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  U.S. Equities Still The Dominant Market On The Globe
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. Today's post is an update of one we did on 8/25/15 showing the changes in total world equity market capitalization (market cap) over a 10-year period (8/21/05 thru 8/24/15). We have extended the chart through 5/23/16.
  2. This snapshot is a reminder to all investors that, while stocks have the potential to build wealth over time, stock markets do not go up in a straight line.
  3. As indicated above, the U.S. accounted for the largest share of total world equity market cap at 37.3% on 5/23/16. China was a distant second with a 9.2% share.
  4. Despite the U.S.'s continued dominance in the global equities markets, investors have favored foreign equities over U.S. equities over the past couple of years.
  5. For the 12-month period ended 4/30/16, investors funneled an estimated net $114.90 billion into International Equity mutual funds (funds) and exchange-traded funds (ETFs), compared to estimated net outflows from U.S. Equity and Sector Equity funds and ETFs totaling $55.80 billion, according to Morningstar. Likewise, foreign equities were heavily favored over the previous 12-month period through 4/30/15.
  6. For the 12-month period ended 4/30/15, investors funneled an estimated net $193.12 billion into International Equity funds and ETFs, compared to estimated net inflows to U.S. Equity and Sector Equity funds and ETFs totaling $72.33 billion, according to Morningstar.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment.

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Posted on Tuesday, May 24, 2016 @ 2:20 PM • Post Link Share: 
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  Stocks Week Ended May 20, 2016
Posted Under: Weekly Market Commentary

 
Stocks ended a see-saw week slightly higher with interest-rate sensitive sectors underperforming the market. Strong economic data points coupled with Federal Reserve members signaling a potential rate hike in June if the economy continues to improve sent utility, consumer staples, and telecommunication shares lower. Housing starts beat expectations and increased by 6.6%, while industrial production increased by 0.7% in April. Inflation moved closer to the Fed's long-term target with consumer prices climbing 0.4% in April, the biggest gain in 3 years. In stock news, retail shares had another volatile week as many traditional brick-and-mortar stores announced disappointing results. Gap Inc. plans to close 75 locations across its brands as sales fell 6% in the 1st quarter and the company removed forward guidance due to the challenging environment. Dick's Sporting Goods also cut its full year guidance, but rallied as results were better-than-expected for the quarter. Wal-Mart Stores Inc. was one bright spot in retail as shares gained the most in seven years following earnings. Domestic same-store-sales gained 1%, beating analyst's predictions of a 0.5% increase. However, Target Corp. fell the most in more than seven years after quarterly results and guidance missed analysts' expectations. In merger news, Monsanto Co. gained after Bayer AG decided to move forward with an unsolicited offer. Looking ahead to next week, the second reading of 1Q GDP, Durable Goods Orders, and the University of Michigan Sentiment Index will be key economic indicators. With higher potential for a Federal Rate move coming in the next few months, equity market volatility is likely to increase.
Posted on Monday, May 23, 2016 @ 8:16 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 20, 2016
Posted Under: Weekly Market Commentary

 
Treasuries fell for the week and recorded their largest weekly loss of the year as Federal Reserve officials suggested a possible June interest-rate increase on the back of strong economic conditions. The market did not consider a June rate increase probable and there was a pronounced move in the probability of a potential June interest rate increase. As indicated by futures trades, the market was pricing in a 5% chance of a Federal Fund Rate increase at the start the week but a nearly 30% chance at the end of the week. Crude Oil continued to trade higher as a result of supply concerns related to Nigeria, Libya and the wildfires in Canada. On Wednesday, the Industrial Production numbers topped expectations increasing .7% for April versus an expected increase of .3%. Utilization increased to 75.4% for April but mining output fell as a result in the fall of oil and gas extraction (-6.8%) as the oil and gas industry continues to suffer from high supply and low prices. The CPI also showed an increase for April led by a 3.4% increase in energy prices. Thursday's April Leading Index rose following a flat March and only .1% increase in February. Rounding out last week's economic reports was the Friday release of April's existing home sales which rose 1.7% for the month. Median prices were up as well. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: May preliminary Markit US Manufacturing PMI (51, +.2); Tuesday: April New Home Sales (520K, +9K); Wednesday: May 20th MBA Mortgage Applications; Thursday: May 21th Initial Jobless Claims (275k, -3K); April preliminary Durable Goods Orders (.3%, -.5%); Friday: QoQ Annualized GDP (.9%, +.4%) and Final May University of Michigan Sentiment (95.4, -.4).
Posted on Monday, May 23, 2016 @ 8:13 AM • Post Link Share: 
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  A Snapshot Of Utility & Infrastructure-Related Stocks
Posted Under: Themes

