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Bob Carey
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  October 1987 to October 2017
Posted Under: Weekly Market Commentary Video
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 Monday, October 16, 2017 @ 11:36 AM • Post Link Share: 
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  US Stocks Ended October 13, 2017
Posted Under: Weekly Market Commentary

 
Another week, another all-time high for equities. The S&P 500 closed last week at 2,553, which was a 0.17% gain. This marked the fifth week in a row that the index has closed at a weekly all-time high. As the 'Trump Trade' nears its 1 year anniversary, the S&P 500 has a price return of 19.3% and a dividend reinvested total return of 21.6% since November 8th 2016. The aggregate market cap of the S&P 500 on election night was $18.5t and closed last week at $21.9t, a gain of $3.4t in market cap from 500 of the largest U.S. companies. To put that in perspective, assuming current population of the U.S. is ~323m people, the additional market cap gained since the election by S&P 500 is more than $10,000 for every man woman and child in America. This helps to explain last weeks Consumer Confidence number, as measured by the University of Michigan, of 116.4, the highest level since November of 2000. Wal-Mart Stores Inc. was up 9.6% last week on news that growth in their e-commerce business is expected to be 40% over the next year, they have plans to open hundreds of new stores internationally and a $20b share buyback. AT&T Inc. had a -7.5% return for the week as they announced slow handset upgrades and speculation that there could be anti-trust delays from the DOJ on their potential Time Warner Inc. acquisition. Kroger Inc. announced they are looking towards shedding some assets, like their convenience store business, as they may be more valuable outside of the company. Kroger has a -30% return year-to-date as competition remains hot in the traditional grocery store business. Looking ahead to next week, earnings season begins in earnest as 58 of the S&P 500 components are expected to announce financials from last quarter.
Posted on Monday, October 16, 2017 @ 8:23 AM • Post Link Share: 
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  US Economy and Credit Markets Ended October 13, 2017
Posted Under: Weekly Market Commentary

 
The yield curve flattened during a busy week that included the release of Fed minutes and inflation data, strong demand for 30-year bonds, and heightened geopolitical risk. The release of the Fed minutes on Wednesday showed that Fed officials believe they will raise short-term interest rates one more time in 2017. Following the release, the spread between the 5-year and 30-year Treasuries narrowed to its lowest level since 2007. On Thursday, strong demand for the Treasury Department's $12 billion auction of 30-year bonds pushed longer-term yields lower. The bid-to-cover ratio, measuring the number of bids received to the number of bids accepted, was 2.53, which was the highest since September 2015. An earthquake-like event in North Korea, possibly related to a nuclear test, also increased demand for U.S. government bonds. Treasury prices rose again on Friday on softer-than-expected inflation data. The data showed that the Consumer Price Index (CPI) rose 0.5% in September, below the consensus estimate of 0.6%, mostly due to the hurricane-related increase in gasoline prices. The monthly gain was the largest since January when the CPI rose 0.6%. Retail sales were also affected by Hurricanes Harvey and Irma, increasing 1.6% in September. Sales of automobiles, building materials, and gasoline all surged in September. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Monday: October Empire Manufacturing (20.5, 24.4); Tuesday: September Industrial Production (0.2%, -0.9% MoM); Wednesday: October 13 MBA Mortgage Applications (-2.1% prior), September Housing Starts (1,175k, 1,180k); Thursday: October 14 Initial Jobless Claims (240k, 243k), September Leading Index (0.1%, 0.4%), October Philadelphia Fed Business Outlook (22.0, 23.8); Friday: September Existing Home Sales (5.30m, 5.35m).
Posted on Monday, October 16, 2017 @ 8:21 AM • Post Link Share: 
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  Technology Stocks Have Delivered Strong Returns In The Current Bull Market
Posted Under: Sectors

 
View from the Observation Deck  

  1. From 3/9/09-10/10/17 (current bull), all four of the technology-related indices featured in the chart outperformed the S&P 500 Index.
  2. The average annualized total returns for the period were as follows: ISE Cloud Computing Index (+30.09%); Dow Jones Internet Composite Index (+28.36%); Philadelphia Semiconductor Index (+26.09%); S&P 500 Information Technology Index (+22.83%); and S&P 500 Index (+19.19%), according to Bloomberg.
  3. The so-called "new tech" (cloud computing) subsector posted the best showing since the bull began, followed by the Internet subsector, which happened to be the last major "new tech" wave back in the mid-1990s.
  4. As of 9/29/17, Information Technology accounted for 23.2% of the S&P 500 Index, up from 17.84% on 3/9/09, according to  S&P Dow Jones Indices and Bespoke Investment Group. It is the most heavily weighted sector in the index, followed by Financials at 14.6%.
  5. Year-to-date through 10/10/17, the S&P 500 Information Technology Index posted a total return of 29.70%, compared to 15.73% for the S&P 500 Index, according to Bloomberg. It was the top-performing sector index, followed by the S&P 500 Health Care Index, up 21.48%. 
  6. Earnings reporting season for Q3'17 is underway. History shows that Information Technology tends to post the largest gains on third-quarter earnings reports, according to CNBC. 

