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
 

  Consider The Potential Opportunity Costs Before You Sell In May And Go Away!
Posted Under: Conceptual Investing

 
View from the Observation Deck

  1. The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint.
  2. When the U.S. was more of an industrialized economy it was not uncommon for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation.
  3. The theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings.
  4. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.
  5. From 2003 through 2020, there were just two instances (2008 & 2011) in which the S&P 500 Index posted a negative total return from May through October, and the 2008 occurrence was during the financial crisis.
  6. The average total return for the S&P 500 Index for the May-October periods in the table was 4.23%, which is nothing to run from, in our opinion.
  7. Fifteen of the 18 top-performing sectors in the table posted total returns in excess of 10.00% (May-October). For comparative purposes, from 1926-2020, the S&P 500 Index posted an average annual total return of 10.28%, according to Ibbotson & Associates/Morningstar.
  8. Last year at this time there was great uncertainty surrounding the potential economic fallout from the COVID-19 pandemic. As indicated in the chart, investors did not shun stocks. A good chunk of the credit for that outcome should go to the federal government for aggressively injecting trillions of dollars of monetary and fiscal stimulus to help prop up the economy until the vaccines arrived. Today, thanks to the speedy rollout of the COVID-19 vaccines, there is growing optimism that the economy has a chance to fully reopen in the months ahead.  

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 an unmanaged index 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. As of 9/28/18, the Global Industry Classification Standard (GICS) was reconstituted and the Telecommunications Services sector was renamed Communication Services. GICS sector information for periods prior to 9/28/18 may not necessarily be comparable to the reconstituted sectors. 


Download a PDF of this post, please click here.
Posted on Tuesday, April 13, 2021 @ 12:21 PM • Post Link Share: 
Print this post Printer Friendly
  US Stock Markets Ended April 9, 2021
Posted Under: Weekly Market Commentary

 
Stocks continued to hit new highs last week after the S&P 500 roared past the 4000 level returning over 2.75%. The index is on its longest weekly winning streak since October of last year. Mixed economic data and commentary from the Federal Reserve reinforced the case for prolonged policy support giving investors a fallback plan for uncertain growth. Semiconductors are still on investor's radar as chip shortages plague many industries. Taiwan Semiconductor Manufacturing Co. benefitted from the increased demand last quarter as the chipmaker posted growth in quarterly sales. President Biden looks to solidify his budget plans in the coming weeks. Defense spending looks to be an area of the budget the new administration is ready to streamline. According to people familiar with the plans, the President plans to submit a $715 billion dollar budget to the Pentagon, which adjusted for inflation comes in lower than his predecessor and only a billion dollars less than the 2020 defense budget. Defense contractor Lockheed Martin traded higher during the week by over 4% continuing an upward trend for the stock after a relative low during January of this year. The reopening trade also continues to gain steam in various pockets of the market. The latest move comes from Norwegian Cruise Lines after the company announced plans for future passengers and crew to show proof of vaccination at least two weeks before boarding one of their cruise liners. The industry has been one of the hardest hit during the pandemic due to its heavy regulation. Looking ahead to next week, the Federal Reserve is set to release its Beige Book along with initial jobless claims and retail sales numbers coming on Thursday.
Posted on Monday, April 12, 2021 @ 8:29 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended April 9, 2021
Posted Under: Weekly Market Commentary

 
Treasury yields mostly fell last week across the yield curve, reversing a recent surge. The trade deficit widened to a record $71.1 billion in February, as supply chain disruptions and a widespread blackout in Texas led to a decline in exports. Continued claims, or the number of people receiving unemployment benefits, continued to slowly improve, falling to a one-year low of 3.73 million in the week ending on March 27. That represents a significant improvement from the high of over 23 million reached in May 2020. Producer prices increased well ahead of expectations in March, rising 1% over the prior month. Year over year, producer prices increased 4.2%, which was the largest yearly increase since 2011. However, producer prices fell around the start of the pandemic and the lower base contributed to the large year-over-year increase. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: March CPI MoM (0.5%, 0.4%); Wednesday: April 9 MBA Mortgage Applications (N/A, -5.1%); Thursday: April 10 Initial Jobless Claims (700k, 744k), March Retail Sales Advance MoM (5.2%, -3.0%), March Industrial Production MoM (2.8%, -2.2%), April Empire Manufacturing (18.5, 17.4); Friday: April Preliminary U. of Mich. Sentiment (89.0, 84.9), March Housing Starts (1602k, 1421k).
Posted on Monday, April 12, 2021 @ 8:28 AM • Post Link Share: 
Print this post Printer Friendly
  The Real Rate of Return on the 10-Year Treasury Note is Essentially Zero
Posted Under: Bond Market

