forecasts) for the upcoming holiday shortened week include: Tuesday: June Consumer Price Index (0.3% MoM, 2.1% YoY), June Existing Homes Sales (4.99M, 2.0% MoM); Wednesday: July 18 MBA Mortgage Applications; Thursday: July 19 Initial Jobless Claims (308,000), July Markit US Manufacturing PMI (57.5), June New Home Sales (480,000, -4.8% MoM); Friday: June Durable Goods Orders (0.5%).

Posted on Monday, July 21, 2014 @ 8:09 AM • Post Link Share: 
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  Mexico’s Stock Market Has Lagged The Past Three Years But…
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  • The North American Free Trade Agreement (NAFTA) was signed into law in December 1993. NAFTA eliminated virtually all tariffs and trade restrictions between the three nations.
  • From 1993 through 2012, Canada’s gross domestic product (GDP) grew by 216% to $1.82 trillion (USD), the biggest percentage gain of the three nations, according to data from the World Bank.
  • U.S. GDP grew by 136% to $16.24 trillion in the same period, slightly outpacing Mexico’s 135% expansion to $1.19 trillion (USD).
  • The chart indicates that both the S&P/TSX Composite Index and the Mexico IPC Index significantly lagged the S&P 500 over the past three years, which could be linked to some weakness in commodity prices, in our opinion.
  • Mexico and Canada are relatively rich in natural resources. From 6/11-6/14, commodity prices declined 8.8%, as measured by the Thomson Reuters/CoreCommodity CRB Index. The index was up 10%, however, in the first half of 2014.
  • While Canadian and U.S. equities have been in rally mode year-to-date and over the past 12 months, Mexican stocks were up modestly. The outlook for Mexico, however, is encouraging relative to the other two nations.
  • Bloomberg’s 2014 and 2015 earnings growth estimates for the Mexico IPC Index were 23.18% and 19.21%, respectively, as of 7/17/14. Its 2014 estimated price-to-earnings (P/E) ratio stood at 21.11, below its 3-year average of 21.90.
  • Bloomberg’s 2014 and 2015 earnings growth estimates for the S&P/TSX Composite Index were 25.09% and 12.70%, respectively. Its 2014 estimated P/E ratio stood at 16.49, above its 3-year average of 16.19.
  • Bloomberg’s 2014 and 2015 earnings growth estimates for the S&P 500 were 10.45% and 11.28%, respectively. Its 2014 estimated P/E ratio stood at 16.56, above its 3-year average of 15.15.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or 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 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The S&P/Toronto Stock Exchange Composite Index is a capitalization-weighted index designed to measure the market activity of the stocks listed on the TSX. The Mexican IPC Index is a capitalization-weighted of the leading stocks traded on the Mexican Stock Exchange.

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Posted on Thursday, July 17, 2014 @ 4:09 PM • Post Link Share: 
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  Micro-Cap Stocks Competitive Despite Modest Recovery
Posted Under: Themes

 

View from the Observation Deck 

  1. Today’s blog post updates a post we did a little over two years ago (Click here to view previous post from 5/10/12).
  2. In that post we encouraged investors to think beyond traditional small-capitalization stocks (“small-caps”) and consider diversifying into micro-cap stocks. 
  3. While there is no official set of parameters that define a micro-cap stock, a conservative universe would include companies with a market value of $50 million to $500 million (some cap at $300 million).
  4. From our 5/10/12 post through 7/11/14, the Dow Jones Select Micro-Cap Index posted a cumulative total return of 54.40%, compared to 51.06% for the Russell 2000 Index.
  5. One of the key reasons for favoring micro-cap stocks back in Q2’12 was an uptick in economic activity. Real U.S. GDP growth (annualized) came in at 4.9% in Q4’11 and 3.7% in Q1’12.
  6. Unfortunately, since Q1’12, the average real U.S. GDP growth rate has been just 1.7%. Micro-cap companies tend not to be multinational in scope, so they are heavily influenced by the state of the U.S. economy.
  7. We still believe that micro-cap stocks are worth consideration. The International Monetary Fund is forecasting real U.S. GDP growth rates of 2.0% for 2014 and 3.0% for 2015. 

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or 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 Dow Jones Select Micro-Cap Index represents the “investable” portion of U.S. micro-cap companies traded on the major U.S. exchanges.  The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the total market capitalization of the Russell 3000.  

