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  US Stock Markets Ended Sept. 13, 2019
Posted Under: Weekly Market Commentary

 
Stocks moved higher for the week on better-than-expected economic data and trade optimism as Treasury Secretary Steven Mnuchin said there has been "lots of progress" between the U.S. and China.  The consumer remains especially strong as retail sales were above expectations and consumer confidence rebounded from August.  The market was extremely bifurcated for the week with value and cyclical stocks outperforming growth and safety names.   Strong economic data points and a sharp rise in longer duration treasury yields led to robust performance for financial shares, while real estate, consumer staples and utilities lagged as all three sectors tend to be interest-rate sensitive. Turning to stock news,  shares of Oracle Corp. dropped after reporting a disappointing quarter as cloud sales remain challenged. In addition, Chief Executive Officer Mark Hurd announced he will take an unexpected leave of absence due to health reasons.  HD Supply Holdings, Inc.  declined after issuing disappointing guidance on weakness in the construction and industrial end markets.  Progressive Corp. fell after reporting a worsening combined ratio on higher losses in its underwriting book.  Despite posting a 32% rise in billings, shares of Zscaler, Inc. plummeted as the cloud-based security firm did not beat street expectations by a wide enough margin.  Looking ahead to next week,  investors will be focused on the Federal Reserve and other central banks around the globe setting interest rates.  Sector and style reposition may impact markets in the weeks to come as last week's sharp reversal to economically sensitive sectors and value stocks at the expense of lower volatility and past winners could persist or revert back.
Posted on Monday, September 16, 2019 @ 8:31 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Sept. 13, 2019
Posted Under: Weekly Market Commentary

 
U.S. government bond yields surged last week, reversing a recent slide, on strong economic data and easing trade tensions between the U.S. and China. Retail sales grew a strong 0.4% in August over the prior month, beating expectations, largely driven by higher spending on vehicles. Over the prior year, retail sales grew by 4.1%. The American consumer has largely been a strong spot in the U.S. economy, and Friday's retail sales data bolstered that view. Additionally, the University of Michigan's Consumer Sentiment Index came in slightly higher than expectations. On the trade front, President Trump delayed tariff increases on $250 billion of imports from China while China said it will exempt purchases of U.S. soybeans, pork, and other agricultural products from punitive tariffs. Meanwhile, the European Central Bank and its outgoing President Mario Draghi launched a major monetary stimulus package last week in response to a longer-than-expected slowdown in the eurozone economy and soft inflation. In other central bank news, the FOMC meets on Tuesday and Wednesday this week and is widely expected to cut interest rates by a quarter-point. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: September Empire Manufacturing (4.0, 4.8); Tuesday: August Industrial Production MoM (0.2%, -0.2%); Wednesday: September 18 FOMC Rate Decision – Upper Bound (2.00%, 2.25%), September 13 MBA Mortgage Applications (N/A, 2.0%), August Housing Starts (1,247k, 1,191k); Thursday: September 14 Initial Jobless Claims (212k, 204k), August Existing Home Sales (5.37m, 5.42m), August Leading Index (0.1%, 0.5%).

Posted on Monday, September 16, 2019 @ 8:30 AM • Post Link Share: 
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  How U.S. Stocks & Bonds Have Fared Since The Attacks On 9/11
Posted Under: Conceptual Investing

 

 
View from the Observation Deck  
  1. It has been 18 years since the U.S. was attacked on 9/11. 
  2. The magnitude of the attacks that day were so egregious that the stock market closed in the U.S. on the 11th of September and did not reopen until the 17th. 
  3. When you factor in the events of 9/11, as well as the multitude of global terrorist attacks and geopolitical events that followed, it is amazing just how resilient the U.S. stock and bond markets truly are, in our opinion.   
  4. For comparative purposes, from 1926 through 2018 (93 years), the S&P 500 Index posted an average annual total return of 9.99%, while the Morningstar U.S. Long-Term Government Bond Index generated an average annual total return of 5.49%, according to Morningstar/Ibbotson.  
  5. The average annualized total returns of the major indices featured in the charts are roughly in line with historical norms. Considering the circumstances involved, we'll chalk that up as a win.  
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 NASDAQ 100 Index includes 100 of the largest domestic and non-financial companies listed on The NASDAQ Stock Market based on market capitalization. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The ICE BofAML 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 ICE BofAML 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 BofAML 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 BofAML 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 BofAML 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.  

