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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 provides investors with a three-year look into the expected revenue growth rates of the sectors that comprise the S&P 500 Index. 
  2. On 12/8/17, the S&P 500 Index closed the trading session at an all-time high of 2,651.50, according to Bloomberg. The current bull market in stocks, which commenced in March 2009, is in its 9th year.
  3. For the market to trend higher, we believe that corporate earnings will need to grow, and perhaps the best catalyst for growing earnings is to increase revenues.
  4. As indicated in the table, as of 12/8/17, the estimated year-over-year (y-o-y) revenue growth rate for the S&P 500 Index for 2017 was 5.5%, according to Bloomberg. The estimate for 2018 was 5.9%.
  5. Estimates for seven of the 11 major sectors that comprise the index reflect stronger potential y-o-y revenue growth in 2018. Seven sectors have 2018 estimates in excess of 5.0%.
  6. With respect to 2019, Financials is the only sector that reflects a stronger y-o-y revenue growth projection. Five sectors have 2019 estimates 5.0% or higher. 
  7. Overall, the forecast for revenue growth is encouraging, 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 11 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 Thursday, December 14, 2017 @ 2:18 PM • Post Link Share: 
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  2018: A Strategic Outlook
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 Thursday, December 14, 2017 @ 8:25 AM • Post Link Share: 
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  Top-Performing Subsectors in the S&P 500 Index in 2017
Posted Under: Sectors

 
View from the Observation Deck  
  1. Today's blog post is for those investors who want to drill down below the sector level to see what is performing well in the stock market.
  2. The S&P 500 Index is currently comprised of 11 sectors and 125 subsectors, according to S&P Dow Jones Indices.
  3. Of the 15 subsectors featured in the chart, nearly half (7) are classified as Consumer Discretionary. Four are classified as Information Technology. 
  4. As of 11/30/17, the most heavily weighted sector in the S&P 500 Index was Information Technology at 24.0%, while Consumer Discretionary was the fourth-largest at 12.1%, according to S&P Dow Jones Indices. 
  5. The 15 top-performing subsectors in the chart have price-only returns ranging from 44.37% (Publishing & Printing) to 70.90% (Homebuilding).
  6. For comparative purposes, the S&P 500 Information Technology Index was the top-performing sector index over the period, with a price-only return of 35.70%, according to Bloomberg. The S&P 500 Consumer Discretionary Index was up 18.64%. The S&P 500 Index rose 17.78%. 
  7. There are a growing number of packaged products, such as exchange-traded funds, that feature index subsectors. 

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 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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Posted on Tuesday, December 12, 2017 @ 3:19 PM • Post Link Share: 
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  US Stocks Ended Dec. 8, 2017
Posted Under: Weekly Market Commentary

 
Equities opened higher last Monday after the Senate passed the Tax Cuts and Jobs Act of 2017 over the weekend. Stocks retreated after the open on Monday as the S&P 500 Index came under pressure from the decline in information technology stocks. Equities decreased through Wednesday before changing course to close the week positive as the S&P 500 Index returned 0.39% and posted a new closing high of 2,651.50 on Friday. U.S. gasoline inventories were much higher than expected creating downward pressure on crude oil prices which declined 2.88% on Wednesday. Crude oil prices declined through early Thursday before reversing and regaining some lost ground, closing at $57.36 per barrel, a -1.71% return for the week. In economic news, the University of Michigan Consumer Sentiment Index came in at 96.8, lower than expected and lower than the previous month. US initial jobless claims of 236K were lower than the consensus estimate of 240K and the previous week's 238K. DaVita Inc., one of the largest providers of kidney dialysis in the U.S., showed the best performance for the week in the S&P 500 Index with a 10.80% return. The stock jumped 13. 57% on Wednesday after announcing the $4.9 billion sale of DaVita Medical Holdings California LLC to UnitedHealth Group Inc. Brown-Forman Corp., a marketer of a variety of alcoholic beverage brands, leaped 6.51% on Wednesday after reporting increased sales growth and beating earnings estimates. Sysco Corp., a distributor of food and related products, climbed 8.41% last week. The stock's price targets were raised by multiple analysts after the company held an investor day event on Thursday where they presented their three-year financial objectives plan. AutoZone Inc., a specialty retailer of automotive replacement parts and accessories, returned 6.41% last week after beating earnings estimates and reporting higher same store sales. Next week's earnings news comes from Costco Wholesale Corp., Oracle Corp., and Adobe Systems Inc.
Posted on Monday, December 11, 2017 @ 8:18 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Dec. 8, 2017
Posted Under: Weekly Market Commentary

