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  US Stock Markets Ended August 7, 2020
Posted Under: Weekly Market Commentary

 
Equities continued to move higher amid uncertainty around an extension of unemployment benefits and continued tensions with China. As of the close of markets on Friday, an agreement between the House Democrats and Senate Republicans on a new round of federal stimulus is still trillions apart. In the latest salvo against China, President Trump signed an executive order that imposed a 45-day deadline for TikTok to sell to an American company or cease operations in the U.S. In economic news, the U.S. added 1.8 million jobs in July versus expectations for 1.5 million, dropping the unemployment rate to 10.2%. This week in earnings lead to some large selloffs in technology darlings that beat earnings and provided strong guidance but could not satisfy lofty expectations. Shares of Fastly Inc., a player in edge computing, fell nearly 20% after revealing 12% of revenues are tied to TikTok and revenue expectations that were only slightly above expectations. Despite growing revenue by 68%, Datadog, Inc. fell sharply after reporting a deceleration in growth on softening public cloud spending. Twilio, Inc. pared its year-to-date gain to 148% after announcing an inline quarter with rising expectations. Industrial stocks were the top performers for the week as additional aid to the airlines is likely and the international travel ban was lifted. Although volatile, market leadership started to slightly shift towards small-caps, cyclicals and value names before the start of earnings season. Since July 9th, the Russell 2000 has returned 11.6% versus 6% for the S&P 500. For continued follow through, cyclicals will likely need continued improvement in economic activity and a rebound of fundamentals for many of the hardest hit areas of the market.
Posted on Monday, August 10, 2020 @ 8:22 AM • Post Link Share: 
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  US Economy and Credit Markets Ended August 7, 2020
Posted Under: Weekly Market Commentary

 
U.S. Treasury bond yields were higher across the yield curve last week with longer dated Treasury yields gaining more than shorter dated Treasury yields. The week started off with Treasury yields higher on Monday due to strong global manufacturing data. Manufacturing indexes in China, Europe, and the United States showed improvement versus last month. Treasury yields retreated Tuesday as investors turned pessimistic of Congress's progression on fiscal policy as aid for U.S. citizens runs out. Treasury yields climbed for the rest of the week as positive economic data spurred investor confidence in the U.S. economy. The ISM Non-Manufacturing index rose to 58.1 in July, well above the consensus expected 55.0, signaling an expansion in the U.S. services sector. The week ended with a stronger than expected July jobs report. July nonfarm payrolls rose by 1.763 million and unemployment dropped by nearly 1% to 10.2% in July. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday July NFIB Small Business Optimism (100.4, 100.6), July PPI Final Demand MoM (0.3%, -0.2%), July PPI Final Demand YoY (-0.7%, -0.8%); Wednesday: August 7 MBA Mortgage Applications (n/a, -5.1%), July CPI MoM 0.3%, 0.6%), July CPI YoY (0.7%, 0.6%), July Monthly Budget Statement ( n/a, -$864.1); Thursday:  August 8 Initial Jobless Claims (1150k, 1186k), August 1 Continuing Claims (n/a, 16107k); Friday: July Retail Sales Advance MoM (1.8%, 7.5%), July Industrial Production MoM (3.0%, 7.2%), July Capacity Utilization (70.5%, 68.6%), August Preliminary University of Michigan Sentiment ( 71.7, 72.5).
Posted on Monday, August 10, 2020 @ 8:20 AM • Post Link Share: 
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  The Action In The Stock Market Has Been Fast And Furious
Posted Under: Broader Stock Market

