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Bob Carey
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  The Recovery In The Homebuilding Sector Still A Work In Progress
Posted Under: Sectors

 
View from the Observation Deck  
  1. Today’s post shows that the homebuilding industry is in full recovery mode, in our opinion. The data in the chart runs through April 30, 2015 to reflect the most recent month-end data.
  2. The National Association of Home Builders Market Index (SA) measures builder sentiment. An index reading above 50 indicates that sentiment is positive.
  3. As of April 30, 2015, the index level stood at 56. It has been above 50 for 10 consecutive months. Since April 30, 2000, the highest reading has been 72, which was registered in June 2005.
  4. The S&P Homebuilding Select Industry Index, which includes builders and companies that sell building and other home-related products, stood 37.11% below its 15-year high (7/20/05) at the close of April 2015.
  5. Bloomberg’s consensus earnings growth rate estimates for the S&P Homebuilding Select Industry Index for 2015 and 2016 were 19.23% and 20.26%, respectively, as of 5/27/15.
  6. Those growth rates greatly exceed the estimates for the broader market. Bloomberg’s consensus earnings growth rate estimates for the S&P 500 Index for 2015 and 2016 were 4.51% and 12.08%, respectively, as of 5/27/15. 
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 Homebuilding Select Industry Index provides investors with an equity benchmark for U.S. traded Homebuilding-related securities. The National Association of Home Builders Market Index (SA) tracks sentiment among participants in the housing industry. A reading above 50 indicates that builders are positive on the climate. The S&P 500 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, May 28, 2015 @ 1:18 PM • Post Link Share: 
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  Then Came the Last Days of May
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.
Posted on Wednesday, May 27, 2015 @ 2:33 PM • Post Link Share: 
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  Sizing Up The Bull
Posted Under: Broader Stock Market

 

View from the Observation Deck  

  1. Today’s blog post is intended to provide investors with a snapshot of how five major stock indices have fared in the current bull market. Three are U.S. based and two track foreign equities.
  2. From 3/9/09-5/22/15, the best performing index of the five was the S&P SmallCap 600, with an average annualized total return of 26.33%.
  3. The index with the highest average P/E in the current bull market was the S&P SmallCap 600, at 24.45, as of 5/22/15.
  4. The index with the lowest 2015 estimated P/E, as of 5/26/15, was the MSCI Emerging Markets, at 12.96.
  5. Bloomberg’s consensus 2015 estimated earnings growth rates for all five indices were as follows, as of 5/26/15: 4.52% (S&P 500); 7.68% (S&P MidCap 400); 16.89% (S&P SmallCap 600); 10.73% (MSCI World ex U.S.); and 14.55% (MSCI Emerging Markets).

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 Index is a capitalization-weighted index used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index measures the small-cap segment of the U.S. stock market. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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Posted on Tuesday, May 26, 2015 @ 3:25 PM • Post Link Share: 
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  US Stocks Week Ended May 22, 2015
Posted Under: Weekly Market Commentary

 

Over the last month, yields have been rising as the markets continue to anticipate that the Federal Reserve will raise interest rates during 2015. Janet Yellen spoke on Friday and confirmed the Federal Reserve’s commitment to raising interest rates this year. Yields rose this week as Friday’s CPI inflation report came in higher than expected. Euro-area bonds have continued their sell-off since the 10-Year German government bond fell to a historic low of .07% on April 20th. Since then, it has gone up over 65 basis points as the bonds have rapidly sold-off. This seems to be largely driven by an unwinding of QE trades and as a result the dollar has strengthened. Oil has rebounded from its lows and climbed slightly during the week on the back of US currency appreciation. Though last week saw small Crude Oil supply declines, supplies remain high as Saudi Arabia remains committed to maintaining its market share. Most of the rebound from Crude Oil’s March pricing lows has been driven by the expectation of reduced CAPEX by high cost E&P firms and a corresponding fall in rig counts which will reduce supply. As mentioned above, Friday had the latest CPI information released and it registered a .1% increase in April, but was down .2% vs. last year. Energy prices fell 1.3% in April, have fallen 19.4% from last year and are the leading contributor to the low CPI numbers. Real average hourly earnings did not change in April but are up 2.3% vs. last year. Major economic reports (and related consensus forecasts) for the upcoming Memorial Day shortened week include: Tuesday: April Durable Goods Orders (-.5%), April New Home Sales (+5.1%), May Consumer Confidence Index (95.0); Wednesday: Prior Week MBA Mortgage Applications; Thursday:  Prior Week Initial Jobless Claims (270K); Friday: GDP Annualized QoQ (-.9%), University of Michigan Final May Consumer Sentiment (90).

