Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 

  US Stock Markets Ended March 22, 2019
Posted Under: Weekly Market Commentary

 
Equities, measured by the S&P 500, ended the week lower after rallying mid-week. Investors plowed back into stocks late Wednesday when the Federal Reserve kept rates unchanged. Going into Friday, the credit markets had a different view of the world as the yield curve, measured by the spread between three-month and 10-year treasury bills, inverted for the first time since 2007. The inverted curve sent bank stock prices lower along with cyclical sectors Materials and Industrials. The dollar advanced against most major currencies signaling global growth could be slowing. The rout extended through oil sending Energy stocks down through Friday. Global volatility spiked after a slew of data and decisions from various economies were released last week. German purchasing manager data missed forecasts sending the country's 10-year bond yield below zero. European leaders moved to stop a "no-deal" Brexit from happening next week. Theresa May accepted the offer to extend the Article 50 process by two more weeks. European Union President Donald Tusk said publicly he was optimistic after the decision, but reportedly EU leaders do not share his optimism in private conversations. After the bell on Friday, Special Counsel Robert Mueller submitted his final report to the Attorney General. The AG said in a letter that he may be able to provide some details to Congress as soon as this weekend. Full disclosure of the contents of Mueller's report will be fought between the White House and Congress. Next week several housing-related data points will be released along with trade, GDP, and jobs numbers.
Posted on Monday, March 25, 2019 @ 8:15 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended March 22, 2019
Posted Under: Weekly Market Commentary

 
Treasury prices rose significantly over the course of the week on a more dovish Federal Reserve announcement and the first inverted yield curve since 2007. On Wednesday, the Fed kept rates unchanged and lowered its rate hike projection for 2019 from two to zero while announcing that the balance sheet run off would end in September. The Fed also lowered forecasted GDP growth from 2.3% to 2.1% and forecasted inflation from 1.9% to 1.8%. Recession worries heightened on Friday when the 10-year Treasury yield dropped below the 3-month Treasury yield for the first time in over a decade, which is seen as an indicator of a possible recession in the near future. Investors also fear slowing global growth as the German manufacturing sector contracted further with the IHS Markit's purchasing managers index falling well below expectations to its lowest level since 2012. All of this led to a risk-off appetite and for investors to seek the perceived safety of Treasurys. Meanwhile, it was reported that trade talks between the U.S. and China were in their final stages and that U.S. representatives would fly to China next week, but it was also reported that China may try to pull back some concessions. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: February Housing Starts (1225k, 1230k); Wednesday: March Conf. Board Consumer Confidence (132.0, 131.4); Thursday: 4Q GDP Annualized (2.4%, 2.6%), March 23 Initial Jobless Claims (225k, 221k); Friday: February Personal Income (0.3%, -0.1%), January Personal Spending (0.3%, -0.5%), March MNI Chicago PMI (61.0, 64.7), February New Home Sales (620k, 607k), March Final U. of Mich. Sentiment (97.8, 97.8).
Posted on Monday, March 25, 2019 @ 8:12 AM • Post Link Share: 
Print this post Printer Friendly
  Commodities & The U.S. Dollar
Posted Under: Commodities

 

View from the Observation Deck 

  1. Commodity prices declined in six of the 10 calendar years (full-year) featured in the table, as measured by the Thomson Reuters/CoreCommodity CRB Commodity Index. Prices are up markedly so far in 2019.
  2. From 12/31/08-12/31/18, commodity prices fell 23.12%, according to Bloomberg. For comparative purposes, commodity prices rose 152.84% the previous decade (12/31/98-12/31/08).
  3. The U.S. Dollar Index (DXY) posted gains in six of the 10 calendar years (full-year) in the table. From 12/31/08-12/31/18, the index rose 18.28%, according to Bloomberg. For comparative purposes, the index declined 13.66% the previous decade (12/31/98-12/31/08). 
  4. Commodity prices tend to have an inverse relationship with the U.S. dollar over time. A strengthening U.S. dollar can put downward pressure on commodity prices, while weakness in the dollar can help boost prices.
  5. The low rate of inflation over the past decade may have contributed to the downward pressure on commodity prices. From 2009-2018, the Consumer Price Index (CPI) headline rate never closed a calendar year higher than 3.0% (2011) on a year-over-year basis, according to the Bureau of Labor Statistics. From 1999-2008, the CPI reached as high as 4.1% (2007) and was 3.0% or higher a total of four times. From 1926-2018, the CPI averaged 3.0% per year, according to Bloomberg. It stood at 1.5% in February 2019, below the Federal Reserve's ("Fed") 2.0% target level. 
  6. The Fed has acknowledged that it is factoring in the slowdown in global economic growth into U.S. monetary policy. As of 3/20/19, it is projecting zero federal funds rate hikes for the rest of 2019 and just one in 2020. In addition, it will soon end the process of reducing the size of its bloated balance sheet.
  7. Investors funneled an estimated net $151 million into Commodities (Broad Basket) mutual funds and exchange-traded funds in the first two months of 2019, and an estimated net $625 million for the 12-month period ended 2/28/19, according to Morningstar.

