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Bob Carey
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  A Snapshot of Growth vs. Value Investing
Posted Under: Themes

 

View from the Observation Deck 

  1. Today's blog post is an update of a previous one. Investors can compare today's snapshot to the one we did on 11/24/15 (click here to view).
  2. Growth tends to outpace value investing when the earnings growth rates of said companies accelerate faster than the broader market, such as right after the economy exits a recession.
  3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in three of the six periods. Growth investing topped value investing for the 1-, 3- and 10-year periods through 2/9/16. 
  4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (8.83% vs. 5.25%); 10-yr. average annualized (6.74% vs. 8.31%); 5-yr. average annualized (9.75% vs. 9.47%); 3-yr. average annualized (7.42% vs. 9.88%); 1-yr. (-18.20% vs. -12.62%) and Y-T-D (-11.02% vs. -14.94%).
  5. The Large Value and Large Growth fund categories tracked by Morningstar, which include both open-end mutual funds and ETFs, reported net outflows totaling $24.32 billion and $17.72 billion, respectively, in 2015, according to its own release.

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 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. Constituents are drawn from the S&P 500 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 Thursday, February 11, 2016 @ 1:27 PM • Post Link Share: 
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  Sector Performance Via Market Capitalization
Posted Under: Sectors

 

View from the Observation Deck 

  1. From 2/5/15 through 2/5/16, large-capitalization (cap) stocks outperformed both mid- and small-cap stocks, as measured by the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index (see chart).
  2. In that period, only two sectors in the S&P 500 Index posted positive total returns, compared to none for the S&P MidCap 400 Index and just one for the S&P SmallCap 600 Index.
  3. As indicated in chart, sector performance can vary widely by market cap. 
  4. Telecommunication Services, for example, had a significantly better showing in the S&P 500 Index than in the S&P MidCap 400 and S&P SmallCap 600 Indices. Utilities, on the other hand, were relatively strong in the S&P SmallCap 600 Index.
  5. When you factor in the slowdown in global economic growth, it looks as though investors may be favoring larger, more well-capitalized stocks in the current climate, 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 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The 10 major S&P 500, S&P MidCap 400 and S&P SmallCap 600 Sector Indices are capitalization-weighted and comprised of S&P 500, S&P MidCap 400, and S&P SmallCap 600 constituents, respectively, representing a specific sector.

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Posted on Tuesday, February 09, 2016 @ 1:05 PM • Post Link Share: 
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  Stocks Week Ended Feb. 5, 2016

 
The S&P 500 index lost ground last week returning -3.04%, the second worst week of 2016. Giving back the gains it achieved the prior two weeks, the S&P 500 Index has continued its decline showing a -7.85% YTD return for 2016. Stocks opened lower on Monday as China concerns added downward pressure. Global outlook comments from Fed Vice Chair Stanley Fischer helped the S&P 500 Index climb back throughout the day to end at a 4 basis point loss. Stocks once again opened lower on Tuesday. The S&P 500 Index declined most of the trading day returning -1.87% with energy stocks leading the way down as oil closed below $30 a barrel. Wednesday morning brought positive ADP employment data, but volatility set in as the index had an early steep decline. Stocks climbed back later following the rally in oil as energy and material stocks led the way with the S&P 500 Index returning 0.53%. Stocks traded within a range on Thursday and returned 17 basis points. Economic data showed lower than expected durable goods orders and slightly higher jobless numbers. US initial jobless claims of 285K were higher than the consensus estimate of 278K and higher than the previous week's 278K. Friday brought another big decline as the S&P 500 Index returned -1.84%. The US equities decline was led by information technology and consumer discretionary stocks. Economic data reported a lower than expected unemployment rate of 4.9%, but also lower than expected nonfarm payroll numbers. Crude oil closed the week at $30.89 a barrel, a decline of 8.12% from the previous week's close. Seven of the ten economic sectors had negative performance for the week. The materials sector was the best performing sector with a 4.77% return. The utilities and telecommunications services sectors followed with 2.57% and 2.06% returns, respectively. The consumer discretionary sector's -5.41% return was the worst performance of all the sectors and was followed by information technology and financials which returned -5.25% and -3.54%, respectively. Michael Kors Holdings Limited, a luxury accessories designer, turned in the best performance in the S&P 500 Index with a 29.92% gain. The stock jumped 23.9% on Tuesday on the release of positive earnings news. The next two best performers were Freeport-McMoRan Inc. and Newmont Mining Corp. with returns of 23.48% and 22.29%, respectively.
Posted on Monday, February 08, 2016 @ 8:38 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Feb. 5, 2016
Posted Under: Weekly Market Commentary

