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Bob Carey
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  Top-Performing Subsectors in the S&P 500 Index (Bull Market)

 
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's 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, one-third are classified as Consumer Discretionary, the top-performing sector for the period in the chart, up 720.65% on a cumulative total return basis, or 25.48% on an average annualized basis, according to Bloomberg. 
  4. The 15 top-performing subsectors in the current bull market have average annualized total returns ranging from 27.76% (Distillers & Vintners) to 44.53% (Internet & Direct Marketing Retail). 
  5. On a cumulative total return basis, the returns ranged from 869.87% (Distillers & Vintners) to 2,943.53% (Internet & Direct Marketing Retail), according to Bloomberg.
  6. For comparative purposes, the S&P 500 Index posted a cumulative total return of 399.47%, or 18.94% on an average annualized basis, over the same period, according to Bloomberg.
  7. Click here to read last week's post on consumer stocks. 

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 Subsector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific industry.

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Posted on Tuesday, June 19, 2018 @ 1:49 PM • Post Link Share: 
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  US Stock Markets Ended June 15, 2018
Posted Under: Weekly Market Commentary

 
Stocks were mixed for the week due to increased trade tensions with China and a slightly more hawkish stance by the Federal Reserve. The Trump administration enacted $50 billion in tariffs on Chinese exports to the U.S. In response, China plans to charge a 25% tariff on roughly the same dollar amount of goods from the U.S. Investors also digested a widely-expected rate increase on Wednesday. However, in a less expected move, the Fed increased their forecast from three rate hikes to four total for 2018 due to an uptick in inflation and low unemployment. In economic news, retail sales increased by 0.8% in May, which beat the median expectation of 0.4%. In stock news, Tesla, Inc. gained after the company announced it would lay off 9% of its workforce, in an effort to reduce future cash burn and make good on Elon Musk's promise to earn a profit in the 2nd half of the fiscal year. A federal judge ruled in favor of AT&T Inc.'s planned acquisition of Time Warner Inc., rebuffing the Justice Department's assertion the deal would be anti-competitive for the TV industry. The deal had far-reaching implications as the ruling could lead to multiple mergers within paid TV. Comcast Corp. increased their unsolicited bid for Twenty-First Century Fox, Inc. assets as they try to out-bid Walt Disney Co. and convince the Twenty-First Century Fox, Inc. board the deal will pass regulatory hurdles. Despite potential headwinds from trade wars and higher rates, the U.S. economy looks to be on strong footing and in better shape than foreign peers.  While earnings season is nearly a month away, S&P 500 corporate profits are expected to show another strong quarter with nearly 20% EPS growth. Strong fundamentals have the potential to trump any increased geo-political risk or slight rise in risk premiums required by investors.
Posted on Monday, June 18, 2018 @ 8:39 AM • Post Link Share: 
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  US Economy and Credit Markets Ended June 15, 2018
Posted Under: Weekly Market Commentary

 
The Federal Reserve raised interest rates 25bps last week, but more focus seemed to be on the newfound frankness of the Chairman. He noted the "economy is doing very well" and that "there's a lot to like" about low unemployment. Such phrases are not in keeping with his predecessor who favored longer press conferences and more nuanced communication.  Mr. Powell also announced there will be a press conference following each meeting beginning in 2019, vs. the traditional schedule of one per quarter. This may be indicative of increased desire to have more flexibility regarding potential rate changes on a going forward basis. The Federal Reserve is projecting two more rate increases for the remainder of this year. On Thursday, Mr. Draghi of the European Central Bank announced that the ECB would halt bond purchases but keep interest rates unchanged at current record lows through at least summer of 2019. He declared the ECB has made "substantial" progress regarding inflation and that the euro-area economy is in a better situation but facing increased uncertainty. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: May housing starts; Wednesday: May existing home sales (5.54M, 5.46M) and June 15 MBA mortgage applications; Thursday: May Leading Index (0.4%, 0.4%) and June 16 initial jobless claims (222K, 218K); Friday: June preliminary Markit US Manufacturing PMI (56.3, 56.4).
Posted on Monday, June 18, 2018 @ 8:37 AM • Post Link Share: 
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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. 

Download a PDF of this post, please click here.
Posted on Tuesday, June 5, 2018 @ 2:35 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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