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  Consumer Discretionary Outshining Consumer Staples And The S&P 500
Posted Under: Sectors

 
View from the Observation Deck  

  1. The performance figures featured in today's blog post suggest that investors open to overweighting specific areas of the stock market may want to add consumer stocks to their radar screen, particularly those of a discretionary nature.   
  2. Why target consumer stocks? Historically, consumer spending has been credited with generating as much as 67% to 70% of U.S. gross domestic product (GDP). That stat is supported by U.S. personal consumption expenditures, which stood at 69.0% at the end of 2017, according to Haver Analytics. One could say that consumption is already inherently overweight in the U.S. economy. 
  3. As indicated in the chart, the S&P 500 Consumer Discretionary Index outperformed both the S&P 500 Consumer Staples Index and the S&P 500 Index in each of the eight periods.  
  4. The 50/50 split outperformed the S&P 500 Index in 4 of the 8 periods, but not in any of the periods within the past five years. 
  5. Perhaps one of the main reasons why Consumer Discretionary has outperformed Consumer Staples, its more defensive counterpart, is fact that economic expansions in the U.S. tend to last much longer than economic contractions. From 1945 through 2009, the average length of an expansion was 58.4 months, compared to 11.1 months for the average contraction, according to the National Bureau of Economic Research.  

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 (currently 505) used to measure large-cap U.S. stock market performance. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index comprised of companies spanning 30 subsectors in the consumer discretionary sector. The S&P 500 Consumer Staples Index is a capitalization-weighted index comprised of companies spanning 12 subsectors in the consumer staples sector.

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Posted on Thursday, June 14, 2018 @ 1:40 PM • Post Link Share: 
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  A Snapshot of Growth vs. Value Investing
Posted Under: Themes

 
View from the Observation Deck  
  1. Today's blog post is updated throughout the year. Growth stocks have significantly outperformed value stocks year-to-date and over the past 12 months. 
  2. Growth tends to outpace value when the earnings growth rates of companies characterized as growth-oriented accelerate faster than the pace of earnings for the broader market. 
  3. The S&P 500 Pure Growth Index outperformed its value counterpart in five of the six periods featured in the chart. Growth investing topped value investing for the 10-year, 5-year, 3-year, 1-year and year-to-date periods ended 6/8/18.
  4. The returns were as follows (Pure Growth vs. Pure Value): 15-year average annualized (12.16% vs. 12.23%); 10-year average annualized (13.44% vs. 12.45%); 5-year average annualized (15.81% vs. 12.96%); 3-year average annualized (13.96% vs. 10.16%); 1-year (24.11% vs. 18.26%) and year-to-date (12.85% vs. 3.63%). 
  5. As of 5/31/18, the largest sector weighting in the S&P 500 Pure Growth Index was Information Technology at 40.0%, while the most heavily weighted sector in the S&P 500 Pure Value Index was Financials at 24.2%, according to S&P Dow Jones Indices. 
  6. YTD through 6/8/18, the S&P 500 Information Technology Index posted a total return of 14.24%, compared to 1.07% for the S&P 500 Financials Index, according to Bloomberg.

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 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. Constituents are drawn from the S&P 500 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 S&P 500 Information Technology Index is a capitalization-weighted index comprised of S&P 500 constituents in the information technology sector.  The S&P 500 Financials Index is a capitalization-weighted index comprised of S&P 500 constituents in the financials sector. 

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Posted on Tuesday, June 12, 2018 @ 1:20 PM • Post Link Share: 
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  Profits and Stock Buy Backs
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 ahead.
 
Posted on Tuesday, June 12, 2018 @ 7:40 AM • Post Link Share: 
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  US Stock Markets Ended June 8, 2018
Posted Under: Weekly Market Commentary

 
Last week the S&P 500 posted its third consecutive weekly gain. Investors have been looking abroad at emerging markets after fears of contagion reigned in the willingness to accept risk. On Friday, Brazil's central bank pledged to support their currency causing it to strengthen while the dollar remained unchanged. The Group of Seven (G-7) meeting in Canada kicked off on Friday and President Trump dominated the headlines with comments ranging from tariffs to Russia's exclusion from the group. Oil continues to be closely watched as the commodity closed near $66 a barrel leading up to the OPEC meeting scheduled for later this month. Index heavyweight Apple sold off Thursday and Friday after a report by Nikkei detailed the company's plans to reduce iPhone parts orders by 20%. The company still expects iPhone shipments of 80 million units this year. In a reversal of retail trends, Under Armour traded higher again last week to clock in as the best performer in the S&P 500. The company is experiencing strong global growth and has returned over 40% since the beginning of the year. Utilities stocks were the only group in the S&P 500 to post losses last week. Interest rates, measured by the 10-year treasury, rose causing the sector to trade lower through Wednesday before regaining some ground through the end of the week. Looking ahead to next week, the G-7 meeting combined with CPI, PPI, and retail sales releases will keep investors supplied with plenty of data points.
Posted on Monday, June 11, 2018 @ 8:16 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 8, 2018
Posted Under: Weekly Market Commentary