 
Bond prices rose last week; continuing their gains since the beginning of the year. Last week was a busy week of economic reports and Monday's ISM Manufacturing Index report and US December Personal Income numbers were mixed. While the ISM Manufacturing Index rose to 48.2 in January, it was below the consensus expected level of 48.4 (a reading of less than 50 is indicative of contraction). Personal income increased 0.3% in December vs. the consensus expected a gain of 0.2% and personal consumption was unchanged in December vs. the consensus expected a gain of 0.1%. Over the past year, personal income is up 4.2% while spending is up 3.2%. The PCE deflator, a favored measure of inflation for the Federal Reserve, was down 0.1% in December and it continues to be held down by depressed energy prices. Wednesday's ISM Non-Manufacturing Index declined to 53.5 in January which was below expectations of 55.1. It was also below December's 55.8 reading. The non-manufacturing sector makes up the larger portion of the US economy (vs. manufacturing) and the reading above 50 reflects continued expansion in this sector. Thursday's Nonfarm Productivity reading showed a 3% annual decline vs. expectations for a 2% decline and on Friday, the Nonfarm Payroll report showed an increase of 151K, which was well below expectations of a 190K payroll increase. However, at 4.9%, it did measure unemployment rate falling below the 5% December reading. Major economic reports (and related consensus forecasts) for the upcoming week include: Tuesday: December Wholesale Inventories (-.1%); Wednesday: Prior week MBA Mortgage Applications; Thursday: Prior week Initial Jobless Claims (280K, -5K); Friday: January Retail Sales (.1%, +.2%) and the February preliminary University of Michigan sentiment reading (92.5, +.5).
Posted on Monday, February 08, 2016 @ 8:34 AM • Post Link Share: 
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  Snapshot Of U.S. Equity Styles/Market Caps
Posted Under: Themes

 

View from the Observation Deck 

  1. Today's blog post is intended to expose potential opportunities within the growth and value styles of investing, as well as by market capitalization (market cap).
  2. At any given time, the equities markets are likely being led up or down by one of the three market cap classifications (large-cap, mid-cap or small-cap). Often this leadership role can be held for a multi-year period.
  3. From 1995-1999, large-cap stocks outperformed their mid- and small-cap counterparts by a sizable margin. From 2000-2012, mid- and small-caps outperformed large-caps by an even bigger margin.
  4. From 12/31/12 through 2/3/16, the S&P 500 Index outperformed its two counterparts. The S&P 500, S&P MidCap 400 and the S&P SmallCap 600 indices posted cumulative total returns of 43.01%, 33.13% and 34.59%, respectively.
  5. While the returns have not been good, value stocks have had the edge early on year-to-date through 2/3/16, with the S&P 500 Value Index as the top performer. Growth stocks outperformed value stocks in each of the three respective market caps in 2015.
  6. With respect to earnings growth rate estimates, growth stocks have a significant edge in 2016, but the prospects for value stocks look a bit better in 2017 (see chart).
  7. All six indices have 2016 and 2017 estimated P/E ratios below their respective three-year averages as of 2/3/16.

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, S&P MidCap 400 and S&P SmallCap 600 indices are capitalization-weighted indices designed to measure large-capitalization, mid-capitalization and small-capitalization U.S. stock market performance. The Growth and Value sub-indices of the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indices are designed to measure the performance of growth stocks and value stocks, respectively, within the S&P 500, S&P MidCap 400 and S&P SmallCap 600 indices.

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Posted on Thursday, February 04, 2016 @ 12:28 PM • Post Link Share: 
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  The Stock Market is Like the Rodeo
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., compares the rodeo to the stock market. He goes on to discuss the latest developments in the market and takes a look ahead.
 
Posted on Wednesday, February 03, 2016 @ 12:25 PM • Post Link Share: 
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  A Snapshot Of European Equities
Posted Under: International-Global

 

View from the Observation Deck 

  1. Today's blog post is an update of one we did on 11/5/15 (click here to view). Investors committed a lot of capital to European equities last year.
  2. In 2015, investors funneled a net $36.36 billion into European stock funds and ETFs, according to Morningstar.
  3. As we noted on 11/5/15, the European Central Bank (ECB) is looking to stimulate growth to the point where it elevates inflation to its target rate of 2.0%. Eurozone inflation stood at 0.2% in December 2015, according to Bloomberg. 
  4. In December 2015, the ECB extended its quantitative easing initiative (60 billion euro per month bond-buying program) by six months to March 2017, according to BBC News. It was originally scheduled to run from March 2015 through September 2016.

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 and other expenses incurred when investing. Investors cannot invest directly in an index. The FTSE 100 Index is a capitalization-weighted index of the most highly capitalized companies traded on the London Stock Exchange. The CAC 40 Index reflects the performance of the 40 largest equities listed in France, measured by free-float market capitalization and liquidity. The DAX Index is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. The SMI Index (Swiss Market) is a capitalization-weighted index of the 20 largest (represents around 85% of Swiss equity market) and most liquid stocks of the SPI (Swiss Performance Index) universe. The IBEX 35 Index is the official index of the Spanish Continuous Market and is comprised of the 35 most liquid stocks. The OMX Stockholm 30 Index is a market-weighted price index consisting of the 30 most actively traded stocks on the Stockholm Stock Exchange. The AEX Index is a free-float adjusted market capitalization-weighted index of the leading Dutch stocks traded on the Amsterdam Exchange. The BEL 20 Index is a modified capitalization-weighted index of the 20 most capitalized and liquid Belgian stocks traded on the Brussels Stock Exchange. The OMX Helsinki Index includes all the shares listed on the Helsinki Stock Exchange.

