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Bob Carey
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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 yesterday (S&P 500 at 2069.41), 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 (68-plus months), many corporations have likely exhausted their cost-cutting opportunities. 
  5. The following sectors have higher 2015 and 2016 revenue growth rate estimates (as of 11/21/14) than the S&P 500: Consumer Discretionary; Health Care; Information Technology and Telecommunication Services.
  6. 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 Tuesday, November 25, 2014 @ 1:50 PM • Post Link Share: 
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  Continued Market Strength and Yet ...
Posted Under: Weekly Market Commentary
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., contrast the strengths in the stock market with individual investor enthusiasm. He also looks at the latest developments in market sectors.
Posted on Tuesday, November 25, 2014 @ 7:13 AM • Post Link Share: 
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  US Stocks Week Ended Nov. 21, 2014
Posted Under: Weekly Market Commentary

 
Equities continued upward this week, as the S&P 500 closed Friday at 2,063.5, which was an all-time high. Internationally, Japan posted poor GDP growth for the quarter, which caused the world’s 3rd largest economy to unexpectedly slip into a recession. The European Central Bank announced a list of policy resolutions for 2015, including the announcement that their form of quantitative easing could start to include government bonds. Merger and acquisition announcements were plentiful this week. Allergan Inc. rose over 5% Monday after Actavis PLC agreed to pay about $66b for the pharmaceutical giant. Baker Hughes Inc. was up 10% this week as Halliburton Co announced they are going to pay $19 in cash and 1.12 shares for each share of BHI. DreamWorks Animation SKG saw its shares slip nearly 13% as Hasbro Inc. pulled their acquisition offer because a purchase price could not be agreed upon. According to Bloomberg, as the 3rd quarter earnings season comes to a close, 79% of the companies in the S&P 500 announced earnings higher than projected and 60% surpassed revenue estimates. Tyson Foods Inc. rallied nearly 6% as the frozen food maker announced 3rd quarter results that were well ahead of analyst estimates. Urban Outfitters Inc. dropped nearly 7% as the clothing retailer announced lower profit margins and same store sales growth than expected. Home Depot Inc. slid 2% after they announced earnings and revenue above estimates, but failed to raise their guidance raising fears of a slowing housing market. Target Corp. surged over 7% as they announced quarterly earnings and revenue ahead of estimates, as well as improving business in their Canada expansion. Looking ahead to next week, after the nation gets their fill of turkey and football on Thanksgiving, holiday sales season officially kicks off on Black Friday. With gas prices low, leaving more cash in consumer’s pockets, retail sales expectations for the holiday season are high.
Posted on Monday, November 24, 2014 @ 8:46 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Nov. 21, 2014
Posted Under: Weekly Market Commentary

 
Treasury prices were mixed and relatively flat on what was a positive week for the equity markets. Treasury prices slipped on Monday as poor foreign economic data caused investors to prefer domestic equities. However, this drop was reversed on Tuesday with the escalation of violence between the Israelis and Palestinians as a Palestinian attack on an Israeli synagogue killed four Israelis and wounded seven others. Prices then dropped again on Wednesday as the Federal Reserve released the minutes from the October meeting. The minutes implied that several committee members are pushing for the Fed to stay on track to raise rates next year. Despite a drop in overall housing starts, single family home construction rose, which was a positive sign of consumer’s economic futures. Treasury prices rose slightly again on Thursday as initial jobless claims were higher than expected. Treasure prices rose for a second consecutive day on Friday as China decided to cut its lending rate, making U.S. assets more attractive to international investors. Major economic reports (and related consensus forecasts) for the upcoming holiday shortened week include: Monday: Dallas Fed Manufacturing Activity (9.0); Tuesday: 3Q GDP Annualized (3.3% QoQ), 3Q Personal Consumption (1.9%), November Consumer Confidence Index (96.0); Wednesday: October Durable Goods Orders (-0.6%), November 22 Initial Jobless Claims (288,000), October Personal Income (0.4%), October Personal Spending (0.3%), November U. of Michigan Confidence (90.0), October New Home Sales (471,000).
Posted on Monday, November 24, 2014 @ 8:44 AM • Post Link Share: 
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  The Rebound In REITs Persists
Posted Under: Sectors

 