 

View from the Observation Deck 

  1. Today's blog post provides a global snapshot of how various utility and infrastructure-related indices have performed in the current bull market.
  2. As indicated in the chart, water and water infrastructure stocks have garnered much more interest from investors than the other major utilities.
  3. The need for new infrastructure and upgrades to existing infrastructure worldwide is well documented.
  4. As much as $78 trillion is projected to be spent on infrastructure worldwide between 2014 and 2025, according to Forbes. Estimates on spending may vary depending on the source.
  5. A new report from the American Society of Civil Engineers (ASCE) revealed that the U.S. is in need of $3.3 trillion in infrastructure funding (10 categories) over the next 10 years, according to its own release.
  6. The biggest need involves upgrading the surface transportation network, including roads, bridges, transit, and commuter rail, which will require an estimated $1.1 trillion. The next two biggest need categories are electricity infrastructure and water/wastewater infrastructure, requiring an estimated $177 billion and $105 billion, respectively.
  7. As a theme, infrastructure perked up about a decade or so ago for two main reasons: emerging markets were growing fast and in need of new infrastructure, while developed nations mostly needed to repair existing infrastructure.
  8. Today, emerging markets are still growing, but at a slower pace. Global growth has slowed in general. That can impede spending, even when the need appears to be of an urgent nature.
  9. Some U.S. politicians, including those running for president, are talking up infrastructure in their campaigns. We intend to monitor this theme moving forward.

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 ISE Water Index includes companies engaged in water distribution, water filtration, flow technology and other water solutions. The S&P Global Infrastructure Index provides liquid and tradable exposure to 75 companies from around the world that represent the listed infrastructure universe. The MSCI World Telecommunication Services Index is designed to capture the large- and mid-capitalization segments across 23 developed markets in the Telecommunication Services sector. The MSCI World Utilities Index is designed to capture the large- and mid-capitalization segments across 23 developed markets in the Utilities sector. The NYSE Bloomberg Global Wind Energy Index is comprised of companies active across the wind energy value chain, including the manufacturing of wind energy equipment and the financing, development and operation of wind projects. The NYSE Bloomberg Global Solar Energy Index is comprised of companies active across the solar energy value chain, including the manufacturing of solar energy equipment and the financing, development and operation of solar projects.

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Posted on Thursday, May 19, 2016 @ 2:16 PM • Post Link Share: 
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  S&P 500 Index Stock Prices Relative To Their 52-Week Highs
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. Today's blog post is an update of one we did on 2/16/16 (click here to view). Today's chart reflects improvement across the board.
  2. The S&P 500 Index, which is capitalization-weighted, posted a total return of -0.51% for the 12-month period ended 5/16/16, according to Bloomberg. On a price-only basis, which excludes dividends, the index was down 2.64%.
  3. The averages in the chart simply reflect where each of the 500 stocks stood, by sector, relative to their 52-week high as of 5/16/16. Their respective cap-weightings were not factored into the calculations.
  4. As of 5/16/16, the S&P 500 Index, on a cap-weighted basis, stood 3.01% below its all-time high of 2130.82, which was established on 5/21/15. That is down from 12.49% on 2/12/16 (previous post).
  5. As indicated by the percentages in the chart, the three sectors reflecting the least damage over the past 52 weeks are all considered to be defensive in nature.

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. 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.