 
View from the Observation Deck  
  1. The real rate of return on a bond is calculated by subtracting the most recent inflation rate, such as the Consumer Price Index (CPI), from the bond's current yield. The higher the real rate the better. 
  2. As of the close of 4/6/21, the yield on the benchmark 10-year T-note was 1.66% (1.7% rounded), matching the 1.7% trailing 12-month rate on the CPI in February 2021 (most recent rate available). That equates to a real rate of 0.0%, which is not attractive, in our opinion.  
  3. At a base level, in order to maintain one's purchasing power, bond investors have sought to generate a yield that at least outpaces the rate of inflation.
  4. For comparative purposes, from 4/6/91 through 4/6/21 (30 years), the average yield on the 10-year T-note was 4.2% (rounded), while the average rate on the CPI stood at 2.3% from 2/28/91 through 2/28/21, according to Bloomberg. Those figures translate into an average real rate of return of 1.9%, far more attractive than currently available. 
  5. In September 2020, the Federal Reserve ("Fed") stated that it expects to hold short-term interest rates near zero until two things happen: (1) the U.S. unemployment rate is back to normal (around a 4.0% unemployment rate), and (2) inflation is running at or above 2.0%. The Fed has remained steadfast in its guidance despite the 115 basis point surge in the yield on the 10-year T-note since 8/4/20 (all-time low of 0.51%).
  6. Fed Chairman Jerome Powell commented on 3/24/21 that he is not concerned about the rise in bond yields because he believes it reflects growing optimism about the economy's prospects, according to The Wall Street Journal

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, April 8, 2021 @ 12:56 PM • Post Link Share: 
Print this post Printer Friendly
  How Bonds Have Fared Since 8/4/20
Posted Under: Bond Market

 
View from the Observation Deck  
  1. The yield on the 10-year Treasury note (T-note) closed at an all-time low of 0.51% on 8/4/20, according to Bloomberg.  
  2. From 8/4/20 through 3/31/21, its yield rose from 0.51% to 1.74%, or an increase of 123 basis points.  
  3. As indicated in the chart above, all of the flat to negative total returns belong to high-grade debt categories. 
  4. Since 8/4/20, investors have favored speculative-grade bonds over investment-grade debt, as evidenced by the strong total returns posted by leverage loans (senior loans) and high yield corporate bonds. 
  5. While emerging market bonds delivered a positive total return, intermediate-term global government bonds did not. The U.S 

Dollar Index (DXY) was relatively flat over the period, declining by just 0.16%, according to Bloomberg. Suffice it to say, the relative value of the U.S. dollar has had a negligible impact on the performance of foreign debt securities since 8/4/20. 
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 BofA 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 S&P/LSTA U.S. Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market. The ICE BofA Emerging Markets Corporate Plus Index tracks the performance of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued in the major domestic and eurobond markets. The ICE BofA 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 ICE BofA 1-3 Year U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Index including all securities with a remaining term to maturity of less than 3 years. The ICE BofA 1-3 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity of less than 3 years. The ICE BofA 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 with a remaining term to maturity greater than or equal to 22 years. The ICE BofA 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 BofA 7-10 Year Global Government (ex U.S.) Index tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency with a remaining term to maturity between 7 to 10 years, excluding those denominated in U.S. dollars. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA Freddie Mac Mortgage Backed Securities Index is a subset of the ICE BofA U.S. Mortgage Backed Securities Index including all generics representing pools issued by Freddie Mac. 

Download a PDF of this post, please click here.

Posted on Tuesday, April 6, 2021 @ 12:11 PM • Post Link Share: 
Print this post Printer Friendly
  US Stock Markets Ended March 26, 2021
Posted Under: Weekly Market Commentary