View from the Observation Deck 

  1. While the tagline “Too Big to Fail” reminds us all of the high-profile roles that major banks and financial institutions played in the 2008 financial crisis - real estate was the true epicenter of the crisis, in our opinion. 
  2. Equity REITs, like real estate in general, began to draw more attention from investors after the Internet bubble burst in March 2000.
  3. In our opinion, many investors gradually grew disenchanted with equities during the bear market (3/00-10/02) and chose to shift at least a portion of their capital to real estate-related opportunities and income-producing securities. Equity REITs happen to meet both criteria.
  4. The value of the equity REIT market increased from $134.4 billion at the end of 2000 to $400.7 billion at the close of 2006 (U.S. real estate boom peaked in ’06). Much of that gain was eliminated in 2007-2008.
  5. The value of the equity REIT market shrank from $400.7 billion in 2006 to $176.2 billion in 2008. From the end of 2008 to the close of 2013, however, the size of the equity REIT market surged to $608.3 billion.
  6. Equity REITs have staged an impressive recovery following the 2008 financial crisis, in our opinion. REITs are cyclical in nature in that valuations are influenced by the relative strength of the overall economy. We will continue to monitor.

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

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Posted on Thursday, November 20, 2014 @ 2:01 PM • Post Link Share: 
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  “Kicking The Tires” Of Retailers Heading Into 2015
Posted Under: Sectors

 

View from the Observation Deck 

  1. Over the past decade or so, the global economy and securities markets have endured many notable challenges, including wars, the 2008 financial crisis, natural disasters and numerous geopolitical events. 
  2. Despite all of the turbulence, the S&P 500 still managed to double in value from 2004-2013. The index posted a cumulative total return of 104.30% in that period.
  3. Surprisingly, the S&P Retail Select Industry Index more than doubled the performance of the S&P 500 in the same period by posting a cumulative total return of 241.45%.
  4. Why is that a surprise? One of the theories espoused by many in the media these days, in our opinion, is that the middle class in the U.S. is eroding and no longer participating in economic recoveries. 
  5. While we acknowledge that many Americans remain either unemployed or underemployed, we reject the notion that the middle class is not participating.
  6. For the two-year period ended October 2014, retail sales in the U.S. were higher in 18 of the 24 months, according to data from the U.S. Census Bureau. 
  7. In October 2014, U.S. automobile sales totaled 16.35 million (annualized), topping the 15.74 million (annualized) average for the two-year period ended 10/14, according to data from Bloomberg.
  8. Nonfarm payrolls in the U.S. rose 24 consecutive months through 10/14, with an average monthly increase of 210,320 jobs, according to the Bureau of Labor Statistics. More jobs tends to lead to more paychecks, which can potentially translate into higher consumption levels.
  9. Confidence levels are rising. The Conference Board’s Consumer Confidence Index stood at 94.48 in October 2014. It hasn’t been at that high of a reading since October 2007, just prior to the financial crisis.
  10. The S&P/Experian Consumer Credit Default Composite Index stood at 1.06% in October 2014, its lowest level since June 2006, according to data from S&P Dow Jones Indices. This indicates that consumers have been getting their respective fiscal houses in order, in our opinion.
  11. The outlook for earnings is optimistic for retailers in 2015. Bloomberg’s 2015 consensus earnings growth estimate for the S&P Retail Select Industry Index was 28.42% as of 11/17, compared to 8.70% for the S&P 500.

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 S&P Retail Select Industry Index is a benchmark comprised of stocks in the S&P Total Market Index that are classified in the GICS retail sub-industry.