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

Posted on Tuesday, May 17, 2016 @ 1:12 PM • Post Link Share: 
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  Stocks Week Ended May 13, 2016
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index rallied early, but cut those gains and declined Wednesday, Thursday, and Friday. The index posted a -0.44% return for the week and is down -0.77% through the first half of May. The index has gained 0.96% YTD through the middle of May 2016. Monday showed a slight increase as health care stocks led the market. Energy and mining stocks were a drag on the index due to weakness in oil and gold prices. Tuesday markets opened higher as strong news out of Asia pushed up European markets. Crude erased its Monday losses and stable gold prices lifted mining stocks. Disney announced its quarterly earnings at the close and the stock price fell 4.04% after missing expectations. The market opened lower Wednesday after disappointing earnings releases from retail and media companies. European markets were also weak as investors moved from stocks to commodities. Stocks were flat at close on Thursday. Consumer stocks rebounded after dragging down the indexes the previous day. NVIDA Corp released earnings with an upside surprise over analyst expectations. The stock boosted the technology sector, but was not enough to offset the losses from Tuesday's weekly high. Stocks continued to decline on Friday on economic data as the S&P 500 Index returned -0.84%. Retail sales had their biggest gain during the past year as purchases climbed 1.3% MoM from last month. The median forecasted growth in retail sales was 0.8% as surveyed by Bloomberg. Crude oil closed the week at $46.21 a barrel, increasing 3.47% from the previous week's close. Seven of the ten economic sectors had negative performance for the week. The utilities sector was the best performing sector with a 1.09% return. The consumer staples and health care sectors followed with 0.05% and 0.01% returns, respectively. The consumer discretionary sector's -1.38% return was the worst performance of all the sectors and was followed by financials and industrials which returned -1.05% and -0.96%, respectively. Electronic Arts Inc., a video game and software developed, turned in the best performance in the S&P 500 Index with a 17.61% gain. The stock jumped over 13% on Tuesday's earning release. The next two best performers were NVIDIA Corp. and Monsanto Co. with returns of 15.99% and 11.35%, respectively.
Posted on Monday, May 16, 2016 @ 8:01 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 13, 2016
Posted Under: Weekly Market Commentary

 
Treasury prices rose slightly over the course of the week as negative yields on international government debt increased demand for long-term U.S notes. U.S. government bonds strengthened Monday, boosted by a broad price decline in commodities. U.S. government bonds were little changed on Tuesday as solid demand on a three-year note auction offset higher stock and oil prices. A $23 billion sale of 10-year Treasury auction set a record attracting a massive 73.5% indirect bidding on Wednesday. The encouraging reading illustrates how investors overseas continue to struggle to obtain income from high-grade government debt despite low yields globally. Jobless claims unexpectedly rose last week to the highest level since February 2015, following a deceleration in hiring in April. The jump in filings may reflect a strike by workers at Verizon Communications Inc. and late spring break at schools. Despite the unexpected increase, initial jobless claims remain at historically low levels and the rise can be dismissed for now. Upward revisions to February and March also improved the trajectory in the first quarter. Consumer confidence beat expectations, rising nearly to a one-year high, as Americans grew upbeat about incomes and inflation. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: May Empire Manufacturing; Tuesday: April Housing Starts (1125k), April CPI (0.4% MoM), April Industrial Production (0.3% MoM) Wednesday: May 13th MBA Mortgage Applications; Thursday: May 14th Initial Jobless Claims (275k); April Leading Index (0.4%); Friday: April Existing Home Sales (5.39M).
Posted on Monday, May 16, 2016 @ 7:57 AM • Post Link Share: 
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  Interest Rate Levels Do Not Portend A Bear Market In Stocks
Posted Under: Conceptual Investing

 