 
Yields moved higher last week across the yield curve ahead of what is expected to be a busy week this week. In economic data, the Institute for Supply Management announced on Tuesday that its non-manufacturing index rose to 58.6 in May from 56.8 in April, which beat expectations and indicates the non-manufacturing sector is growing at a faster rate. The Supplier Deliveries Index, which measures how fast businesses receive deliveries, indicated that deliveries were slower in May for the 29th consecutive month. Slower deliveries indicate strong demand and an improving economy however slow rail service and a shortage of truck drivers also contributed to the slowdown. The Federal Open Market Committee meets on Tuesday and Wednesday of this week and is widely expected to raise interest rates for the second time this year. The Fed last raised rates in March when the unemployment rate was 4.1%. The unemployment rate has improved since then, falling to 3.9% and 3.8% in April and May, respectively. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: May CPI MoM (0.2%, 0.2%); Wednesday: June 13 FOMC Rate Decision – Upper Bound (2.00%, 1.75%), June 8 MBA Mortgage Applications (N/A, 4.1%), May PPI Final Demand MoM ( 0.3%, 0.1%); Thursday: June 9 Initial Jobless Claims (222k, 222k), May Retails Sales Advance MoM (0.4%, 0.3%); Friday: June Preliminary U. of Mich. Sentiment (98.5, 98), May Industrial Production MoM (0.2%, 0.7%), June Empire Manufacturing (18.5, 20.1).
Posted on Monday, June 11, 2018 @ 8:15 AM • Post Link Share: 
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  Semiconductor Sales Remain Robust
Posted Under: Sectors

 
View from the Observation Deck  
  1. Tracking the direction of worldwide semiconductor sales can provide investors with some additional insight into the potential demand for tech-oriented products and the overall climate for technology stocks, in our opinion. 
  2. Semiconductors play an integral role in most tech-oriented products, particularly in today's high-demand mobile device product lines, such as smartphones, tablets and wearables. We see that integral role playing out in artificial intelligence and robotics as well. 
  3. The Semiconductor Industry Association (SIA) reported that global semiconductor sales increased 20.2% year-over-year (y-o-y) to $37.59 billion in April 2018, according to its own release. The all-time high was set in December 2017 at $37.99 billion. The World Semiconductor Trade Statistics organization estimates annual global sales growth of 12.4% in 2018, according to the SIA. 
  4. From 4/30/13 through 4/30/18 (chart), global semiconductor sales rose 59.1%. Over that same period, the S&P 500 Information Technology Index posted a cumulative price-only return (does not include dividends) of 134.3% and a cumulative total return of 153.5% (includes dividends), according to Bloomberg. 
  5. Sales have been strong throughout the globe. On a y-o-y basis, the percent change in region/country semiconductor sales were as follows in April: the Americas (34.1%); China (22.1%); Europe (21.4%); Japan (14.6%); and Asia Pacific/All Other (10.2%), according to the SIA. 
  6. Strong demand for semiconductor manufacturing equipment suggests that momentum isn't slowing. SEMI reported that worldwide semiconductor equipment sales totaled a record $17 billion in Q1'18, up 12% from the previous all-time high set in Q4'17, according to Electronics Weekly
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 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector.

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Posted on Thursday, June 7, 2018 @ 2:48 PM • Post Link Share: 
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  When Less Can Potentially Bring More
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. If an investor seeks to outperform a benchmark index, such as the S&P 500 Index, one way to approach the challenge is to simply pare down the number of stocks one invests in.
  2. As indicated in the chart, over the past 10 years, the average number of stocks in the S&P 500 Index with positive annual price-only returns (does not include dividends) was 324, or roughly 65%. That means that approximately 35% of the constituents in the index, on average, were providing a drag on returns in a given year. 
  3. With respect to performance, the two best years in the chart for S&P 500 Index price-only returns were 2009 (425 positive stocks), the index was up 23.45%, and 2013 (457 positive stocks), the index was up 29.60%, according to S&P Dow Jones Indices. 
  4. If we throw out 2008 (think financial crisis), the two worst years for S&P 500 Index price-only returns were 2015 (215 positive stocks), the index was down 0.73%, and 2011 (232 positive stocks), the index was flat (0.00%), according to S&P Dow Jones Indices.
  5. Year-to-date through 5/31/18, there were 230 constituents in the S&P 500 Index in positive territory, with a price-only return of 1.18%, according to  S&P Dow Jones Indices. These figures are essentially in line with those from 2011 and 2015. 
  6. One of the ways in which an investor might attempt to generate a return in excess of a benchmark index is to identify and eliminate those companies most likely to end up in the red at year-end. Easier said than done.
  7. This is where professionals can add value for an investor. Financial consultants and packaged product vendors have a multitude of strategies designed to potentially outperform the broader market via less diversification. 
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 (currently 505) used to measure large-cap U.S. stock market performance. 