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Posted on Thursday, September 12, 2019 @ 12:40 PM • Post Link Share: 
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  Homebuilder-Related Stocks In Rally Mode In 2019
Posted Under: Sectors

 
View from the Observation Deck  
  1. Year-to-date through 9/6/19, the S&P Homebuilding Select Industry Index posted a total return of 31.44%, compared to 20.50% for the S&P 500 Index, according to Bloomberg. 
  2. In 2018, the S&P Homebuilding Select Industry Index posted a total return of -25.57%, well below the -4.38% total return on the S&P 500 Index, according to Bloomberg. Homebuilder-related stocks have some ground to make up.
  3. As indicated in the chart, as of 9/6/19, the S&P Homebuilding Select Industry Index stood 23.07% below its all-time high (7/20/05). The S&P 500 Index closed 9/6/19 just 1.56% below its all-time high (7/26/19), according to Bloomberg. 
  4. Sentiment for new construction is upbeat. The National Association of Home Builders Market Index (SA) registered a reading of 66 in August 2019. A reading above 50 indicates more builders view conditions as good than poor. Its average level for the 30-year period ended August 2019 was 50. The high and low for the period was 78 (12/31/98) and 8 (1/31/09), respectively, according to Bloomberg. 
  5. The 2019, 2020 and 2021 consensus earnings-per-share estimates for the S&P Homebuilding Select Industry Index were $291.26, $323.64 and $359.62, respectively, as of 9/10/19, according to Bloomberg. 
  6. Bloomberg's 2019, 2020 and 2021 estimated year-end price-to-earnings (P/E) ratios on the S&P Homebuilding Select Industry Index were 14.77, 13.29 and 11.96, respectively, as of 9/10/19. Both are well below the index's three-year average P/E of 14.84.
  7. Look for the ongoing recovery in homebuilding to continue, according to Brian Wesbury, Chief Economist at First Trust Advisors L.P. Wesbury notes that mortgage rates are down around 100 basis points from the peak in Q4'18 and wages are growing near the fastest pace in a decade, both of which help boost affordability. 
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 Homebuilding Select Industry Index provides investors with an equity benchmark for U.S. traded Homebuilding-related securities. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. 

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Posted on Tuesday, September 10, 2019 @ 1:30 PM • Post Link Share: 
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  US Stock Markets Ended Sept. 6, 2019
Posted Under: Weekly Market Commentary

 
Equities traded higher during the Labor Day shortened week. The biggest market mover continues to be US-China trade news. Thursday, it was announced that in-person trade talks would resume in Washington DC in October. This was welcomed news compared to the last few weeks when it appeared both sides were hardening their trade stance by threatening higher tariffs. U.S. economic news also strengthened last week as job numbers, factory orders, durable goods and ISM Non-Manufacturing all beat economist expectations. Overall the S&P 500 is only 1.5% off its all-time high set only 30 trading days ago on July 26th. The Fed also made comments last week hinting that rate changes will continue to support this economic expansion. While earnings season wound down a few weeks ago, there were still a few quarterly announcements last week. DocuSign Inc., the world's largest eSignature solution, soared over 20% last Friday after they announced continued customer growth along with quarterly revenue nearly 7% higher than previous guidance. Lululemon Athletica Inc. closed last week at an all-time high after announcing earnings and revenue well ahead of the Street's estimates and raising revenue and earnings guidance. The athletic apparel giant saw their Chinese sales grow 68% and Men's sales grow of 27% last quarter, while reiterating that only 6% of their products are exposed to tariffs. This was all welcomed news as shares were up over 10% last week. Palo Alto Networks Inc., the global cybersecurity leader, returned 6% last week after announcing earnings and revenue above analyst expectations. Revenue growth clocked in at 22% while they passed $1b in billings for the first time. Looking ahead to next week, tariff news will likely grab headlines and will likely determine the near-term profits in equity markets. This could give those with a longer-term view an entry opportunity into equities if they can stomach the likely near-term volatility. 
Posted on Monday, September 9, 2019 @ 7:33 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Sept. 6, 2019
Posted Under: Weekly Market Commentary