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Posted on Tuesday, November 18, 2014 @ 4:09 PM • Post Link Share: 
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  Taking Stock of the 4th Quarter
Posted Under: Weekly Market Commentary Video
Bob Carey, Chief Market Strategist at First Trust Advisors L.P. takes stock of the world markets and provides perspective on recent developments in the 4th quarter.
Posted on Monday, November 17, 2014 @ 12:14 PM • Post Link Share: 
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  US Stocks Week Ended Nov. 14, 2014
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 Index closed in positive territory for the fourth straight week with a 0.44% return. The index increased 0.32% on Monday, giving the S&P 500 a new all-time closing high at 2,038.26. Most sectors were up for the day and were led by the health care sector while the energy sector lagged with weakness in oil. With no economic data released on Tuesday, the index increased 0.07% to another all-time high of 2,039.68. Stocks closed lower on Wednesday with a -0.04% return. Sectors were mixed for the day, but were tilted negative by the utilities and energy sectors. Stocks closed just above even on Thursday with a 0.06% return. US initial jobless claims came in at 290K, which was an increase from the previous week’s 278K and was higher than the consensus estimate of 280K. While jobless claims increased, this still marked the ninth straight week with claims below 300K. Friday brought positive economic news with the University of Michigan Consumer Sentiment Index increasing to 89.4, the highest level since July 31, 2007. The S&P 500 closed up with a 0.04% return and gave us our current all-time high of 2,039.82. The S&P 500 Index has increased 9.72% since October 15, the low for the second half of 2014. Seven of the ten economic sectors had positive performance for the week. The telecommunication services sector was the best performing sector with a 2.26% return. The consumer discretionary and information technology sectors followed with 1.84% and 1.83% returns, respectively. The utilities sector’s -2.83% return was the worst performance of all the sectors and was followed by energy and financials which returned -1.83% and -0.36%, respectively. Baker Hughes Inc., a supplier of products and services to the oil and gas industry, turned in the best performance in the S&P 500 Index with a 14.51% gain. The stock jumped 15.24% on Thursday as news broke that Halliburton Co. is in talks to buy Baker Hughes, Inc. The next two best performers were Genworth Financial Inc. and Amazon.com Inc. with returns of 11.89% and 9.32%, respectively. This week will bring earnings news from The Home Depot Inc., Medtronic Inc., Lowe’s Company Inc., The TJX Companies Inc., Target Corp., Intuit Inc., The Gap Inc. and many others.
Posted on Monday, November 17, 2014 @ 8:23 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended Nov. 14, 2014
Posted Under: Weekly Market Commentary

 
U.S. Treasury yields increased slightly as data showed signs of an accelerating economic recovery, leading investors to sell Treasuries in anticipation of higher interest rates. On Wednesday, MBA mortgage applications declined for the third straight week, as fewer Americans refinanced their homes. On Thursday, applications for U.S. unemployment benefits rose more than forecasted, reaching the highest level since September. Oil continued its decline as gold saw a slight increase. Cheaper oil prices and an overall improving job market have helped consumer confidence increase to a seven year high, as the University of Michigan Consumer Sentiment Index beat expectations on Friday. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: November Empire Manufacturing (12), October Industrial Production (0.2% MoM); Tuesday: October PPI Final Demand (-0.1%); Wednesday: November 14th MBA Mortgage Applications, October Housing Starts (1025K); Thursday: October CPI (0.-1% MoM), November 15th Initial Jobless Claims (282K), November Markit US Manufacturing PMI (56.3), October Existing Homes Sales (5.15M), October Leading Index (0.6%).
Posted on Monday, November 17, 2014 @ 8:19 AM • Post Link Share: 
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  Bond Investors Still Facing The Prospects For Higher Interest Rates
Posted Under: Bond Market

 

View from the Observation Deck 

  1. From 5/27/14-11/12/14 (see chart dates), the yield on the benchmark 10-Year Treasury Note dipped from 2.52% to 2.37%. The yield rose from 1.76% to 3.03% in 2013. 
  2. Despite the 15 basis point decline since 5/27, bond prices were down in the last five bond categories featured in the chart.
  3. The slight decline in the S&P/LSTA U.S. Leveraged Loan Index’s par weighted price makes sense because the loans pay a floating rate of interest. Investors may view them as less desirable to own when interest rates are falling.
  4. As for the other fixed-rate categories, the price decline could be due in part to outflows from bond mutual funds since the end of August 2014.
  5. From 8/31/14-11/5/14, bond funds reported net outflows totaling approximately $49.1 billion, according to estimates from the Investment Company Institute (ICI).
  6. In the first eight months of 2014, ICI data showed that bond funds had reported net inflows totaling an estimated $65.7 billion.
  7. Bond prices remain well above par value in a number of major bond categories. We will continue to monitor moving forward.

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 BofA Merrill Lynch 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. The BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The S&P/LSTA Leveraged Loan Index tracks the performance of a broad cross section of leveraged loans, including dollar-denominated loans to overseas issuers. The BofA Merrill Lynch 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market. The BofA Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The BofA Merrill Lynch U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The BofA Merrill Lynch Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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Posted on Thursday, November 13, 2014 @ 2:41 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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