View from the Observation Deck 

  1. Today's blog post is intended to provide a little historical perspective as to where two key benchmark interest rates stood prior to U.S. equities, as measured by the S&P 500 Index, succumbing to bear markets.
  2. A bear market in stocks is defined as a decline of 20% or more in the price level of a benchmark index, such as the S&P 500 Index.  
  3. Brian Wesbury, Chief Economist at First Trust Advisors L.P., has noted through the years that bear markets tend to occur when the Federal Reserve becomes too tight with its monetary policy.  
  4. As indicated in the chart, the upper bound of the federal funds target rate is currently 0.50%, which reflects an accommodative monetary policy, not a tight one. Wesbury believes that even if the Fed raises rates a couple of times in 2016, it would simply make its policy less loose, not tight. 
  5. A March 22, 2012, article in Businessweek stated that data from Standard & Poor's revealed that, since 1953, U.S. stocks posted their best returns when the yield on the 10-Year Treasury Note (T-Note) rose to around 4.00%.
  6. As of 5/11/16, the 10-Year T-Note yielded just 1.74%, or 226 basis points below that 4.00% mark.
  7. While the current bull market in stocks (3/9/09-Present), as measured by the S&P 500 Index, stands as the second-longest in history at 2,621 days, it still has a long way to go to catch the longest bull market totaling 4,494 days (12/4/87-3/24/00), according to data from Bespoke Investment Group.
  8. Bloomberg's 2016 and 2017 earnings growth rate estimates for the S&P 500 Index were 8.77% and 13.66%, respectively, as of 5/12/16. 

This chart is for illustrative purposes only and not indicative of any actual investment. Past performance is not indicative of future results and there can be no assurance that any of the projections cited will occur. 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.

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

Posted on Thursday, May 12, 2016 @ 2:30 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 is one we do on an ongoing basis so that investors can monitor changes in the expected revenue growth of the companies that comprise the S&P 500 Index. Our last post was on 3/24/16 (click here to view).
  2. The S&P 500 Index closed the trading session on 5/9/16 at 2,058.69. It stood 3.39% below its all-time high of 2,130.82 (5/21/15), according to Bloomberg.
  3. While several sectors show a downward adjustment to 2016 revenue projections from the last time we checked on 3/18/16, the biggest downgrades were in Information Technology and Utilities. The 2017 revenue projection for Information Technology, however, was much stronger relative to that of 2016.    
  4. As indicated in the chart, as of 5/6/16, 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 in chart), according to Bloomberg.
  5. Current estimates for the S&P 500 Index and 8 of the 10 major sectors that comprise the index reflect stronger year-over-year revenue growth in 2017.
  6. With the exception of the weakness in Energy, which began in the second half of 2014 with the plunge in the price of crude oil, the overall climate for revenue growth remains 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 10 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, May 10, 2016 @ 12:04 PM • Post Link Share: 
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  Stocks Week Ended May 6, 2016

 
Despite the S&P 500 returning -0.3% for the week, there were consumer bright spots in equities as the S&P 500 Consumer Staples Index was up 1.7% and the S&P 500 Consumer Discretionary Index was up 0.1%. The S&P 500 Energy Index on the other hand, fell -2.9% partly because oil fell from $45.92 down to $44.66.  Another reason for the fall in the energy sector was a string of poor earnings announcements. Helmerich & Payne Inc. kicked off the week as the contract well driller announced an even bigger loss than analysts expected and returned -8.2% for the week as a result. Anadarko Petroleum Corp. also had a poor week, returning -11.8%, as the exploration & production company announced a significant quarterly loss and multiple sell side analysts cut their ratings from a buy to a neutral as a result. Further, Halliburton Co. terminated their merger agreement with Baker Hughes Inc. as regulators required them to sell too many additional assets if the two companies were going to become one. This requirement made the deal less valuable to Halliburton and a decision to cut ties was made. The deal was first announced in November of 2014 and approved by shareholders in March 2015 but was ultimately scuttled because of oil markets and regulators. Perhaps the most troubling announcement was from Chesapeake Energy Corp. when they announced late in the trading on Friday that the company may face additional collateral demands. These collateral needs are feared to be $943m compared to a previously announced $247m, as a result the company's shares fell 11% in the final hour of trading on Friday. Shifting gears towards consumer companies, online travel booking had some poor announcements this week as broad competition seems to be limiting growth potential in the industry. The Priceline Group Inc. returned -7.5% after their May 4th announcement where they were more cautious about growth prospects dragging down nearly the whole industry. TripAdvisor Inc. had a -3.9% return because of Priceline's announcement and an earnings miss of their own. Looking ahead to next week, earnings season is winding down but bellwether names The Walt Disney Co. and Allergan plc. are still expected to report.
Posted on Monday, May 09, 2016 @ 8:15 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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