 
Long-dated U.S. Treasury yields finished the holiday-shortened week higher as yields on short-term U.S. Treasury bills pulled back. The movement of U.S. Treasury yields last week un-inverted the U.S. Treasury 2-year/10-year yield curve. An inverted yield curve is perceived as a recession indicator.  U.S. Treasury yields pushed higher on the news of trade talks between the United States and China set to resume in October and the better-than-expected ISM Non-Manufacturing data. The ISM Non-Manufacturing Index rose to 56.4 in August, well above consensus estimates of 54.0. Levels above 50 signal expansion. Sixteen of eighteen industries in the ISM Non-Manufacturing Index reported growth, easing recession concerns. On Friday, investors digested a mixed jobs report for the month of August. Top-line data indicated nonfarm payrolls of 130,000 missed consensus estimates of 160,000. Underlying data in the report was more positive. Average hourly wages increased 0.4% in the month, up 3.2% versus August of last year. The unemployment rate remained unchanged for the month because the labor force expanded by 571,000. Additionally, the employment-to-participation ratio reached its highest since 2008 at 60.9%, while the labor force participation rate tied the highest since 2013 at 63.2%. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: August NFIB Small Business Optimism (103.5, 104.7); Wednesday: September 6 MBA Mortgage Applications (n/a, -3.1%), August PPI Final Demand MoM ( 0.1%, 0.2%), August PPI Final Demand YoY ( 1.8%, 1.7%), July Final Wholesale Inventories MoM (0.2%, 0.2%); Thursday: August CPI MoM (0.1%, 0.3%), August CPI YoY (1.8%, 1.8%), September 7 Initial Jobless Claims (215k, 217k), August 31 Continuing Claims (n/a, 1662k), August Monthly Budget Statement (-$161.0b, -$119.7b); Friday: August Retail Sales Advance MoM (0.2%, 0.7%), September Preliminary University of Michigan Sentiment (90.5, 89.87).
Posted on Monday, September 9, 2019 @ 7:32 AM • 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. Investors need to be cognizant of the fact that interest rates are still at low levels relative to their historical averages. 
  3. The yield on the U.S. 10-year Treasury-note (T-note) closed at 1.47% on 9/4/19, that was 466 basis points (bps) below its historical average yield of 6.13% since 1/5/62, according to Bloomberg.
  4. As indicated in the table above, many countries have negative-yielding sovereign debt trading in the market. While not included in the table, investors should be aware that there also happens to be negative-yielding corporate debt trading in the market. 
  5. The volume of negative-yielding debt exceeded $17 trillion at the close of August 2019, according to Bloomberg. It notes that 30% of all investment-grade bonds currently bear sub-zero yields. 
  6. Bond yields in Japan and parts of Europe are still in negative territory despite stimulus efforts from their respective central banks.
  7. The absence of any inflationary pressure in the U.S., despite the acceleration in economic growth in 2018, and the exceptionally low interest rate climate in Europe and Japan has enabled the yield on the 10-year T-note to remain artificially low, in our opinion.
  8. We have been waiting for interest rates and bond yields to normalize in the U.S. a while now. It looks as though we won't get there without some help from abroad, including a new trade deal between the U.S. and China.  
This chart is for illustrative purposes only and not indicative of any actual investment. 

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Posted on Thursday, September 5, 2019 @ 1:40 PM • Post Link Share: 
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  This Data Does Not Portend A Bear Market In Stocks
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. Today's blog post is intended to provide some historical perspective as to where three key benchmark interest rates/yields stood prior to U.S. equities, as measured by the S&P 500 Index, succumbing to bear markets.
  2. A bear market in stocks is defined as a decline of 20% or more in the price level of a benchmark index, such as the S&P 500 Index, from its recent peak.  
  3. Brian Wesbury, Chief Economist at First Trust Advisors L.P., has noted through the years that bear markets tend to occur when the Federal Reserve ("Fed") becomes too tight with its monetary policy.  
  4. As indicated in the chart, the upper bound of the federal funds target rate is currently 2.25%. That target rate is actually down from 2.50% on 7/30/19, and stands well below its 30-year average of 3.02%, according to Bloomberg. The Fed is not tight by historical standards.  
  5. A 3/22/12 article in Businessweek stated that data from Standard & Poor's revealed that, since 1953, U.S. stocks posted their best returns when the yield on the 10-Year Treasury Note (T-Note) rose to around 4.00%.
  6. As of 8/30/19, the 10-year Treasury-note (T-note) yielded a paltry 1.50%, or 250 basis points below that 4.00% mark.
  7. The escalation in the trade conflict between the U.S. and China has had a major impact on the Treasury yield curve, which inverted (spread between the 2- and 10-year T-notes) in August, and the performance of U.S. and global equities. 
  8. Having said that, as of 8/30/19, the 2020 and 2021 consensus earnings growth estimates for the S&P 500 Index were 10.27% and 10.10%, respectively, according to Bloomberg. Those estimates do not portend a bear market or a recession, in our opinion. 
This chart is for illustrative purposes only and not indicative of any actual investment. Past performance is not indicative of future results and 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 (currently 505) used to measure large-cap U.S. stock market performance. The CPI (Consumer Price Index) measures the prices paid for a market basket of consumer goods and services. 

