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  The Price Of Crude Oil Has Surged During The COVID-19 Pandemic
Posted Under: Sectors

 
View from the Observation Deck  
  1. The price of West Texas Intermediate (WTI) crude oil closed at $83.76 per barrel on 10/22/21, up 87.13% from its closing price of $44.76 on 2/28/21, according to Bloomberg.  
  2. For comparative purposes, the S&P 500 Energy Index posted a total return of 38.83% over that same period, according to Bloomberg. The top-performing Energy subsector was the S&P 500 Oil & Gas Exploration & Production Index, with a total return of 64.86%. 
  3. As indicated in the chart above, total U.S. crude oil production declined over the period from 13.1 million barrels per day on 2/28/20 to 11.3 million barrels per day on 10/22/21, according to the U.S. Department of Energy. 
  4. Data from Bloomberg (not in chart) shows that crude oil production from OPEC (Organization of the Petroleum Exporting Countries) declined from 27.91 million barrels per day on 2/29/20 to 27.49 million barrels per day on 9/30/21. This indicates that production has decreased considerably more in the U.S. than abroad.  
  5. The number of active crude oil rigs (not in chart) in the U.S. declined from 678 on 2/28/21 to 443 on 10/22/21, according to data from Baker Hughes. 
  6. The relative value of the U.S. dollar (exchange rate) likely provided a bit of a boost to the price of crude oil. From 2/28/20 through 10/22/21, the U.S. dollar declined by 4.58% against a basket of major foreign currencies, as measured by the U.S. Dollar Index (DXY), according to Bloomberg. 
  7. As of 10/25/21, Energy accounted for only 2.95% of the S&P 500 Index, down from a 13.14% weighting at the end of 2008, according to Bespoke Investment Group and Bloomberg.
  8. Investors funneled an estimated net $13.94 billion into Energy Equity mutual funds and exchange-traded funds (ETFs) for the 12-month period ended 9/30/21, 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 and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Energy Index is a capitalization-weighted index comprised of 500 stocks representing the energy sector. 

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Posted on Tuesday, October 26, 2021 @ 10:48 AM • Post Link Share: 
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  US Stock Markets Ended Oct. 22, 2021
Posted Under: Weekly Market Commentary

 
Stocks ended last week higher after rising four out of five days. The S&P 500 accelerated through Thursday before letting up on Friday to close out the week 1.66% higher. The index has returned over 22% this year despite multiple economic and geopolitical headwinds. Inflation from global supply-chain constraints continues to spook investors as evidenced by the market movement proceeding comments by Federal Reserve Chairman Jerome Powell on Friday. Investors are concerned that higher costs resulting from supply-chain disruptions will lead the Fed to raise interest rates faster than expected. This forward looking view has been offset by strong earnings reports from many companies leading major market indexes to near record highs. Real Estate companies in the S&P 500 were the best performing group in the index last week. The sector returned over 3% last week driven by data center and communication REITs. The best performer in the sector index, Digital Realty Trust Inc, is set to report earnings next Tuesday. Shifting to Technology stocks, Snap Inc, Intel, and IBM all released disappointing quarterly results last week. Snap warned that a decrease in advertising spending will lower the company's earnings in 2022. Higher costs for Intel and IBM, combined with lower growth prospects, also dragged prices down for both Dow components. Looking at quarterly results as a whole, the S&P 500 is up over 4% since JPMorgan kicked off earnings season about two weeks ago. Pool Inc, Etsy, and Tesla rallied last week as a sign the resilient consumer is powering an already visibly strong economy. Looking ahead to next week, new home sales and inventory data will shape investors views along with 165 companies in the S&P 500 set to report quarterly earnings.
Posted on Monday, October 25, 2021 @ 8:14 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Oct. 22, 2021
Posted Under: Weekly Market Commentary