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 Thomson Reuters/CoreCommodity CRB Commodity Index is an average of commodity futures prices with monthly rebalancing, while the U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar relative to a basket of major world currencies.

Download a PDF of this post, please click here.


Posted on Thursday, March 21, 2019 @ 2:29 PM • Post Link Share: 
Print this post Printer Friendly
  Technology Stocks Continue to Deliver Strong Returns for Investors
Posted Under: Sectors

 
View from the Observation Deck

  1. From 3/9/09-3/18/19 (current bull market), all four of the technology-related indices featured in the chart outperformed the S&P 500 Index.
  2. As of 3/18/19, Information Technology accounted for approximately 21.00% of the S&P 500 Index, up from 17.84% on 3/9/09, according to Bloomberg and Bespoke Investment Group. It is the most heavily weighted sector in the index, followed by Health Care at approximately 14.70%. For comparative purposes, Information Technology held a weighting of 29.18% at the close of 1999, just prior to the bursting of the tech bubble in March 2000.
  3. The average annualized total returns shown in the chart are as follows: ISE Cloud Computing Index (28.79%); Dow Jones Internet Composite Index (27.54%); Philadelphia Semiconductor Index (24.02%); S&P 500 Information Technology Index (22.11%); and S&P 500 Index (17.79%), according to Bloomberg.
  4. Year-to-date through 3/18/19, the S&P 500 Information Technology Index posted a total return of 18.69%, compared to 13.53% for the S&P 500 Index, according to Bloomberg. It was the top-performing sector index, followed by the S&P 500 Energy Index, up 16.93%.
  5. While cloud computing has performed exceptionally well in the current decade-long bull market, Gartner believes we are in the early stages of the second decade of cloud computing, according to Dataquest. Cloud is being adopted for such benefits as instantaneous availability of compute resources, scalability, and pay-as-you-go.
  6. International Data Corporation's (IDC) Worldwide Quarterly Cloud IT Infrastructure Tracker reported that vendor revenue from sales of infrastructure products (server, storage and Ethernet switch) for cloud IT grew 47.2% year-over-year to $16.8 billion in Q3'18, according to its own release. IDC notes that Q3'18 marked the first time that vendor revenues from infrastructure product sales into cloud environments topped revenues from sales into traditional IT environments.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or 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 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The ISE Cloud Computing Index is a modified equal-dollar weighted index designed to track the performance of companies actively involved in the cloud computing industry. The Dow Jones Internet Composite Index is a modified capitalization-weighted index designed to track companies involved in Internet-related activities. The Philadelphia Semiconductor Index is a modified capitalization-weighted index comprised of companies that are involved in the design, distribution, manufacturing, and sale of semiconductors. The S&P 500 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector.

Download a PDF of this post, please click here.
Posted on Tuesday, March 19, 2019 @ 1:30 PM • Post Link Share: 
Print this post Printer Friendly
  US Stock Market Ended March 15, 2019
Posted Under: Weekly Market Commentary

 
The S&P 500 posted its best week since November as investors applauded China's renewed pledge to stimulate their economy.  In addition, muted inflation for consumer and industrial products led to optimism that the Federal Reserve will remain accommodative. In other economic news, the consumer remains strong as retail sales and new housing starts came in above estimates. Markets were paced by gains in technology for the week as the sector rose by nearly 5%. Shares of Broadcom Inc. jumped by 7% on Friday after the chipmaker maintained their current guidance, despite several headwinds faced by the semiconductor market. Nvidia Corp.'s shares gained after agreeing to purchase Mellanox Technologies Ltd. for around $6.9 billion. The deal should strengthen Nividia's offering within datacenter components. Adobe Inc. moved lower following disappointing guidance for next quarter and noise within the current quarter due to an accounting rule change. Boeing Co. fell by over 10% for the week after a second crash of its new plane, the 737 Max, led to the grounding of its aircraft in numerous countries around the world, including the U.S. Looking ahead to next week, the Fed's March meeting will be key on investors' minds, especially with few earnings announcements and key economic data points scheduled for next week. Investors expect continued patience from the Fed, especially with economic data points slowing over the last quarter. Looking further ahead, next quarter's earnings season will be pivotal as earnings are currently projected to contract by 3% as weakness in some mega-caps, the chip cycle and energy is likely to weigh on corporate profits.
Posted on Monday, March 18, 2019 @ 8:08 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended March 15, 2019
Posted Under: Weekly Market Commentary