 
Equity markets closed near all-time highs last week during a shortened trading week in celebration of Good Friday. The S&P 500 Index closed Thursday over 4,000 for the first time ever. The index closed below 2500 on April 1st last year and has returned 65.48% in the last 12 months, highlighting it usually pays to stay invested in equites. Last weekend it was revealed that Archegos Capital Management was behind a global block trade selloff in many Chinese technology and American media companies. Archegos, the family office of Bill Hwang, a former Tiger Fund trader, was participating in complex total return swaps. This is a method commonly used to mask exposures from other market participants and leverage exposures. It has been reported that the near $10b fund lost $8b in a mere 10 days. This is an unprecedented sum, in an unprecedented short period of time. Facilitating many of these total return swaps were investment banks Nomura Holdings and Credit Suisse Group AG, among others. Total losses from these complex swaps for investment banks are not yet fully known, but last week Nomura returned -19.51% and Credit Suisse -18.85% as losses for these two mounted. The Boeing Co. traded 3% higher last week after Southwest Airlines Co. announced an order of 100 more of Boeings' 737 Max 7. The TSA announced that U.S. air Passenger traffic was up 3.9% from last week and averaged 1.4m over the last seven days. This is up over 700% from last year but is still 40% below the 2.3m average from 2019. Semiconductor capital equipment makers Applied Materials Inc., Lam Research Corp. and Kulicke & Soffa Industries were three of the four best performing stocks in the S&P 500 Index last week. All returned more than 8.5% as global chip demand remains high and supply tight making capital equipment more valuable. Looking ahead to next week further understanding of economic strength will come from reports on employment, durable goods and factory orders. Friday trading was closed but change in nonfarm payrolls were announced well ahead of estimates. This is expected to boost confidence in equities to open next week.
Posted on Monday, April 5, 2021 @ 8:11 AM • Post Link Share: 
Print this post Printer Friendly
  US Economy and Credit Markets Ended March 26, 2021
Posted Under: Weekly Market Commentary

 
U.S. Treasury bond yields were mixed during the holiday-shortened week. The 10-year treasury yield continued its meteoric rise last week by increasing nearly 5 basis points. In the first quarter of 2021, the 10-year treasury yield rose more than 80 basis points. On Wednesday, treasury yields moved higher in the wake of President Biden's announcement of a multi-trillion dollar infrastructure spending plan that also involves corporate tax hikes. The week wrapped up with investors digesting the March jobs report. In March, the U.S. economy continued to show signs of recovery by adding 916,000 jobs, which was well above the consensus estimate, while the unemployment rate fell by 0.2% to 6.0%. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Monday: March Final Markit US Services PMI (60.2, 60.0), March Final US Composite PMI (n/a, 59.1), March ISM Services Index (58.5, 55.3), February Factor Orders (-0.5%, 2.6%), February Final Durable Goods Orders (-1.1%, -1.1%); Wednesday: April 2 MBA Mortgage Applications (n/a, -2.2%), February Trade Balance (-$70.2b, -$68.2b); Thursday: April 3 Initial Jobless Claims (n/a, 719k), March 27 Continuing Claims ( n/a, 3794k); Friday: March PPI Final Demand MoM (0.5%, 0.5%), March PPI Final Demand YoY (3.8%, 2.8%), February Final Wholesales Inventories MoM (0.5%, 0.5%).
Posted on Monday, April 5, 2021 @ 8:09 AM • Post Link Share: 
Print this post Printer Friendly
  The Only Constant Is Change…Usually
Posted Under: Sectors

 
View from the Observation Deck

  1. One of the most common questions we field on an ongoing basis is the following: What are your favorite sectors?
  2. Sometimes the answer is more evident than at other times, in our opinion.
  3. You didn't need much of a crystal ball to tout Information Technology in 1998 and 1999 (top-performing S&P 500 sector both years by a wide margin), as was the case with Energy in 2004 & 2005, according to performance data from Bloomberg.
  4. For the first time since 2005, a sector in the S&P 500 Index was able to repeat as the top-performer on a calendar year basis. Information Technology posted the highest total return in 2019 (+50.29%) and 2020 (43.89%), according to Bloomberg.
  5. The top-performing sectors in Q1'21 were as follows (total returns): 30.84% (Energy), 15.90% (Financials) and 11.41% (Industrials). The total return on the S&P 500 Index was 6.17%. The other eight sectors generated total returns ranging from 1.15% (Consumer Staples) to 9.08% (Materials).
  6. The U.S. economy is strengthening thanks in large part to the trillions of dollars of stimulus brought to bear by the federal government. It has changed the dynamic in the stock market. Investor sentiment has shifted away from growth stocks in favor of value-style sectors that currently tend to be more cyclical in nature. As a result, the cyclicals have rallied significantly over the past two quarters, and the top-performing sectors have remained the same (see chart).
  7. Click here to access the post featuring the top-performing sectors in Q2'19, Q3'19, Q4'19 and Q1'20.