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Posted on Tuesday, February 02, 2016 @ 2:20 PM • Post Link Share: 
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  Stocks Week Ended Jan. 29, 2016
Posted Under: Weekly Market Commentary

 
Equity markets roared back in the last trading week of January, trimming loses on the S&P 500 to 5% for the year. In an unexpected move by the Bank of Japan, Governor Haruhiko Kuroda implemented negative interest rates for certain bank reserves in an effort to stimulate the world's third largest economy. With the news, sovereign yields around the world fell and the likelihood of any Fed rate hike in 2016 fell to 55.9%, according to the futures market. The potential for interest rates staying "lower for longer" sent the S&P 500 to its best daily gain in four months. In economic news, U.S. economic growth slowed in the 4th quarter to 0.7% as businesses cut back on capital investment and destocked inventories. Consumer spending remained a bright spot, growing 2.2%. In earnings news, Amazon.com Inc. shares fell after reporting disappointing results as Jeff Bezos once again increased spending at the expense of near term profits. Apple Inc.'s. disappointing guidance sent shares lower along with a number of their hardware suppliers. Microsoft Corp. shares jumped on strong results in cloud services and internet-based tools. Boeing Co. shares sold off sharply after 2016 initial guidance fell well below street consensus. 2016 will be a transition year as the maker of airplanes switches customers from the legacy 737 to the 737MAX.  Looking ahead to next week, earnings season will remain in full swing with Cardinal Health Inc., Roper Technologies Inc., Alphabet Inc., Emerson Electric Co., and Pfizer Inc. all expected to announce.
Posted on Monday, February 01, 2016 @ 8:15 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Jan. 29, 2016
Posted Under: Weekly Market Commentary

 
Treasury yields dropped over the course of the week on a volatile equity market and comments from the Federal Reserve, despite equities experiencing a rebound. On Monday, plunging oil prices and a pullback in equities caused investors to seek the security of government debt as yields fell significantly. Investors also speculated that the Eurozone monetary policies would continue to loosen. Treasury yields stayed flat on Tuesday with strong demand for an auction of two-year notes, despite the equities rising. Yields had picked up on Wednesday before giving all the gains back after the Fed Minutes revealed a more dovish outlook. The central bank's notes indicated that they will not be quick to increase rates again and that they believe that inflation is unlikely to rise rapidly. Treasury yields dropped slightly again on Thursday on poor economic data. On Friday, equity markets rose significantly but Treasury yields continued to drop on the unexpected news that the Bank of Japan would pursue a negative interest-rate policy. This sent yields to a 9-month low. The probability of an interest rate hike at the March meeting ended the week at 14%, which was down from 26% one week ago. Oil closed the week up 4%, despite Monday's plunge. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: December Personal Income (0.2%), December Personal Spending (0.1%), January F Markit US Manf. PMI (52.7), January ISM Manf. (48.4), December Construction Spending (0.6%); Wednesday: January 29 MBA Mortgage Applications, January ADP Employment Change (190,000), January F Markit US Services (53.7) and Composite PMI, January ISM Non-Manf. Composite (55.1); Thursday: January 30 Initial Jobless Claims (278,000), December Factory Orders (-2.6%), December F Durable Goods Orders; Friday; January Change in Nonfarm Payrolls (190,000), January Unemployment Rate (5.0%).
Posted on Monday, February 01, 2016 @ 8:13 AM • Post Link Share: 
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  The U.S. Dollar Has Strengthened The Past Two Years
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. From 12/31/13 through 12/31/15, the U.S. Dollar Index rose by 23.2% to an index reading of 98.63, according to Bloomberg. The index stood at 98.55 on 1/28/16.
  2. The U.S. Dollar Index actually peaked in 2015 at 100.33 on 3/13/15. It then fluctuated between 93.14 and 100.17 for the remainder of 2015.
  3. The current index level reflects a relative strength that resembles the late 1990s.
  4. While some analysts saw the potential for the U.S. dollar to rally after the Federal Reserve raised its benchmark lending rate on December 16, it has yet to come to fruition. 
  5. Predicting the direction of currencies is a tricky business. We hope that the chart above provides some historical perspective that can help shape expectations.

This chart is for illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index. The U.S. Dollar Index (DXY) indicates the  general international value of the dollar relative to a basket of major world currencies.

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Posted on Thursday, January 28, 2016 @ 1:12 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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How Large Company Stocks Have Performed In The New Millennium
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