Posted on Tuesday, May 26, 2015 @ 8:25 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended May 22, 2015
Posted Under: Weekly Market Commentary

 
Equity markets were little changed for the week, with the S&P 500 rising 0.21%, as Federal Reserve Chair Janet Yellen said she still expects to raise rates this year if the economy continues to strengthen. However, the pace of increases will be gradual. Economic data remained mixed as manufacturing PMI growth slowed for the second straight month. In April, U.S. housing starts rose to a seven year high, but existing home sales fell by 3.3%. A number of retailers announced earnings results with Wal-Mart Stores Inc. missing expectations amid weaker U.S. sales growth and foreign exchange headwinds. However, Target Corp. beat expectations as new CEO Brian Cornell refocuses the brand after a number of missteps. The Minneapolis based retailer is concentrating on improving U.S. stores after announcing the closure of all Canadian stores in January and gaining back their former cachet of “Tar-zhay” through exclusive merchandise like the recently offered Lilly Pulitzer collection. Home Depot Inc. reported earnings and comparable sales above street estimates, while Lowe’s Cos. trailed estimates as Home Depot Inc. won a highly promotional spring against its chief competitor. In merger news, Ann Inc. gained over 20% for the week after Ascena Retail Group Inc. agreed to buy the retailer for around $2.2 billion. Looking ahead to next week, durable goods orders and the second reading of first quarter GDP will be key economic data points. With the first quarter earnings season nearly in the books, the S&P 500 earnings maintained a positive growth rate, despite expectations for a 5% fall going into earnings season. Equity markets remain attractive versus other assets classes, especially bonds, if earnings can continue to plow higher.
Posted on Tuesday, May 26, 2015 @ 8:22 AM • Post Link Share: 
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  Bonds Have Already Endured A Rise In Interest Rates
Posted Under: Bond Market

 

View from the Observation Deck  

  1. The yield on the benchmark 10-Year Treasury note (10-Yr. T-Note) bottomed on 7/24/12 at 1.39%, according to data from Bloomberg. It stood at 2.29% at the close of 5/19/15, or a net increase of 90 basis points.
  2. Since 7/24/12, the highest yield attained by the 10-Yr. T-Note was 3.03%, set on 12/31/13. So investors have already had a taste of how high and how quickly interest rates can rise.    
  3. The bond index total returns featured in the chart reflect how the various bond categories responded to the rise in interest rates since 7/24/12.
  4. As indicated in the chart, the highest returns were primarily posted by debt securities issued by corporations.
  5. Investors are naturally curious as to when the Federal Reserve might begin to raise short-term lending rates. Until that answer is known, investors should keep an eye on the 10-Yr. T-Note as well, 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 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 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 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 Constrained 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. The BofA Merrill Lynch All Convertibles All Qualities Index is a widely used index that measures the performance of U.S. dollar-denominated convertible securities not currently in bankruptcy with a total market value greater than $50 million at issuance.

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Posted on Thursday, May 21, 2015 @ 2:57 PM • Post Link Share: 
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  This 50/50 Sector Combo Has Captured Upside
Posted Under: Sectors

 

View from the Observation Deck  

  1. Today’s blog post is an equity investment approach targeting those investors who are concerned about the risks associated with owning common stocks over time.
  2. From 1995 through 2014, a 50/50 split between the S&P 500 Health Care Index and the S&P 500 Consumer Staples Index would have posted an average annual total return of 12.02%, compared to 9.85% for the S&P 500, according to Bloomberg.
  3. From 1926-2014, the S&P 500 posted an average annual total return of 10.12%, according to Ibbotson Associates/Morningstar. That is in line with the 9.85% average annual total return for the 20-year period ended 2014.
  4. Health Care and Consumer Staples are often characterized as “defensive” sectors, based largely on the premise that demand for their goods and services tends to be far less cyclical than most other major sectors. 
  5. We chose to exclude Utilities, also considered by many to be defensive in nature, because, unlike the other two sectors, they are inherently vulnerable to interest rate fluctuations due to an emphasis on dividend distributions.
  6. In the period depicted in the chart, the 50/50 split between the S&P 500 Health Care Index and S&P 500 Consumer Staples Index outperformed the S&P 500 in 13 out of the 20 calendar years, or 65% of the time.
  7. History shows that investors can employ a defensive bias in the stock market and still grow their capital, 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 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The S&P 500 Health Care Index and S&P 500 Consumer Staples Index are capitalization-weighted indices comprised of S&P 500 constituents operating in the health care and consumer staples sectors.