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 an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

Download a PDF of this post, please click here.
Posted on Thursday, April 1, 2021 @ 2:08 PM • Post Link Share: 
Print this post Printer Friendly
  A Snapshot Of The U.S. Dollar
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. We get asked from time to time what our take is on the U.S. dollar and where we think it may be headed next. 
  2. The dollar is still regarded as the world's primary reserve currency. Its relative strength over time can be influenced by such things as central bank monetary policy, geopolitics and trade. 
  3. U.S. investors with exposure to foreign securities, commodities and the stocks of U.S. multinational companies are particularly vulnerable to fluctuations in the U.S. dollar. 
  4. Predicting the direction of the dollar, or any currency, can be a daunting task, even for professionals who specialize in it. One thing we can provide is some context. 
  5. As indicated in the chart above, as of 3/26/21, the 10-, 20- and 30-year averages for the U.S. Dollar Index carried readings from 89.75 to 91.25, which is a relatively tight range over a span of 30 years. 
  6. To add some additional context, over the past 30 years, the index peaked at a reading of 120.90 on 7/5/01, while hitting a period-low of 71.33 on 4/22/08, according to Bloomberg.
  7. The U.S. Dollar Index has strengthened in recent weeks largely due to the relatively quick rise in the yield on the U.S. 10-year Treasury note (T-note), according to S&P Global Market Intelligence. The yield on the 10-year T-note rose 61 basis points from 1.07% on 1/29/21 to 1.68% on 3/26/21, a potential signal that investors are becoming more optimistic about the prospects for the economy. U.S. government bond yields are still lofty relative to most developed nations and that is likely drawing capital from foreign investors looking for higher returns, in our opinion. 
This chart is for illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

Download a PDF of this post, please click here.
Posted on Tuesday, March 30, 2021 @ 1:35 PM • Post Link Share: 
Print this post Printer Friendly
  US Stock Markets Ended March 26, 2021

 
The S&P 500 Index returned 1.58% after a choppy week of trading. The index pushed higher on Monday, but equities reversed direction the following day as concerns grew regarding the economic recovery with more European countries increasing their COVID-19 lockdown efforts. Crude oil prices declined 6.16% on Tuesday as they were also affected by the lockdown on concerns over future fuel demands. Communication services, consumer discretionary, and information technology placed downward pressure on the index on Wednesday, while crude oil rebounded 5.92% as potential supply disruptions arose due to a large container ship blocking the Suez Canal, an important supply route for crude. Crude oil closed at $60.97 per barrel on Friday, declining 73 basis points for the week. Prices have increased over 25% in 2021 helping make energy the best performing sector this year returning 34.82%. Equities were positive Thursday as Federal Reserve Chairman Jerome Powell said they would continue to aid the economy and gradually pull back the monetary support once the economy has recovered. U.S. initial jobless claims were reported at 684K which were lower than the consensus estimate of 730K and the previous week's claims of 770K. The best performing stock in the S&P 500 Index last week was Kansas City Southern, a rail freight transportation company, returning 13.14%. The stock opened higher on Monday on the announcement that Canadian Pacific Railway Limited would be acquiring the company. Applied Materials Inc., KLA Corp, and Lam Research Corp had a good week, returning 12.00%, 9.24%, and 7.73% respectively. The semiconductor equipment manufacturers had positive momentum after Intel Corp announced they plan to build two semiconductor foundries in the US and further increase capital spending. A semiconductor shortage has caused supply problems for many companies and given a tailwind to semiconductor equipment stocks. Media stocks ViacomCBS Inc. and Discovery Inc. were the two worst performing stocks last week in the S&P 500 Index, returning -50.46% and -45.52%. The stocks dropped as more analysts downgraded them for being overvalued. Both stocks were up over 150% YTD before their decline last week. Earnings announcements expected this week include Micron Technology Inc., Walgreens Boots Alliance Inc., McCormick & Company Inc., CarMax Inc., and PVH Corp.
Posted on Monday, March 29, 2021 @ 8:11 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
Market Commentary Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
US Economy and Credit Markets Ended March 26, 2021
Sector Performance Via Market Capitalization (1-Year Anniversary Of The End Of The Bear Market)
Passive Investment Vehicles Have Posted The Strongest Asset Growth Since The End of 2007
US Stock Markets Ended March 19, 2021
US Economy and Credit Markets Ended March 19, 2021
A Snapshot Of Two Cyclical Sectors
A Snapshot Of Bond Valuations
US Stock Markets Ended March 12, 2021
US Economy and Credit Markets Ended March 12, 2021
The Climate For U.S. Crude Oil
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 professionals 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. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2021 All rights reserved.