 
View from the Observation Deck  

  1. Today's blog post features the total return performance figures for the S&P 500 Index and its 11 major sectors over four specific periods this year.
  2. The first column of total returns in the table above indicates that, with the exception of Materials and Energy, the S&P 500 Index and the sectors that comprise it were off to a prosperous start to 2020.
  3. Due largely to the onset of coronavirus (COVID-19), a major shift in sentiment occurred after the close of trading on 2/19/20. The second column of total returns captures the depth of the sell-off in the stock market. 
  4. The S&P 500 Index actually crossed over into bear market territory (a 20% or more price decline from the most recent high) at the close of trading on 3/12/20. It only took 16 trading days, the fastest path to a bear market ever. The sell-off did not cease until 3/23/20. 
  5. What changed around 3/23/20? The Federal Reserve, Treasury Department and Congress joined up with the Trump administration to pull together trillions of dollars of aid and stimulus to help prop up workers, companies and municipalities in this time of need. They have acknowledged throughout that they may need to contribute additional stimulus until the economy can mount a recovery on its own. The Democrats in the House and the Senate Republicans are battling over the next phase of stimulus as we speak. 
  6. The third column of total returns shows the rebound currently in progress. Despite the severe economic fallout anticipated from shutting down huge chunks of the U.S. economy for an indeterminate period, it appears that investors have placed their confidence in the government's ability to mitigate this pandemic, in our opinion.
  7. The last column reflects the year-to-date total returns through 8/6/20. It exposes those sectors still struggling to get back into positive territory.
  8. Some investors may have already shifted their focus beyond 2020's expectations. Bloomberg's consensus earnings growth rate estimates for the S&P 500 Index for 2020, 2021 and 2022 were -20.64%, 24.84% and 17.43%, respectively, as of 7/31/20. 

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 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.  

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Posted on Thursday, August 6, 2020 @ 1:46 PM • Post Link Share: 
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  A Snapshot Of Sector Investing
Posted Under: Sectors

 
View from the Observation Deck  
  1. Today's chart shows estimated net capital flows to and from Morningstar's sector mutual fund and exchange-traded fund (ETFs) categories that mirror the 11 sectors that comprise the S&P 500 Index. 
  2. Year-to-date through 6/30/20, five of the 11 sector categories reported positive estimated net inflows. They were as follows: Technology ($13.35 billion); Health ($6.99 billion); Equity Energy ($6.84 billion); Communications ($3.27 billion); and Consumer Cyclical ($10 million). 
  3. For the 12-month period ended 6/30/20, five of the 11 sector categories reported positive estimated net inflows. They were as follows: Technology ($16.48 billion); Equity Energy ($5.54 billion); Communications ($3.76 billion); Consumer Defensive ($1.1 billion); and Utilities ($348 million).  
  4. If you include all the sectors tracked by Morningstar, investors liquidated an estimated net $800 million from sector mutual funds and ETFs for the 12-month period ended 6/30/20, according to Morningstar. Passive funds registered estimated net inflows totaling $22.91 billion in the period, while active funds reported estimated net outflows totaling $23.71 billion.
  5. For the 12-month period ended 6/30/20, the S&P 500 Index sectors that posted positive total returns were as follows: Information Technology (+35.90%); Consumer Discretionary (+12.59%); Communication Services (+11.08%); Health Care (+10.90%); and Consumer Staples (+3.62%), according to Bloomberg. The S&P 500 Index was up 7.49% over the same period. 
  6. Click here to see this same chart featuring data through 6/30/19. 

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 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 

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Posted on Tuesday, August 4, 2020 @ 1:06 PM • Post Link Share: 
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  US Stock Markets Ended July 31, 2020
Posted Under: Weekly Market Commentary

 
Last week, equities were positive as mega-cap technology stocks led the way with a slew of strong quarterly earnings announcements. The S&P 500 index rallied 1.5% while the Nasdaq Composite index was up 3.5%. Apple Inc. managed to beat sell side revenue estimates by over $7.4b coming in at $59.7b compared to $52.3b estimated, pushing the stock 14.7% higher last week. Amazon.com Inc. also beat sell side estimates by $7.7b after announcing 2Q revenue of $88.9b compared to an estimated $81.2b as the stock rallied 5.1% last week. To put those two revenue beats in perspective only 79 different stocks in the S&P 500 index have $7b in total quarterly revenue. Apple management issued strong guidance for next quarter as demand continues to grow for iPad, Mac, iPhone, iWatch, and services segments. Amazon continued to experience higher demand for Prime as user growth strengthened and customer churn was lower than expected. Amazon managed to increase grocery delivery capacity by 160% in 2Q and hire 175,000 people. Facebook Inc. was up 9.9% last week after total revenue, ad revenue, earnings and monthly active users all beat estimates. The embattled social media giant managed to have a strong quarter despite many threats to advertising cuts from businesses who don't like Facebooks censoring policies. Alphabet Inc., the parent company of Google, was down nearly 2% last week after announcing revenue and earnings that were mostly inline with expectations. YouTube, search, cloud and advertising all met analyst expectations but didn't beat them by enough for the stock to rally like other mega-cap technology names. This was all during a week where the CEO of each of these companies testified in front of the U.S. Congress about potential anti-trust issues with their varying businesses. Looking ahead to next week, Bloomberg expects 133 names in the S&P 500 index to announce quarterly results. As earnings season continues, equity markets look to learn more about how much COVID shutdowns are harming U.S. companies.
Posted on Monday, August 3, 2020 @ 8:12 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 31, 2020
Posted Under: Weekly Market Commentary