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Posted on Tuesday, June 5, 2018 @ 2:35 PM • Post Link Share: 
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  US Stock Markets Ended June 1, 2018
Posted Under: Weekly Market Commentary

 
The observance of Memorial Day last Monday resulted in a shortened trading week. The S&P 500 Index returned 0.54%, but displayed some volatility over the four days of trading. The index closed the month of May returning 2.41%, showing its best performance since January's 5.73%. Equities were pressured on Tuesday as Italian political news raised concerns over their sovereign debt and the effects it would have globally. The financials sector felt the most weight as the S&P 500 Financials Index returned -3.37%. Stocks rallied Wednesday after Italy was able to issue sovereign debt. Equities encountered more resistance on Thursday as trade war concerns began to rise again after the US announced it would enact its steel and aluminum tariffs. In economic news, US Nonfarm Payrolls showed 223K new jobs in May, much higher than the expected 190K. The US unemployment rate dropped to 3.8%, the lowest rate since April 2000. US initial jobless claims of 221K were lower than the consensus estimate of 228K and the previous week's 234K. Crude oil prices were down 3.05% last week closing at $65.81 per barrel. Nektar Therapeutics, a biopharmaceutical company that develops drugs for oncology and other therapeutic areas, was the week's best performing stock in the S&P 500 Index. The stock jumped 12.56% on Friday prior to presenting their new drug at an annual oncology conference. General Motors Co. announced on Thursday that their self-driving program will receive a $2.25 billion investment over two tranches from Softbank Vision Fund, sending their stock up 12.87%. TripAdvisor Inc., an online travel research company, returned 11.58% last week. While the company's stock price saw pressure in late 2017 for multiple reasons including increased competition, the stock has recently been on a positive move and has returned 42.37% since its large earnings surprise announcement on May 8.
Posted on Monday, June 4, 2018 @ 8:12 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 1, 2018
Posted Under: Weekly Market Commentary

 
A holiday shortened week saw US Treasury markets fluctuate due to an array of matters. On Tuesday, 10-year Treasury notes declined 15.9 bps, the largest single-day drop since the day following Britain's vote to leave the European Union, as investors hid in safe havens amid turmoil surrounding the hostile Italian political environment and their standing in the European Union. US Treasury yields continued to dip Thursday as the US announced tariffs on steel and aluminum imported from Canada, Mexico, and the European Union. Investors escaped risky assets for US Treasuries as investors fear the tariffs could spark retaliatory actions from Canada, Mexico, and the European Union, potentially leading to a trade war. The week wrapped up with the yield on US 10-year Treasury notes climbing on Friday. The increase in yields was due to a strong jobs report which saw data for unemployment, nonfarm payrolls, and average hourly earnings better than analyst expectations. Investors view the strong jobs report as an indicator that the Federal Reserve will increase rates later in mid-June. Meanwhile in Italy, tensions cooled and uncertainty diminished as opposing populist parties agreed to form a coalition ending months of political stalemate. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: April Factory Orders (-0.5%,1.6%), April Final Durable Goods Orders (N/A, -1.7%); Wednesday: June 1 MBA Mortgage Applications (N/A, -2.9%), April Trade Balance (-$49.0b, -$49.0b); Thursday: June 2 Initial Jobless Claims (222k, 221k); Friday: April Final Wholesale Inventories (0.0%, 0.0%).
Posted on Monday, June 4, 2018 @ 8:08 AM • Post Link Share: 
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  A Snapshot of Bond Valuations
Posted Under: Bond Market

 
View from the Observation Deck  
  1. Today's blog post is one we do ongoing so that investors can monitor fluctuations in bond prices relative to changes in interest rates.
  2. The yield on the benchmark 10-year Treasury note (T-note) rose from 2.25% at the close of 5/29/17 to 2.78% on 5/29/18, or an increase of 53 basis points (bps), according to Bloomberg. The closing low for the period was 2.04% (9/7/17), while the closing high was 3.11% (5/17/18). The all-time closing low for the yield on the 10-year T-note was 1.36% on 7/8/16, according to Bloomberg. 
  3. Since 5/29/17, the Federal Reserve (the "Fed") has increased the federal funds target rate (upper bound) 75 bps, from 1.00% to 1.75%, according  to Bloomberg. For the 30-year period ended 5/29/18, the federal funds target rate (upper bound) averaged 3.29%, nearly double where it stands today. 
  4. Most economists expect the Fed to initiate two to three more 25 basis point rate hikes by year-end, according to The Wall Street Journal. Investors see a 91.3% probability of a rate increase at the Fed's next policy meeting in June (12th-13th), according to the CME Group. 
  5. Longer maturity municipal bonds was the only index in the chart that posted a price gain for the 12-month period ended 5/29/18. 
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 ICE BofAML 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 ICE BofAML 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 U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofAML 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 ICE BofAML 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 ICE BofAML 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 ICE BofAML 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, May 31, 2018 @ 2:51 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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