 
Each spot rate on the U.S. Treasury Curve rose last week as yields marched higher in the face of inflation and the looming Fed taper. The fixed income market's confidence in transitory inflation is weakening after investors digested an equity earnings week filled with supply chain issues and higher input costs. The 5-Year breakeven rate – a gauge of implied 5-year inflation expectations – surged to its highest level since being introduced in 2002. The index touched 3% on Friday before retreating to 2.90% at week end. On Friday, Fed Chairman Jerome Powell spoke at the Bank for International Settlements conference for the final time before the highly anticipated Fed policy meeting on November 2 & 3 and reaffirmed the Fed's plan to begin asset purchase tapering this year. He also signaled that supply chain issues and high inflation will likely persist into 2022 after proving stickier than Fed policymakers originally expected. Jobless claims unexpectedly fell and reached a pandemic low, signaling a reluctance to lay off employees while hiring remains challenged. October preliminary Markit US Manufacturing PMI fell further than expected to 59.2 which is its lowest reading since March of this year. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: September New Home Sales (758k, 740k), October Conference Board Consumer Confidence Index (108.5, 109.3); Wednesday: October 22 MBA Mortgage Applications (n/a, -6.3%), September Wholesale Inventories MoM (1.0%, 1.2%), September Durable Goods Orders (-1.0%, 1.8%); Thursday: October 23 Initial Jobless Claims (290k, unch.), Q3 GDP Annualized QoQ (2.8%, 6.7%); Friday: September Personal Income (-0.2%, 0.2%), September Personal Spending (0.6%, 0.8%), October MNI Chicago PMI (64.0, 64.7), October University of Michigan Sentiment (71.4, unch.).
Posted on Monday, October 25, 2021 @ 8:13 AM • Post Link Share: 
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  Passive vs. Active Fund Flows
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. Investors directing capital into mutual funds and exchange traded funds (ETFs) continued to favor passive investing over active management on a massive scale for the 12-month period ended 9/30/21. This has been the case for the past several years.   
  2. Passive mutual funds and ETFs reported estimated net inflows totaling $879.22 billion, compared to estimated net inflows totaling $295.90 billion for those actively managed.  
  3. The largest amount of total net inflows (active + passive) in the period belonged to the Taxable Bond, International Equity, Sector Equity and Municipal Bond categories at $650.77 billion, $209.23 billion, $121.77 billion and $120.21 billion, respectively. 
  4. The active categories garnering the most interest from investors by far over the past 12 months via net inflows were Taxable and Municipal Bonds.  
  5. The $46.60 billion in net inflows to U.S. Equity funds is bit perplexing relative to Taxable and Municipal Bond inflows when you consider that the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices posted total returns of 30.00%, 43.68% and 57.64% respectively, for the 12-month period ended 9/30/21, according to Bloomberg. 
  6. The strong capital flows to International Equity funds were rewarded. The MSCI Daily TR Net World (ex U.S.) and MSCI Emerging Net TR Indices posted total returns of 26.50% and 18.20%, respectively, according to Bloomberg. The U.S. Dollar Index (DXY) rose by 0.36%, according to Bloomberg. The index reflects the general international value of the dollar relative to a basket of major world currencies. The index being close to flat over the past 12 months means the dollar had little influence on the performance of unhedged foreign securities held by U.S. investors.  
  7. Click here to see where 12-month fund flows stood a year ago (9/30/20). We intend to monitor net flows moving forward.
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. 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 MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

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Posted on Thursday, October 21, 2021 @ 12:36 PM • Post Link Share: 
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  A Global Snapshot Of Government Bond Yields
Posted Under: Bond Market

 
View from the Observation Deck  
  1. Today's blog post shows the yields on a couple of benchmark government bond maturities from key countries/economies around the globe.
  2. While bond yields are up from their historic lows, they remain artificially depressed.    
  3. The yield on the U.S. 10-year Treasury note (T-note) stood at 1.57% at the close on 10/15/21, 106 basis points (bps) higher than its all-time closing low of 0.51% on 8/4/20 (not in table), but 250 basis points below its 4.07% average yield for the 30-year period ended 10/15/21 (not in table), according to Bloomberg.
  4. The yield spread between the U.S. 2-year T-note and the 10-year T-note was 117 basis points at the close on 10/15/21, matching its 30-year average spread of 117 basis points, according to Bloomberg. Remember not that long ago when economists were concerned about an inverted Treasury yield curve?  That is a scenario where short-term yields exceed those offered by bonds with intermediate and long maturities. 
  5. Federal Reserve ("Fed") Chairman Jerome Powell recently commented that the Fed could begin tapering its asset purchases in November and complete the process by mid-2022, according to Bloomberg. This would entail the Fed cutting back on its monthly bond purchases, consisting of $80 billion of Treasuries and $40 billion of mortgage-backed securities. 
  6. Investors continue to funnel huge amounts of capital into bond mutual funds and exchange-traded funds despite the rise in bond yields. Taxable and Municipal bond mutual funds and ETFs reported estimated net inflows totaling a combined $770.98 billion for the 12-month period ended 9/30/21, according to Morningstar. Net inflows for the two were a combined $47.16 billion in September 2021. 
  7. We will continue to monitor to see if rising inflation plus the potential for tapering by year-end is enough to push bond yields higher in the months ahead.  
This chart is for illustrative purposes only and not indicative of any actual investment. 