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Posted on Tuesday, September 3, 2019 @ 2:08 PM • Post Link Share: 
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  US Stock Markets Ended August 30, 2019
Posted Under: Weekly Market Commentary

 
Equities started last week positive and looked to coast into the weekend until mid-day Friday when China decided to levy additional tariffs on $75b worth of U.S. goods and President Trump responded with additional US trade threats. This raised the geopolitical and global GDP growth risks which sent the S&P 500 down over 75 points and the Dow Jones Industrial Average tumbling 600 points. Concerns of lackluster global GDP growth have taken over equity markets, the latest affair was a 30-Year German Bund auction with negative interest rates. Despite the global backdrop, U.S. economic reports continue to resilience. Initial jobless claims, continuing jobless claims and home sales all were reported as expected. The Conference Board US Leading Indicator Index beat expectations for July with a 0.5% gain.  Meanwhile, June's leading indicator was revised from -0.3% up to -0.1%. Earnings season for 2Q19 wound down with only 22 companies in the S&P 500 Index reporting last week. There were a slew of retail announcements including The Gap Inc., Nordstrom Inc., Target Inc., Home Depot Inc., Lowes Inc., L Brands Inc. and TJX Companies.  The headliner was Target Inc. which soared nearly 24% last week after announcing earnings, same store sales and guidance all beat estimates. Further, Target announced their comparable digital sales grew 34%, bolstering the markets confidence in their digital order future.  The only retail name listed above that was down last week was L Brands Inc. which owns Victoria's Secret and Bath & Body Works. LB was down over 12% as they announced lingerie revenue was down 'mid-single digits in Q2' and their gross margins decreased significantly. This likely means LB deeply discounted their goods and still couldn't sell them. Looking ahead to next week, tariff news will surely grab headlines and will likely determine the near-term profits in equity markets. This could give those with a longer-term view an entry opportunity into equities if they can stomach the likely near-term volatility.
Posted on Tuesday, September 3, 2019 @ 9:36 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Aug 30, 2019
Posted Under: Weekly Market Commentary

 
Short-term U.S. Treasury yields increased last week. Conversely, long-dated U.S. Treasury yields pulled back. For the month of August, the two-year U.S. Treasury bond yield dropped by the largest monthly amount since November of 2008, while the 30-year U.S. Treasury bond yield dropped below 2.0% for the first time. Demand for government paper remains elevated as trade and tariff concerns along with geopolitical tensions and challenging global growth prospects weigh on investors. On Thursday, revised real GDP data for the United States economy came in at 2.0% versus 2.1% previous, in-line with consensus expectations. The revised GDP mix indicates core GDP was adjusted up from an annual rate of 3.2% to 3.5%. Personal consumption, which accounts for nearly 70% of GDP, was revised up to an annual rate of 4.7%, the fastest pace since the end of 2014. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: August Final Markit US Manufacturing PMI (50.0, 49.9), August ISM Manufacturing (51.2, 51.2), July Construction Spending MoM ( 0.3%, -1.3%); Wednesday: August 30 MBA Mortgage Applications (n/a, -6.2%), July Trade Balance (-$53.5b, -$55.2b); Thursday: August ADP Employment Change (145k, 156k), August 31 Initial Jobless Claims (215k, 215k), August 24 Continuing Claims (1688k, 1698k), July Factory Orders (1.0%, 0.6%), July Final Durable Goods Orders (n/a, 2.1%), August ISM Non-Manufacturing Index (54.0, 53.7); Friday: August Change in Nonfarm Payrolls 164k, 164k), August Unemployment Rate (3.7%, 3.7%). 
Posted on Tuesday, September 3, 2019 @ 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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A Snapshot of Growth vs. Value Investing
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