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Posted on Tuesday, May 19, 2015 @ 2:02 PM • Post Link Share: 
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  New Market Highs Met By Complacency
Posted Under: Weekly Market Commentary
Bob Carey, Chief Market Strategist at First Trust Advisors L.P., discusses the latest developments in the market and takes a look at why new all time market highs continue to be met by complacency.
Posted on Tuesday, May 19, 2015 @ 6:46 AM • Post Link Share: 
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  US Stocks Week Ended May 15, 2015
Posted Under: Weekly Market Commentary

 
The S&P 500 closed Friday with a value of 2,122, an all-time high for the index. Friday’s close marks the seventh time this year an all-time high has been set for the S&P 500. Merger Monday started off with a thud when Noble Energy Inc. announced that they were acquiring Rosetta Resources Inc. for nearly $4b in stock, equity markets did not like the pairing as NBL sank over 8.6%. However, the markets received news that On Assignment Inc. was buying online staffing firm Creative Circle LLC for $570m in cash, which spurred a 15% rally in ASGN. The Wall Street Journal reported that Danaher Corp. was going to acquire Pall Corp. for nearly $14b in cash. Then Merger Monday spilled over into Merger Tuesday when Verizon Wireless Inc. announced plans to buy AOL Inc. for $4b in cash, the share price of VZ moved little on the news. Before the 1Q earnings season started, Bloomberg reported that the analyst earnings projections would be 5.8% lower than last quarter among members of the S&P 500. Now Bloomberg is reporting that members of S&P 500 are on track to report 0.2% earnings growth for the quarter. Actavis Plc. rallied over 3% on Monday, as the pharmaceutical giant reported earnings and revenue ahead of estimates. Rackspace Hosting Inc. tumbled over 13% as they announced projected sales below analyst expectations. Wednesday, Macy’s Inc. reported earnings that were in line with estimates but weaker than expected sales sending their share price down over 3%. Thursday, Kohl’s Corp. saw its shares fall 13% as they too reported weaker than expected sales. We will learn more about the strength of retail sales next week as Target Inc., Best Buy Inc., Lowe’s Cos Inc., The Home Depot Inc., Wal-Mart Stores Inc. and The Gap Inc. are expected to announce quarterly earnings. In general we remain constructive on the equity markets as first quarter earnings was better than initially projected and economic data has softened a bit, which will likely mean the Fed will keep in place their current easy policy.
Posted on Monday, May 18, 2015 @ 8:12 AM • Post Link Share: 
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  US Economy and Credit Markets Week Ended May 15, 2015
Posted Under: Weekly Market Commentary

 
U.S Treasury debt prices fluctuated throughout the week before recovering on Friday as yields on sovereign debt continued to increase. U.S. Treasury bonds fell Monday after a two-day price rally, sending the yield on the benchmark 10-year note to the highest closing level in more than five months. U.S. Treasury prices rose on Tuesday and eliminated an earlier selloff. On Wednesday, a selloff of German debt offset a disappointing U.S retail sales report sending the yield of the benchmark 10-year note to the highest level in over 5 months. Bonds strengthened on Thursday as initial jobless claims unexpectedly fell to the lowest point in 15 years. Treasury prices continued to rise on Friday after an unexpected decline in consumer sentiment and week factory data. Major economic reports (and related consensus forecasts) for the upcoming week include: Monday: April Housing Starts (1020k); Tuesday: May 15 MBA Mortgage Applications; Wednesday: May 16 Initial Jobless Claims (270K), May Markit US Manufacturing PMI (54.5), April Existing Home Sales (5.42M), April Leading Index (0.3%); Friday: April CPI (0.1% MoM).
Posted on Monday, May 18, 2015 @ 8:09 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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