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Posted on Tuesday, October 19, 2021 @ 12:03 PM • Post Link Share: 
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  US Stock Markets Ended Oct. 15, 2021
Posted Under: Weekly Market Commentary

 
The S&P 500 Index returned 1.84% last week, the best week since mid-July and seventh best week for the year. Equities shook off negative supply chain headlines and rallied on the strength of corporate earnings. The U.S. supply chain has been under duress as a result of the COVID pandemic. Inventory has been drying up as U.S. ports are clogged and freight via airlines has been held down by tepid passenger growth. President Biden held a summit with many supply chain organizations in an effort to alleviate some gridlock before the holiday shopping season. Despite supply issues, equities rallied as earnings season kicked off with some strong announcements last week. The S&P 500 had 20 names release quarterly results. Some of the more notable announcements were from mega cap banks. JPMorgan Chase & Co. had a strong earnings announcement along with a revenue beat. With $3.7t in assets, JPMorgan credited their strong earnings to investment bank revenue, trading revenue along with better-than-expected credit losses for their financial success last quarter. Bank of America Corp. had a similar story announcing earnings and revenue ahead of street expectations fueled by higher trading revenue and lower loan losses. Strong bank earnings announcements further confirm that the U.S. economy is on solid footing despite some supply chain and employment headwinds. UnitedHealth Group Inc. announced record revenue and earnings for 3Q and as a result shares rallied 4.80% last week. UnitedHealth also raised their full year earnings outlook on the strength of their business which helped to boost Cigna Corp. 3.37% and Anthem Inc. 4.69% since UnitedHealth's announcement. Looking ahead to next week, earnings season continues with 76 names in the S&P 500 expected to report quarterly results. Some notable names include: Tesla Inc., Netflix Inc., Honeywell International Inc., Union Pacific Corp. and American Express Co.
Posted on Monday, October 18, 2021 @ 8:20 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Oct. 15, 2021
Posted Under: Weekly Market Commentary

 
Last week yields in the middle of the US Treasury Yield curve were up, the front end remained relatively unchanged and longer-dated yields fell. Wednesday of last week the Minutes of the Federal Open Market Committee meeting dated September 21-22 were released. The Fed indicated that tapering could begin as soon as mid-November and fully anticipates it will begin before 2022. Both the Consumer and Producer Price Index were released last week and while the CPI ran ahead of expectations by 0.1%, the PPI lagged expectations by 0.1%. Regardless, CPI advanced 5.4% from the year earlier and the PPI advanced 8.6% from the year earlier, running well ahead of any available Treasury yields. The bond market seems to be pricing in the current inflation levels as transitory even with the reported inflation levels remaining relatively high. In meeting notes, the Fed commented that it observed PCE prices well above their targeted 2% rate but that they continue to anticipate this to be transitory. They expect supply pressures to partially ease as supply chain issues resolve and import prices fall. High resource utilization rates in 2022 are also expected to assist in lowering pricing pressures and in total the Fed anticipates the PCE will fall below 2% in 2022 and "edge" higher to reach 2% in 2024.  On Friday of last week retail sales were reported rising 0.7% in September led by general merchandise stores, gas stations and autos. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Monday: September Industrial Production MoM (0.2%, 0.4%); Tuesday: September Housing Starts (1615k, unch.); Wednesday: October 15 MBA Mortgage Applications (n/a, 0.2%); Thursday: October 16 Initial Jobless Claims (303k, 293k), September Leading Index (0.4%, 0.9%) and September Existing Home Sales (6.05m, 5.88m); Friday: October preliminary Markit US Manufacturing PMI (60.5, 60.7).
Posted on Monday, October 18, 2021 @ 8:19 AM • Post Link Share: 
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  The Price Of Natural Gas Has Surged
Posted Under: Sectors

 
View from the Observation Deck  
  1. As of the close on 10/8/21, the price of natural gas stood at $5.57 per million British thermal units (BTUs), up 111.79% from $2.63 per million BTUs at the close on 10/8/20.   
  2. The price of natural gas at the close on 10/8/21 was up 276.35% from its 2020-low of $1.48 per million BTUs at the close on 6/25/20. 
  3. As indicated in the chart, the number of active natural gas rigs in the U.S. plunged from 143 on 10/11/19 to 99 on 10/8/21, or a decline of 30.77%. Natural gas producers have done so in an effort to curb production. 
  4. The price of natural gas is also up because demand for U.S. liquified natural gas (LNG) is rising. The U.S. Energy Information Administration (EIA) reported that U.S. exports of LNG are expected to reach a record high in 2021 and then set another high in 2022. The EIA sees exports averaging 9.7 billion cubic feet per day (Bcf/d) in 2021, topping last year's record of 6.5 Bcf/d. 
  5. The winter season is closing in and that could impact the price of natural gas as well. The EIA estimates that U.S. households will spend 30% more for natural gas to heat their homes this winter, and this percentage could go higher if the weather is colder than expected. 
The charts and performance data referenced are for illustrative purposes only and not indicative of any actual investment. There is no guarantee that past trends will continue or that projections will be realized. 