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 a capitalization-weighted index comprised 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 Thursday, October 12, 2017 @ 2:25 PM • Post Link Share: 
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  A Snapshot Of European Equities
Posted Under: International-Global

 
View from the Observation Deck  

  1. Today's blog post shows that European equities are trading at reasonable valuation levels looking out to 2018 and 2019, especially relative to their respective 10-year average P/Es, in our opinion. 
  2. The outlook for the growth in corporate earnings looks encouraging as well. Most of the major indices featured in the chart are expected to post 7.00-9.00% EPS growth rates in 2018 and 2019. 
  3. From 3/9/17 (8th anniversary of bull market) through 9/27/17, data from the Investment Company Institute indicates that investors funneled an estimated $140 billion into foreign stock funds and exchange-traded funds (ETFs), with European equity funds being a major beneficiary of said flows, according to Money. Over the same time period, investors liquidated $50 billion from U.S. stock funds and ETFs. 
  4. While the U.S. economy emerged from its last recession in Q3'09, Europe's economy did not exit its recession until Q2'13, nearly four years later, according to Money.
  5. Staggered global economic cycles offer investors another potential strategic diversification opportunity, in our opinion.  
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 MSCI Europe Index is a free-float weighted index designed to measure the equity market performance of the developed markets in Europe. The FTSE 100 Index is a capitalization-weighted index of the most highly capitalized companies traded on the London Stock Exchange. The CAC 40 Index reflects the performance of the 40 largest equities listed in France, measured by free-float market capitalization and liquidity. The DAX Index is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. The SMI Index (Swiss Market) is a capitalization-weighted index of the 20 largest (represents around 85% of Swiss equity market) and most liquid stocks of the SPI (Swiss Performance Index) universe. The IBEX 35 Index is the official index of the Spanish Continuous Market and is comprised of the 35 most liquid stocks. The OMX Stockholm 30 Index is a market-weighted price index consisting of the 30 most actively traded stocks on the Stockholm Stock Exchange. The AEX Index is a free-float adjusted market capitalization-weighted index of the leading Dutch stocks traded on the Amsterdam Exchange. The BEL 20 Index is a modified capitalization-weighted index of the 20 most capitalized and liquid Belgian stocks traded on the Brussels Stock Exchange. The OMX Helsinki Index includes all the shares listed on the Helsinki Stock Exchange.

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Posted on Tuesday, October 10, 2017 @ 1:55 PM • Post Link Share: 
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  7 for 7 so Far!
Posted Under: Weekly Market Commentary Video
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 Monday, October 9, 2017 @ 3:11 PM • Post Link Share: 
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  US Economy and Credit Markets Ended October 6, 2017
Posted Under: Weekly Market Commentary

 
Treasury prices dropped over the course of the week on speculation whether or not the Federal Reserve would increase rates in December and who would replace Fed Chairwoman Janet Yellen when her term is up in February. Tax cuts failed to gain steam during the previous week, however, on Thursday the House of Representatives passed a resolution which was seen as a necessary step towards cutting taxes. Now that tax cuts appear to be back on the table for President Trump's pro-growth agenda investors speculated that the Fed would be more likely to raise rates sooner. This news, along with a strong reading in ISM Manufacturing, Construction Spending, ISM Non-Manf. Composite and Factory Orders caused the market implied probability of a rate increase at the December Fed meeting to increase from 69.5% to 78.3%. Nonfarm Payrolls dropped 33k on Friday but the unemployment rate also dropped from 4.4% to 4.2%. It is widely speculated that President Trump will replace Janet Yellen as the head of the Fed in February and Politico reported that Treasury Secretary Steven Mnuchin favors Fed Gov. Jerome Powell on Tuesday. While Powell is viewed as more dovish than another leading candidate, former Fed Gov. Kevin Warsh, both are expected to be much more hawkish than Yellen. Somewhat mitigating the rise in rates were a couple of events that led investors to demand the perceived safety of Treasuries including the largest mass shooting in modern American history in Las Vegas to begin the week and a possible Catalan independence vote that could lead to more turmoil in Spain and the European Union. Major economic reports (related consensus forecasts; prior data) for the upcoming week include Wednesday: October 6 MBA Mortgage Applications (-0.4%); Thursday: September PPI Final Demand (0.4%, 0.2% MoM; 2.6%, 2.4% YoY), October 7 Initial Jobless Claims (252k, 260k); Friday: September CPI (0.6%, 0.4% MoM; 2.3%, 1.9% YoY), September Retail Sales Advance (1.6%, -0.2% MoM), October Prelim. University of Michigan Sentiment (95.0, 95.1).
Posted on Monday, October 9, 2017 @ 8:42 AM • Post Link Share: 
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  US Stocks Ended October 6, 2017
Posted Under: Weekly Market Commentary

