1. The S&P/Experian Consumer Default Index Composite measures the default rates across mortgages, bank cards and auto loans. Its inception date was July 2004. 
2. The index registered a default rate of just 0.83% in May 2019, well below its 1.87% average since inception, according to Bloomberg. Its all-time high was set in May 2009 at 5.51%, while its all-time low was set in May 2016 at 0.81%.
3. The index's default rate has been below the 1.0% mark since April 2015. The combination of U.S. households getting their fiscal houses in order and the strong U.S. job market has helped fuel demand for consumer discretionary stocks following the 2008-2009 financial crisis, in our opinion. 
4. Consumer spending accounts for more than two-thirds of U.S. economic activity, according to Reuters. 
5. From 3/9/09-5/31/19 (current bull market), the S&P 500 Consumer Discretionary Index posted a cumulative total return of 717.22%, the highest of the 11 major sectors that comprise the S&P 500 Index, according to Bloomberg. For comparative purposes, the S&P 500 Index posted a cumulative total return of 403.59%. 
6. Investors funneled an estimated net $670 million into Consumer Cyclical mutual funds and exchange-traded funds in Q2'19, according to Morningstar. 

1. On 7/12/19, the S&P 500 Index closed the trading session at an all-time high of 3,013.77, according to Bloomberg. 
2. For the market to trend higher, we believe that corporate earnings will need to grow, and perhaps the best catalyst for growing earnings is to increase revenues.
3. From 1926-2018 (93 years), the S&P 500 Index posted an average annual total return of 9.99%, according to Ibbotson & Associates/Morningstar. 
4. As indicated in the table, Bloomberg's 2019 and 2020 consensus year-over-year (y-o-y) earnings growth rate estimates for the index were 3.7% and 10.6%, respectively, as of 7/12/19. 
5. Only one (Consumer Discretionary) of the 11 major sectors that comprise the index reflects a positive double-digit y-o-y earnings growth rate estimate for 2019, compared to five in 2020. 
6. Bloomberg's 2019 and 2020 consensus y-o-y revenue growth rate estimates for the S&P 500 Index were 4.1% and 4.8%, respectively, as of 7/12/19.
7. Three of the 11 major sectors reflect y-o-y revenue growth rate estimates of 5.0% or more for 2019, compared to five for 2020.
8. Click here to compare today's estimates to those from 4/2/19. 

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. From 2006-2018, however, no sector in the S&P 500 Index was able to repeat as the top-performer on a calendar year basis.
5. S&P 500 Index sector returns were mostly strong for the 12-month period ended 6/28/19. While the S&P 500 Index posted a total return of 10.41% for the period, six of the 11 sectors outperformed the broader index, according to Bloomberg.
6. Despite the strong showing, investors were net sellers over the 12-month period ended May 2019 (most recent data). Sector Equity mutual funds and exchange-traded funds (ETFs) reported estimated net outflows totaling $42.5 billion, according to Morningstar. For comparative purposes, U.S. Equity mutual funds and ETFs reported estimated net inflows totaling $49.3 billion.

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. Past performance is no guarantee of future results. 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.

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1. Today's blog post features the total return performance of the S&P 500 Index and its 11 major sectors over three specific time periods. All three periods end on 7/5/19.
2. As indicated in the table, the last column shows year-to-date (YTD) performance and the total returns are eye-popping. That is why we feel the need to add some perspective to the current climate in the stock market.   
3. As we often point out, from 1926-2018 (93 years), the S&P 500 Index posted an average annual total return of 9.99%, according to Ibbotson & Associates/Morningstar. Some of the YTD total returns have doubled, and even tripled, that 9.99% historical annual average.  
4. The all-time closing high for the S&P 500 Index was registered on 7/3/19 at 2,995.82, according to Bloomberg. Two prior all-time closing highs that stood out in 2018 were made on 1/26/18 (2,872.87) and 9/20/18 (2,930.75). They are the start dates for the other two columns in the table.  
5. Investors need to remember that the S&P 500 Index experienced a correction (decline of 10.00% to 19.99% from the recent peak) following each of those 2018 highs. From 1/26/18-2/8/18, the S&P 500 Index declined in price by 10.16%, according to Bloomberg. From 9/20/18-12/24/18, the index plunged 19.78% in price, nearly falling into bear market territory (20% or more price decline from the recent peak).
6. Our takeaway is that equity investors should not let the hot start to 2019 dissuade them from adding more capital to the market moving forward. A good percentage of this year's performance helped recoup last year's downside.     
7. As noted, the current all-time closing high for the index is 2,995.82 (7/3/19). Brian Wesbury, Chief Economist at First Trust Advisors L.P., just raised his 2019 year-end target for the S&P 500 Index from 3,100 to 3,250.  
8. This chart is for illustrative purposes only and not indicative of any actual investment. 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. 

1. As indicated in the chart, stocks are off to a positive start in 2019. We intend to update this post on small-capitalization (cap) stocks moving forward so that investors can see which of the two styles (growth or value) have delivered the best results.
2. The S&P SmallCap 600 Index closed at 953.25 on 6/28/19. It stood 13.21% below its all-time closing high of 1,098.36 on 8/31/18, according to Bloomberg.
3. The S&P SmallCap 600 Pure Growth Index outperformed its value counterpart in five of the six periods featured in the chart. Value has outpaced growth on a year-to-date basis. 
4. The returns through 6/28/19 were as follows (Pure Growth vs. Pure Value): Since Inception (12/16/05) average annualized (9.05% vs. 5.77%); 10-year average annualized (14.91% vs. 10.96%); 5-year average annualized (7.38% vs. 0.99%); 3-year average annualized (11.50% vs. 4.64%); 1-year (-11.28% vs. -17.56%) and year-to-date (7.34% vs. 9.07%).
5. As of 6/28/19, the two largest sector weightings in the S&P Small-Cap 600 Pure Growth Index were Health Care (22.5%) and Consumer Discretionary (16.4%), compared to Consumer Discretionary (33.7%) and Industrials (20.5%) for the S&P 600 Pure Value Index, according to S&P Dow Jones Indices.
6. Small-cap stocks have struggled more than their large-cap counterparts over the past year. We believe that the ongoing trade conflict with China (15 months and counting) has negatively impacted their performance. The escalation of tariffs has tempered the outlook on global growth in general. There is also concern that a relatively flat yield curve in the U.S. government bond market is potentially signaling that a recession might be looming for the U.S. economy. Small-cap stocks inherently carry a higher degree of market risk than do large-cap stocks. 
7. Click here to see the most our recent review of growth stocks versus value stocks in the large-cap space.