 
U.S. government bonds weakened to begin last week as the market reacted to the Senate's passing of revisions to the U.S. tax code over the prior weekend. On Thursday, longer-term yields rose after it became apparent that Congress would avoid a government shutdown. Congress eventually passed a two-week spending bill later that day that will keep the government funded through December 22nd. On Friday, the Labor Department announced that nonfarm payroll employment increased by 228,000 in November, beating the consensus forecast of 199,000. Meanwhile, the unemployment rate was unchanged at 4.1%. Shorter-term Treasuries strengthened following the report as the market interpreted 2.5% annual wage growth since last November as a sign that inflation remains soft. Looking ahead, the Federal Open Market Committee meets on Tuesday and Wednesday of this week and is widely expected to announce its third rate hike of 2017 on Wednesday, especially after a robust jobs report. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Tuesday: November PPI Final Demand (0.3%, 0.4% MoM); Wednesday: December FOMC Rate Decision – Upper Bound (1.50%, 1.25%), November CPI (0.4%, 0.1% MoM), December 8 MBA Mortgage Applications (--, 4.7%); Thursday: December 9 Initial Jobless Claims (239k, 236k), November Retail Sales Advance MoM (0.3%, 0.2% MoM), December Preliminary Markit US Manufacturing PMI (53.6, 53.9); Friday: November Industrial Production (0.3%, 0.9% MoM), December Empire Manufacturing (18.3, 19.4).
Posted on Monday, December 11, 2017 @ 8:15 AM • Post Link Share: 
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  This Homebuilder Index Is Still Well Below Its All-Time High
Posted Under: Sectors

 
View from the Observation Deck  
  1. Investors are likely aware that most major U.S. equity indices have been setting numerous record highs over the past year. There are, however, niches of the market that have lagged the broader stock indices.  
  2. Today's post shows that while valuation levels of homebuilder stocks are up sharply from their bear market lows in 2009, valuations still reflect a notable discount to their peak, set in July 2005 (see chart).
  3. Bloomberg's 2018 and 2019 estimated year-end price-to-earnings (P/E) ratios on the S&P Homebuilding Select Industry Index are 14.70 and 13.35, respectively, as of 12/7/17. Both are well below the index's three-year average P/E of 17.26.
  4. For comparative purposes, the 2018 and 2019 estimated year-end P/E ratios on the S&P 500 Index are 17.93 and 16.29, respectively, as of 12/7/17. Its three-year average P/E was 19.76. 
  5. Year-to-date through 12/6/17, the S&P Homebuilding Select Industry Index posted a total return of 28.02%, compared to a gain of 19.67% for the S&P 500 Index, according to Bloomberg.
  6. Even though the bottom in homebuilding investment was reached in March 2009, the rebound did not pick up steam until the latter part of 2011, according to Bloomberg. 
  7. In October 2017, housing starts stood at a seasonally adjusted annual rate of 1.290 million, compared to a pace of just 610,000 in October 2011, according to the U.S. Census Bureau. Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year, according to Brian Wesbury, Chief Economist at First Trust Advisors L.P.
  8. One of the potential headwinds for home sales moving forward could stem from the passage of tax reform legislation. While not finalized, the Republican Party's proposed tax plan includes caps on mortgage interest and local property tax deductions, which could possibly impact sales of higher end homes if passed into law. Congress could hold a vote on tax reform by year-end. 
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 S&P 500 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. 

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Posted on Thursday, December 7, 2017 @ 2:21 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. The averages in the chart simply reflect where the stocks in the S&P 500 Index stood, by sector, relative to their 52-week highs as of 11/30/17. 
  2. From 11/30/16 through 11/30/17, the S&P 500 Index, which is capitalization-weighted, posted a total return of 22.87%, according to Bloomberg. On a price-only basis, which excludes dividends, the index was up 20.41%.
  3. Year-to-date through 11/30/17, 73.5% of the stocks in the S&P 500 Index (currently 505) had positive returns on a price-only basis, according to S&P Down Jones Indices. In 2016, 69.7% of stocks in the index finished the year in positive territory.  
  4. As of 11/30/17, the S&P 500 Index, on a cap-weighted basis, stood at its all-time high of 2,647.58, according to Bloomberg.
  5. The 10 largest stocks in the index by market capitalization have significantly outperformed the overall index since the start of 2015, according to data from S&P Dow Jones Indices. That explains why the S&P 500 Index has been setting new all-time highs even though many of its constituents sit below, and in some cases well below, their respective 52-week highs, 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, while the 11 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, December 5, 2017 @ 4:01 PM • Post Link Share: 
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  US Stocks Ended Dec.1, 2017
Posted Under: Weekly Market Commentary