 
Despite a weak jobs report, equities continued to move higher as financial shares led the rally for the week. Nonfarm payrolls fell by 33,000 in September, marking the first decline since 2010. In contrast, the unemployment rate fell to 4.2%, the lowest reading since 2001, and wages increased by 2.9% versus a year ago. However, the labor report was likely skewed by the effects of hurricanes Harvey and Irma. Bank stocks benefited from rising treasury yields, while dividend paying stocks trailed the broader market. Both Ford Motor Co. and General Motors Co. reported strong sales for September due to hurricane related car replacements and model year-end discounts. PepsiCo, Inc. reported another disappointing quarter with North American beverage sales declining 3% as many consumers aim to lower sugar and artificial sweeteners in their diet. Netflix Inc. gained over 9% for the week after the streaming giant announced a 10% price increase for its most popular service plan to help fund future content costs. Shares of Celgene Corp. fell on concerns new generic drugs may come to market and hurt sales of the biotech's cancer drugs. Turning to next week, earnings season starts for a number of U.S. banks, led by JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. In addition, the minutes for the last FOMC policy meeting will be released, which may give a clearer picture of the likelihood of a December rate increase. Looking longer-term, S&P 500 EPS growth is expected to be only 3.6% in the 3rd quarter due to revisions within the insurance industry. However, analysts still expect double-digit S&P 500 EPS growth for 2017 and 2018. Despite rising valuations, continued strength in corporate profits creates the potential for further gains for equities.
Posted on Monday, October 9, 2017 @ 8:38 AM • 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 an update of one we do on an ongoing basis. On a year-to-date basis, growth stocks are significantly outperforming value stocks. 
  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, such as right after the economy exits a recession.
  3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in five of the six periods. Growth investing topped value investing for the 15-year, 10-year, 3-year, 1-year and year-to-date periods through 10/3/17.
  4. The returns were as follows (Pure Growth vs. Pure Value): 15-yr. average annualized (13.89% vs. 13.19%); 10-yr. average annualized (11.00% vs. 8.73%); 5-yr. average annualized (16.40% vs. 16.61%); 3-yr. average annualized (10.37% vs. 8.14%); 1-yr. (21.12% vs. 20.83%) and YTD (21.39% vs. 10.05%). 
  5. As of 9/29/17, the largest sector weighting in the S&P 500 Pure Growth Index was Information Technology at 32.1%, while the most heavily weighted sector in the S&P 500 Pure Value Index was Financials at 36.9%, according to S&P Dow Jones Indices. 
  6. YTD through 10/3/17, the S&P 500 Information Technology Index posted a total return of 27.74%, compared to 13.82% 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.

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Posted on Thursday, October 5, 2017 @ 3:27 PM • Post Link Share: 
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  2018 & 2019 Earnings Snapshot
Posted Under: Broader Stock Market

 

View from the Observation Deck 

  1. With just three months left in 2017, we thought it would be a good time to look ahead to the 2018 and 2019 year-over-year earnings growth projections for a number of major stock indices.
  2. We often note that we believe that corporate earnings determine the direction of stock prices over time, particularly when the major indices are trading at or near record highs.
  3. From 1926 through 2016, the S&P 500 Index posted an average annual total return of 10.04%, according to Ibbotson Associates/Morningstar. The 10.04% annual gain is roughly in line with the S&P 500 Index's 2018 and 2019 earnings growth rate estimates (see chart).
  4. With respect to the 2018 earnings growth rate estimates, the indices in the chart with positive double-digit projections are as follows (Highest-Lowest): S&P 500 Energy; S&P SmallCap 600; S&P 500 Materials; MSCI Emerging Markets; S&P MidCap 400; S&P 500 Financials; S&P 500 Information Technology; S&P 500 Industrials; S&P 500; S&P 100; S&P 500 Consumer Discretionary; and Nikkei 225.
  5. With respect to the 2019 earnings growth rate estimates, the indices in the chart with positive double-digit projections are as follows (Highest-Lowest): S&P 500 Energy; S&P SmallCap 600; S&P 500 Consumer Discretionary; MSCI Emerging Markets; S&P 500 Real Estate; Nikkei 225; S&P MidCap 400; S&P 500 Industrials; S&P 100; S&P 500 Materials; S&P 500 Financials; and S&P 500.

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. There can be no assurance that any of the projections cited will occur. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised 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. The S&P 100 Index is a capitalization-weighted index based on 100 highly capitalized stocks selected from the S&P 500 for which options are listed. 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 Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. 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 Europe Index is a free-float weighted index designed to measure the performance of the developed equity markets in Europe. The Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange.


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Posted on Tuesday, October 3, 2017 @ 12:01 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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