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Posted on Tuesday, July 15, 2014 @ 4:34 PM • Post Link Share: 
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  Listening for the Strength of Business Conditions
Posted Under: Weekly Market Commentary
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments in the market. Bob anticipates solid corporate earnings but challengess investors to listen intently to guidance forecasts for the rest of 2014.
Posted on Monday, July 14, 2014 @ 10:32 AM • Post Link Share: 
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  US Stocks Week Ended July 11, 2014
Posted Under: Weekly Market Commentary

 
Equity markets lost ground as investors weighed the risk of contagion from Portugal and speculated about market valuation levels when the DJIA crossed 17,000. Stocks initially sold-off to begin the week as investors took profits in some of the best performing sectors over the past few years. Bio techs, internet stocks and small-caps were hit especially hard. Equities rebounded Wednesday on optimism over corporate profits after Alcoa Inc. posted better-than-expected results in the unofficial start to earnings season. However, stocks lost ground on Thursday following the announcement that Portugal’s Banco Espirito Santo SA parent missed a debt payment, renewing Eurozone financial system fears. Stocks pared losses on Friday as internet stocks recovered some of their early week losses. Stocks news was relatively light as investors look ahead to earnings season kicking into high gear next week. Tesla Motors Inc. shares retreated after a high-speed police chase of a stolen Model S car split in two and caught fire. In addition, the company reported they were being sued in China for trademark infringement. TRW automotive Holdings Corp. gained following reports they have been approached by Germany’s ZF Friedrichshafen AG to possibly form the second-largest auto-part supplier by revenue. United Continental Holdings Inc. continued its meteoric rise on higher-than-expected revenue as performance from domestic and Pacific routes improved. Looking ahead to next week, many bellwethers including Johnson & Johnson, Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Twenty-First Century Fox Inc. are set to report earnings.
Posted on Monday, July 14, 2014 @ 8:00 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended July 11, 2014
Posted Under: Weekly Market Commentary

 
Treasuries rose this week amid speculation that interest rates would not rise too quickly and financial market turmoil related to the Banco Espirito Santo SA’s parent company stoked renewed concern of financial contagion in Europe. On Monday longer dated government debt fell as investors speculated that inflation ticking up and better than expected employment data from the week previous week would not lead the Federal Reserve to raise rates soon. The slide in Treasuries continued on Tuesday as equity markets dropped and the 30-year bond yield dropped the most in over a month as investors wagered yields would not continue to climb. May Consumer Credit was also reported at $19.60B, just missing estimates of $20B. Treasuries reversed course midweek and started to fall until the release from the Federal Reserve June minutes late in the trading day. The minutes struck more dovish tone than expected with regard to rate increases and Treasuries rallied. On Thursday, May Wholesale inventories were reported to have increased .5%, less than the .6% figure that was expected and financial contagion fears in Europe spurred demand for the safety of U.S. debt. Treasuries edged lower on Friday as the market continued to digest financial news from Europe and the June Monthly Budget Statement showed that the U.S budget deficit was the smallest since 2008. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: July Empire Manufacturing (17), June Advance Retail Sales (+.6% MoM), and June Import Price Index (+.4% MoM); Wednesday: June PPI Final Demand (+.2% MoM), June Industrial Production (+.3% MoM), and June Capacity Utilization (79.3%); Thursday: June Housing Starts (1025K), June Building Permits (1037K); Friday: Jul P Univ. of Michigan Confidence (83) and June Leading Index (+.5%).
Posted on Monday, July 14, 2014 @ 7:57 AM • Post Link Share: 
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  Investors Looking To Play The Recovery In Bank Stocks May Need Some Patience
Posted Under: Sectors

 

View from the Observation Deck 

  1. Banking institutions were at the epicenter of the U.S./global financial crisis from 2008 through Q1’09. As indicated in the chart, earnings plunged.
  2. The S&P 500 Banks Index declined 88% from its all-time high on 2/20/07 to its financial crisis trough on 3/5/09, according to Bloomberg.
  3. While bank stocks have already rebounded significantly from their lows, the S&P 500 Banks Index still stood 47.2% below its all-time high (2/20/07) on 7/9/14.
  4. With the broader market indices trading at or near their all-time highs, the banking sector is one of the few niches of the market still priced at a “deep value,” in our opinion.
  5. Earnings are rebounding, but are well below the 2003-2006 pace set during the housing boom.
  6. While Bloomberg’s 2014 estimated earnings growth rate on the S&P 500 Banks Index was -10.17% as of 7/10/14, its 2015 estimate stood at 15.28%. This is why we believe some patience may be in order.   
  7. For banking institutions, net interest margin (NIM) is essentially the spread between the interest earned from the bank’s loan portfolio and the amount of interest the bank pays on its deposits.
  8. That spread has been shrinking in recent years. We believe that higher interest rates could enable banks to boost that spread by charging more on loans, but it could take a while to get there.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or 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 Banks Index is capitalization-weighted and comprised of  S&P 500 constituents representing the banking sector.

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

Posted on Thursday, July 10, 2014 @ 1:35 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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A Midyear Snapshot Of European Equities
US Stocks Week Ended July 3, 2014
US Economy and Credit Markets Week Ended July 3, 2014
A Little Give And Take May Provide A Remedy
US Stocks Week Ended June 27, 2014
US Economy and Credit Markets Week Ended June 27, 2014
A Look at the Growth in Earnings
Eurozone’s Sovereign Debt Crisis Appears To Be In Check
Technology Stocks Are Still Building Momentum
US Stocks Week Ended June 20, 2014
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