 
U.S. Treasury bond yields dropped across the yield curve last week as investors digested a slew of economic data and news. The week started with positive virus-related investor sentiment raising the long end of the yield curve on news of the start of the largest vaccination study. On Wednesday, Treasury yields were mixed across the curve as the Federal Reserve reiterated the benchmark interest rate of 0.00% to 0.25% and their continued assurance to do whatever is necessary to support the economy. Treasury yields took a downward turn on Thursday as investors preferred haven assets after the jarring second quarter U.S. GDP numbers. Second quarter GDP growth came in at -32.9%, which beat the consensus expected drop of 34.5%. Though the GDP decline was less than expected, the large decline led investors to purchase Treasury bonds, and drove the U.S. 10-Year Treasury yield to its lowest since March. The week ended with Treasury yields continuing to decline, including the U.S. 2-Year Treasury yield pushing down near all-time lows. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Monday: July Final ISM US Manufacturing PMI (51.3, 51.3), July ISM Manufacturing (53.6, 52.6), July ISM Prices Paid (52.0, 51.3), June Construction Spending MoM (1.0%, -2.1%); Tuesday: June Factory Orders (5.0%, 8.0%), June Final Durable Goods Orders (7.3%, 7.3%); Wednesday: July 31 MBA Mortgage Applications (n/a, -0.8%), July ADP Employment Change (1200k, 2369k), June Trade Balance (-$50.1b -$53.6b), July final Markit US Services PMI (49.6, 49.6), July final Markit US Composite PMI (n/a, 50.0), July ISM Services Index (55.0, 57.1); Thursday: August 1 Initial Jobless Claims (1414k, 1434k), July 25 Continuing Claims (17000k, 17018k); Friday: July Change in Nonfarm Payrolls (1520k, 4800k), Change in Manufacturing Payrolls (300k, 356k), July Unemployment Rate (10.5%, 11.1%).
Posted on Monday, August 3, 2020 @ 8:11 AM • Post Link Share: 
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  Every Year Looks Volatile Compared To 2017
Posted Under: Broader Stock Market

 
View from the Observation Deck  
  1. In 2017, the S&P 500 Index ("index") did not register a single down month on a total return basis, which includes reinvested dividends. That is not typically the case. 
  2. In 11 of the past 12 calendar years, which includes the 2008-2009 financial crisis, the index endured no less than two negative total return months and as many as eight (see table). 
  3. In 2019, the index posted two negative total returns: -6.35% (May) and -1.58% (August), according to Bloomberg. Despite the steep decline in May, the index finished 2019 with a total return of 31.49%, more than three times the historical norm for a calendar year (see point 5).  
  4. From 2008 through 2019, the S&P 500 Index endured a loss in 45 of the 144 months on a total return basis, or approximately 31.3% of the time. Over that same period, the index posted an average annualized total return of 9.09%, according to Bloomberg. 
  5. For comparative purposes, from 1926 through 2019, the S&P 500 Index posted a loss in 25 of the 94 calendar years on a total return basis, or approximately 26.6% of the time, according to data from Ibbotson Associates/Morningstar. Over that same period, the index posted an average annual total return of 10.20%.
  6. Stock prices don't rise in a straight line. Investors are going to encounter some turbulent times along the way. Remember, the S&P 500 Index has never failed to fully recoup any losses sustained from corrections or bear markets over time. 
  7. A Bloomberg survey of 17 equity strategists found that their average 2020 year-end price target for the S&P 500 Index was 3,108 as of 7/17/20, according to its own release. The highest and lowest estimates were 3,500 and 2,750, respectively. The S&P 500 Index closed at 3,258.44 on 7/29/20. It stood 3.77% below its all-time closing high of 3,386.15 on 2/19/20. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any past trends will continue or that 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.