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Posted on Thursday, October 14, 2021 @ 12:56 PM • Post Link Share: 
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  Technology Stocks Have Delivered Strong Returns Since The End Of The Financial Crisis-Induced Bear Market
Posted Under: Sectors

 
View from the Observation Deck  
  1. From 3/9/09-10/8/21, all four of the technology-related indices featured in the chart significantly outperformed the S&P 500 Index. 
  2. The average annualized total returns for the period were as follows: ISE Cloud Computing Index (+28.81%); Philadelphia Semiconductor Index (+27.40%); Dow Jones Internet Composite Index (+26.84%); S&P 500 Information Technology Index (+24.54%); and S&P 500 Index (+18.39%), according to Bloomberg. 
  3. While we acknowledge that the U.S. stock market, as measured by the S&P 500 Index, did endure another bear market (COVID-19-induced) from 2/19/20 through 3/23/20, it came and went so quickly that it proved little more than a hiccup for the equities markets. A bear market is defined as a 20% or greater decline in the price of a security or index.   
  4. From 2/19/20-10/8/21, which includes the aforementioned bear market, the S&P 500 Index posted a cumulative total return of 33.19%, according to Bloomberg. The top-performing sector was Information Technology, with a total return of 50.56%. 
  5. As of 10/11/21, Information Technology accounted for 27.62% of the S&P 500 Index, the largest weighting of the major sectors by far, according to Bloomberg. Health Care came in a distant second with a weighting of 12.95%.
  6. As indicated within each of the bars in the chart, price-to-earning (P/E) ratios have gotten stretched for some of the indices. That means investors will be paying more in price for a dollar's worth of earnings. That is certainly the case for cloud computing − the top-performer in the chart above. As can often be the case within the technology sector, its elevated P/E ratio could be in response to its growth prospects. 
  7. International Data Corporation (IDC) estimates that total worldwide spending on cloud services, including hardware, software and professional/managed services, will rise from $706.6 billion in 2021 to $1.3 trillion by 2025, according to its own release. IDC is targeting a compound annual growth rate of 16.9% through 2025.  
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 an unmanaged index of 500 stocks 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.

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Posted on Tuesday, October 12, 2021 @ 12:18 PM • Post Link Share: 
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  US Stock Markets Ended Oct. 8, 2021
Posted Under: Weekly Market Commentary

 
The S&P 500 Index returned 0.83% last week, regaining some of the previous week's 2.19% decline. The index has gained 18.23% YTD and is currently up 1.99% for October, a welcomed trend following September's -4.65%, its worst performance since March 2020. Equites had a rough start to the week as the index declined 1.29% on Monday with the information technology and communication services sectors leading the way down as inflation and growth fears weighed on investors and treasury yields climbed. Markets rallied back on Tuesday and pushed higher through Thursday. Equities received positive news as a $480 billion increase to the debt ceiling was passed by the US Senate allowing the government to continue to operate as usual for a couple more months without a shutdown or default. After a poor August payroll number, hopeful investors looking for strength in employment numbers were disappointed once again as the September non-farm payroll data showed an increase of only 194K jobs which was well under the expectations of 500K. However, U.S. initial jobless claims of 326K were lower than the 348K expected and the previous week's 362K. The unemployment rate also showed positive data as it declined 0.4% to 4.8%, its lowest level since March 2020. The S&P 500 Energy Index was the best performing sector for the week returning 5.02%, as crude oil climbed 4.57% to $79.35 per barrel. Strong energy names included Phillips 66 which returned 13.17%, the best performing stock in the S&P 500 Index, Marathon Oil Corp, APA Corp, Diamondback Energy Inc., and Pioneer Natural Resources Company, all showing double-digit returns for the week. Facebook Inc. shares declined 4.89% on Monday after a whistleblower on national media claimed the company prioritized profits over public safety. The whistleblower testified before Congress seeking changes that would make it safer but may decrease profits. Earnings announcements expected this week include financial names such as JPMorgan & Co., Bank of America Corp, Wells Fargo & Co., Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., and many more.
Posted on Monday, October 11, 2021 @ 8:11 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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