 
After another strong month and a new high to close out November, the S&P 500 is up over 20% for the year. Volatility on the political front continues to drive the news cycle as each day brings a new headline. Friday's dip was attributed to the Federal probe into President Trump's Russia dealings. Michael Flynn pleaded guilty to lying to federal agents which sent a shockwave through the market during early trading on Friday.; Equities bounced back later in the day as Senate Republicans appeared to move closer to passable tax bill. The pressure was on to pass the bill as Republicans seek to salvage their image after a failed bid to repeal Obamacare. The Senate passed their version of the bill just before 2 a.m. Saturday morning. Members of the House and Senate will begin work on Monday to deliver a final bill to the President's desk by Christmas. Telecommunication Services, led by Verizon Communications, was the best performing sector in the S&P 500 returning 6.71% for the week. Verizon is looking to cut the cable companies out of the internet service provider business by offering its upcoming 5G service to select cities late next year. A rebound for some traditional Consumer Discretionary names led by L Brands, Macy's, and Nordstrom is giving some hope to malls as the consumer appears to be strong going into the holiday season. Looking ahead to next week, investors will be keyed in to the payroll and jobs numbers coming later in the week. Growth in the labor market as well as factory orders and durable goods will drive investor sentiment though the end of the year.
Posted on Monday, December 4, 2017 @ 8:11 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Dec. 1, 2017
Posted Under: Weekly Market Commentary

 
Further progress on tax reform and the guilty plea of Michael Flynn resulted in a volatile end to last week with the S&P 500 having a Friday intraday decline of 1.5% before climbing back to close only modestly lower. Yields ended generally higher in spite of the volatility and increased political risk. After a quiet period the debt ceiling is once again impacting market news as the U.S. government could face the need for a partial shutdown as early as December 8th if Congress does not raise the limit before then. Last Monday saw the release of October's new single-family home sales numbers and they surprised to the upside. Not only were sales above consensus expectations but the supply of new homes also fell to just 4.9 months. Sales were up 18.7% year-over-year. On Wednesday, Real GDP was revised up to a 3.3% annual growth rate for the third quarter on the upward revisions of business investment, inventories and government spending. Following this, on Thursday, personal income was found to have risen .4% in October and consumption increased .3%. The PCE U.S. Consumption Expenditure Core Price Index was 1.4% for October, up .2% from the prior month. The Federal Reserve targets a 2% inflation rate. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Monday: October Factory Orders (-.4%, 1.4%) and Durable Goods Orders (-1%, -1.2%); Tuesday: October United States Trade Balance ($-47.3B, $-43.5B); Wednesday: Prior week MBA Mortgage Applications and the November ADP employment change (190K, 235K); Thursday: Prior week Initial Jobless Claims (240k, 238k); Friday: November change in nonfarm payrolls (199K, 261K), the November unemployment rate (4.1%, unch.), October MoM wholesale inventories (.1%, -.4%) and the preliminary University of Michigan Sentiment Index (99, 98.5).
Posted on Monday, December 4, 2017 @ 8:06 AM • Post Link Share: 
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  Sector Performance Via Market Capitalization Since Trump Won The Presidential Election
Posted Under: Sectors

 
View from the Observation Deck  
  1. From 11/8/16 through 11/29/17, small-capitalization (small-cap) stocks outperformed both mid- and large-cap stocks, as measured by the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index (see "Index" line in table).
  2. We are encouraged by the fact that small-cap stocks have outperformed mid-cap stocks, which in turn have outperformed large-cap stocks, because it indicates to us that the traditional risk-return dynamic  (the greater the risk taken, the greater the return expected) is alive and well, despite President Donald Trump's unorthodox approach to governing. 
  3. Sector performance can vary widely by market cap and several of the sectors reflect a huge disparity in performance. We would like to note that the -35.70% total return posted by the S&P 400 Telecommunication Services Index is exaggerated due to the fact that it only has two constituents.   
  4. A quick glance at the returns in the table should at the very least help the average investor appreciate the merits of asset allocation and diversification, in our opinion.
  5. The S&P 500 Index had three sectors (Energy, Financials and Information Technology) post the highest total returns, by market cap, for the period captured in the table. The S&P MidCap 400 Index had just one (Industrials) top-performer, while the S&P SmallCap 600 Index had the remaining seven (Consumer Discretionary, Consumer Staples, Health Care, Materials, Real Estate, Telecommunication Services and Utilities).
  6. None of the 11 sectors in the S&P 500 Index posted a negative total return in the period, compared to two for the S&P MidCap 400 Index and one for the S&P SmallCap 600 Index.  
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 11 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 Friday, December 1, 2017 @ 9:44 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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