Download a PDF of this post, please click here.
Posted on Thursday, July 30, 2020 @ 2:05 PM • Post Link Share: 
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  A Snapshot Of The U.S. Dollar

 
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 7/27/20, the 10-, 20- and 30-year averages for the U.S. Dollar Index carried readings of 89.22 to 91.08, which is a relatively tight range.
  6. When the Trump administration officially launched its initial round of tariffs on 3/8/18 targeting steel and aluminum imports the U.S. Dollar Index (DXY) stood at a reading of 90.18, in line with the historical averages. 
  7. 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.
  8. Goldman Sachs estimates that the dollar could decline by more than 20% from its peak on 3/20/20 (see chart), providing the global economic recovery advances, according to Forbes. The last time the U.S. Dollar Index was below a reading of 85 was in September 2014. 
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, July 28, 2020 @ 1:50 PM • Post Link Share: 
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  US Stock Markets Ended July 24, 2020
Posted Under: Weekly Market Commentary

 
The S&P 500 Index declined 27 basis points last week after three straight weeks of gains. The index is currently up 3.82% in July which has helped push it back into positive territory for 2020 after the February-March steep market decline. Equities were up early in the week, but reversed course on Thursday with information technology, consumer discretionary, and communication services being the hardest hit sectors. Negative jobs data, along with increasing COVID-19 cases causing a decline in consumer spending in parts of the country, raised concerns over the economic rebound potentially stalling. U.S. initial jobless claims of 1.42 million were higher than the consensus estimate of 1.3 million and the previous week's claims of 1.3 million. This was the first increase in jobless claims since the high of 6.87 million on March 27, breaking a 15-week stretch of declines. Crude oil closed at $41.29 per barrel on Friday, increasing 1.72% for the week. FirstEnergy Corp, a public utility holding company, was the worst performing stock in the S&P 500 Index, returning -30.04%. The stock was trampled after reports of an investigation into the company's possible involvement in a $60 million bribery scheme that led to the arrests of five individuals, including the Ohio House Speaker. Intel Corp, a computer chip manufacturer, returned -15.68% last week. The company had a positive earnings announcement Thursday night beating expectations but delivered negative news about their future 7-nanometer chips being delayed approximately six months over manufacturing issues. This not only caused the stock to tank on Friday, but also helped drive up its rival, Advanced Micro Devices Inc.,16.50% on Friday as the semiconductor company already markets 7-nanometer chips. The stock climbed 26.09% last week, claiming the best performance in the S&P 500 Index. Homebuilders PulteGroup Inc. and NVR Inc. returned 14.26% and 13.99% respectively as the companies announced increases in second quarter orders. US new homes sales increased to a 776K annualized rate, the highest since July 2007. Earnings announcements expected this week include Apple Inc., Amazon.com Inc., Alphabet Inc., Facebook Inc., Visa Inc., Pfizer Inc., PayPal Holdings Inc., Advanced Micro Devices Inc., and many others.

Posted on Monday, July 27, 2020 @ 8:04 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 24, 2020
Posted Under: Weekly Market Commentary

 
Treasury yields dropped over the course of the week on increased geopolitical tensions between the United States and China, along with disappointing economic data. Yields started the week higher as positive trial results showed that progress is being made toward a vaccine, and on expectations of stimulus packages in the U.S. and EU. However, the U.S. State Department told China to close its Houston consulate on Wednesday in an attempt to protect American intellectual property and private information. China's Foreign Ministry spokesperson pledged retaliation if this path was continued saying that this was unprecedented escalation. On Thursday, the U.S. Secretary of State called on foreign governments to join the U.S. in confronting China, and China then ordered the U.S. to close its consulate in Chengdu. These geopolitical tensions caused yields to fall as investors began to seek the perceived safety of Treasurys. On Thursday, initial jobless claims rose by 109,000 to 1.416 million, suggesting that the economic recovery has slowed with the recent increase in Coronavirus cases and corresponding social distancing measures. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Monday: June Prelim. Durable Goods Orders (7.2%, 15.7%); Tuesday: July Conf. Board Consumer Confidence (94.5, 98.1); Wednesday: July 24 MBA Mortgage Applications (n/a, 4.1%), June Prelim. Wholesale Inventories MoM (n/a, -1.2%), July 29 FOMC Rate Decisions Upper Bound (0.25%); Thursday: 2Q GDP Annualized QoQ (-35%, -5%), July 25 Initial Jobless Claims (1410k, 1416k); Friday: June Personal Income (-0.7%, -4.2%), June Personal Spending (5.3%, 8.2%), July MNI Chicago PMI (44.5, 36.6), July Final U. of Michigan Sentiment (72.8, 73.2).
Posted on Monday, July 27, 2020 @ 8:02 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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