 
U.S. government bond prices were up slightly last week, and the 10-year Treasury yield moved below 2.60% from nearly 3.25% in November 2018 as weaker-than-expected economic and inflation data increased expectations that the Fed will forgo raising rates this year. The Consumer Price Index, excluding food and energy, increased 0.1% in February and 2.1% over the last 12 months. The increase in February came in below expectations, which gave the appearance of cooling inflation and helped push U.S. government bond prices higher. New-home sales fell 6.9% in January over the prior month, which was below expectations, while new-home sales in December were revised up from 621,00 annually to 652,000. Soft manufacturing data released on Friday also helped push bond prices higher. According to the Fed, manufacturing fell 0.4% in February after falling 0.5% in January. This week, the Federal Open Market Committee meets on Tuesday and Wednesday and is widely expected to hold interest rates steady. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: January Final Durable Goods Orders (0.4%, 0.4%), January Factory Orders (0.2%, 0.1%); Wednesday: March 20 FOMC Rate Decision – Upper Bound (2.50%, 2.50%), March 15 MBA Mortgage Applications (N/A, 2.3%); Thursday: March 16 Initial Jobless Claims (225k, 229k), February Leading Index (0.1%, -0.1%); Friday: March Preliminary Markit US Manufacturing PMI (53.6, 53.0), February Existing Home Sales (5.10m, 4.94m), January Wholesale Inventories MoM (0.0%, 1.1%).
Posted on Monday, March 18, 2019 @ 8:04 AM • Post Link Share: 
Print this post Printer Friendly
  Passive Investment Vehicles Have Posted The Strongest Asset Growth Since The End Of 2007
Posted Under: Conceptual Investing

 
View from the Observation Deck  

  1. This marks the eighth calendar year in which we have tracked the asset growth of the four major types of packaged products since the close of 2007 (prior to financial crisis in 2008-2009).
  2. The percentage change in the total assets invested in packaged products from 2008 to 2018 were as follows (see chart): Exchange-Traded Funds (ETFs) (+454%); UITs (+32%); Mutual Funds (+48%); and Closed-End Funds (-20%).
  3. With respect to mutual funds, Morningstar data indicates that assets held in passive funds rose six-fold from 2008 through 2018, while active assets roughly doubled, according to InvestmentNews.  
  4. From 2017 to 2018, total assets in each of the four major types featured in the chart fluctuated as follows: ETFs ($3.40 trillion vs. $3.37 trillion); UITs ($85 billion vs. $70 billion); Mutual Funds ($18.75 trillion vs. $17.71 trillion); and Closed-End Funds ($275 billion vs. $250 billion).
  5. In 2018, investors favored passive investing over active management. Data from Morningstar shows that estimated net flows to all "Active" long term mutual funds and ETFs totaled -$300.7 billion, while estimated net flows to all "Passive" funds and ETFs totaled $457.7 billion.
  6. We have noted in previous blog posts that some industry pundits have predicted that ETFs, in time, will supplant mutual funds as the most popular packaged product. While ETF assets have grown substantially over the past decade, thus far it has not come at the expense of mutual funds.  

This chart is for illustrative purposes only and not indicative of any actual investment. 

Download a PDF of this post, please click here.
Posted on Thursday, March 14, 2019 @ 1:00 PM • Post Link Share: 
Print this post Printer Friendly
  This Data Does 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 some historical perspective as to where three key benchmark interest rates/yields 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, from its recent peak.  
  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 ("Fed") becomes too tight with its monetary policy.  
  4. As indicated in the chart, the upper bound of the federal funds target rate is currently 2.50%. While up from 0.25% in late 2015, it is still well below its 30-year average of 3.14%, according to Bloomberg.  
  5. Wesbury believes that even if the Fed raises rates a couple of times in 2019, it would simply make its policy less loose, not tight. The lack of any serious inflationary pressure (see CPI column in table) in the current climate could allow the Fed to delay its next increase for some time, in our opinion. 
  6. 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%.
  7. As of 2/28/19, the 10-Year T-Note yielded just 2.72%, or 128 basis points below that 4.00% mark. 

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 (currently 505) used to measure large-cap U.S. stock market performance. The CPI (Consumer Price Index) measures the prices paid for a market basket of consumer goods and services. 


Download a PDF of this post, please click here.
Posted on Tuesday, March 12, 2019 @ 2:20 PM • Post Link Share: 
Print this post Printer Friendly
  US Stock Markets Ended March 8, 2019
Posted Under: Weekly Market Commentary

 
Equity markets were lower last week as fears of weaker global GDP weighed on returns. The European Central Bank sent ripples through markets after they slashed their 2019 real GDP growth target from 1.7% last December to 1.1%. Additionally, they made smaller cuts to their 2020 and 2021 estimates. The U.S. Change in Nonfarm Payrolls where 25k compared to an expected 180k last month, uncharacteristically low. There have only been 2 months since 2011 where the number has come in lower. Despite the disappointing jobs number, wage growth remains strong at 3.4% year-over-year and the unemployment rate of 3.8% remains historically low. The tough economic backdrop didn't slow the announcement of Biogen Inc. to acquire Nightstar Therapeutics for a 74% premium and nearly $750m all cash, in a deal that is expected to close by the end of the quarter. Last week, retail had a string of weak earnings announcements. Kroger Co. announced disappointing 4Q earnings as margin compression continues, primarily from pricing and product mix changes, as well as additional investments into their supply chain. Despite their efforts to soften the blow last quarter, Ross Stores announced lower 2019 guidance, despite earnings and revenue that were in-line with expectations. Burlington Stores fell over 11% after reporting that revenue missed and margins were lower last quarter. Putting the current equity market in perspective, March 9, 2009 marked the low of the 'Great Recession'. One would have gained 400% had they invested in the S&P 500 10 years ago, which computes to a 17.4% average annual return. Had one invested at the previous high, October 9, 2007, they would have had a 124% return, or a 7.3% average annual return. Lesson? Invest high or invest low, equities remain a tremendous vehicle for buy-and-hold capital appreciation.
Posted on Monday, March 11, 2019 @ 8:49 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended March 8, 2019
Posted Under: Weekly Market Commentary

 
Investment grade and high yield spreads widened marginally last week amid increased issuance and mixed global economic conditions. ECB forecasts for the Eurozone economies disappointed as growth continues to be increasing at a slower rate than anticipated. Amid the lack of growth acceleration, on Thursday, the European Central Bank revealed plans to stimulate the economies by saying they would hold interest rates steady through 2019 as well as issue low-cost long-term loans for banks beginning in September. Last week's Friday nonfarm payrolls report was only shown increasing by 20,000 in February which was far below consensus expectations of 180,000. This disappointment followed a week of mixed reports and while the unemployment rate did continue to fall, and wages were shown increasing, a wider trade deficit and the disappointing European data contributed to raising Treasury prices. Gold rallied meaningfully last week as the weak jobs report and generally weak market conditions increased investor interest in this asset. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: January Retail Sales Advance (0.0%, -1.2%); Tuesday: February CPI (0.2%, 0.0%); Wednesday: March 8 MBA Mortgage Applications (N/A, -2.5%), February PPI Final Demand (0.2%, -0.1%), January preliminary Durable Goods Orders (-0.5%, N/A) and January Construction Spending (0.4%, -0.6%); Thursday: March 9 Initial Jobless Claims (225k, 223k), January New Home Sales (624K, 621K); Friday: March Empire Manufacturing (10.0, 8.8), February Industrial Production (0.4%, -0.6%), March Preliminary U. Of Michigan Sentiment (95.6, 93.8).
Posted on Monday, March 11, 2019 @ 8:47 AM • Post Link Share: 
Print this post Printer Friendly

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.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Weekly Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
Sector Performance Via Market Capitalization (Current Bull Market)
A Global Snapshot of Government Bond Yields
US Stock Markets Ended March 1, 2019
US Economy and Credit Markets Ended March 1, 2019
This Covered Call Index Tends To Outperform The S&P 500 When Stock Returns Are Modest Or Negative
Massive Growth In The Equity REIT Market This Millennium
US Stock Market Ended February 23, 2019
US Economy and Credit Markets Ended February 23, 2019
Comparing Two Major Recoveries: Technology vs. Financials
One Of The Original Asset Allocation Models
Archive
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2019 All rights reserved.