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  US Stock Markets Ended July 23, 2021
Posted Under: Weekly Market Commentary

 
The S&P 500 Index returned 1.97% last week, climbing to an all-time closing high on Friday of 4,411.79. The Dow Jones Industrial Average also set a closing record on Friday, closing over 35,000 for the first time. Equity markets had a rough start to the week on Monday as the S&P 500 Index declined 1.59%, its worst trading day since May 12. Rising COVID-19 cases globally due to the Delta variant increased concerns of future economic growth as energy, financials, and materials were hit the hardest. Oil prices also declined on Monday, losing 7.51% on the economic concerns and OPEC+ agreeing to increase daily supply. By Tuesday's close, the large-cap index had recovered most of Monday's loss and continued its upward trend the remainder of the week as the communications services, information technology, and consumer discretionary sectors led the rally, leaving only utilities and energy to post losses for the week. Crude oil also rallied back from Monday's decline, closing at $72.07 per barrel on Friday, gaining 36 basis points for the week. U.S. initial jobless claims of 419K were much higher than the expected 350K and the previous week's claims of 360K. Biotech company Moderna Inc., known for its mRNA COVID-19 vaccine, was the best performing member of the S&P 500 Index last week, returning 21.79%. The company had several announcements including receiving emergency use authorization in India, in Japan for children 12 to 17 years old, and an authorization recommendation for use in adolescents 12 years and up by the European Medicines Agency. The company had a few analysts raise their price targets last week and was added to the S&P 500 Index on Wednesday. Other top performers included Chipotle Mexican Grill Inc. and HCA Healthcare Inc., returning 17.33% and 13.35% respectively. Both companies announced positive second quarter earnings surprises. Earnings announcements are in full swing and companies expected this week include Apple Inc., Microsoft Corp, Amazon.com Inc., Alphabet Inc., Facebook Inc., Tesla Inc., Visa Inc., and many more.
Posted on Monday, July 26, 2021 @ 8:22 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 23, 2021
Posted Under: Weekly Market Commentary

 
Treasury yields were down moderately among medium term bonds but otherwise unchanged as investors weighed the impact of rising COVID-19 cases on the economy. On Monday, yields dropped significantly as the 10-year yield hit its lowest level since February as concern over the Delta variant and the effect it would have on reopening economies caused investors to seek the perceived safety of Treasurys. Yields rebounded moderately on Tuesday and again on Wednesday as investors fears over the Delta variant waned. The decline in Treasury yields for the last week has shown that investors may not believe that inflation is the biggest problem facing the U.S. economy and instead are worried about slowing growth. Even though Federal Reserve officials have signaled that they will hold off raising interest rates until after inflation climbed above their 2% target rate, eroding job growth has shown investors that the economy may not run as fast as anticipated. On Thursday, yields edged lower as initial jobless claims of 419k were higher than analyst expectations of 350k, which gave legitimacy to that concern. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Monday: June New Home Sales (800k, 769k); Tuesday: June Prelim. Durable Goods Orders (2.1%, 2.3%), July Conf. Board Consumer Confidence (124.1, 127.3); Wednesday: July 23 MBA Mortgage Applications (n/a, -4.0%), July Prelim. Wholesale Inventories MoM (1.2%, 1.3%), July 28 FOMC Rate Decision Upper Bound (0.25%, 0.25%); Thursday: July 24 Initial Jobless Claims (380k, 419k), 2Q Advance GDP Annualized QoQ (8.5%, 6.4%); Friday: June Personal Income (-0.5%, -2.0%), June Personal Spending (0.7%, 0.0%), July MNI Chicago PMI (63.0, 66.1), July Final U. of Mich. Sentiment (80.8, 80.8).
Posted on Monday, July 26, 2021 @ 8:21 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 12 of the past 13 calendar years (2008-2020), 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. As of the first half of 2021, the S&P 500 Index has endured just one down month, and that was in January. 
  4. In 2020, there were five down months and the -12.35% total return posted in March marked the largest monthly decline for any year in the table following 2008. Despite the five down months, the index posted a total return of 18.40%.
  5. From 2008 through 2020, the S&P 500 Index endured a loss in 50 of the 156 months on a total return basis, or approximately 32.1% of the time. Over that same period, the index posted an average annualized total return of 9.77%, according to Bloomberg. 
  6. For comparative purposes, from 1926 through 2020, the S&P 500 Index posted a loss in 25 of the 95 calendar years on a total return basis, or approximately 26.3% of the time, according to data from Ibbotson Associates/Morningstar. Over that same period, the index posted an average annual total return of 10.28%.
  7. 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. 
  8. A Bloomberg survey of 22 equity strategists found that their average 2021 year-end price target for the S&P 500 Index was 4,242 as of 7/16/21, up from 4,213 on 6/16/21, according to its own release. The highest and lowest estimates were 4,601 (up slightly from 4,600) and 3,800 (unchanged), respectively. The S&P 500 Index closed at 4,358.69 on 7/21/21, 0.59% below its all-time high set on 7/12/21.
  9. Brian Wesbury, Chief Economist at First Trust Advisors L.P., has a year-end price target of 4,500. 

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. 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.


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Posted on Thursday, July 22, 2021 @ 11:19 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 6/30/21. This has been the case for the past several years.   
  2. Passive mutual funds and ETFs reported estimated net inflows totaling $765.48 billion, compared to estimated net inflows totaling $280.67 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 $740.62 billion, $124.70 billion, $120.39 billion and $120.10 billion, respectively. 
  4. The active categories garnering the most interest from investors over the past 12 months via net inflows were Taxable and Municipal Bonds.  
  5. The $66.97 billion in net outflows from U.S. Equity funds is bit perplexing when you consider that the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices posted total returns of 40.79%, 53.24% and 67.40%, respectively, for the 12-month period ended 6/30/21, 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 33.60% and 40.90%, respectively, according to Bloomberg. The U.S. Dollar Index (DXY) declined by 5.08%, according to Bloomberg. The index reflects the general international value of the dollar relative to a basket of major world currencies, and when exhibiting weakness can provide a potential boost to the performance of unhedged foreign securities held by U.S. investors.  
  7. Click here to see where 12-month fund flows stood as of 12/31/20. 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 Tuesday, July 20, 2021 @ 10:57 AM • Post Link Share: 
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  US Stock Markets Ended July 16, 2021
Posted Under: Weekly Market Commentary

 
The S&P 500 index closed at an all-time high on Monday but traded lower the rest of the week to post a -0.96% return last week. The Consumer Price Index was released up 0.9% for the month of June and up 5.4% year-over-year. Both exceeded economist expectations. However, portions of the headline inflation were in areas that are considered temporary. For instance, used car and truck prices were up 10.5% in the month of June, primarily due to a restricted supply of semiconductors used to make new cars hampering new car production. This type of inflation is likely temporary, or transitory, in nature until supply lines catchup to economic demands post COVID shutdowns. Later in the week, Taiwan Semiconductor Manufacturing Company, the world's largest semiconductor manufacturer, announced they expect the automotive chip shortage to start easing over the next few months. They expect to increase microcontrollers by 60% in 2021 compared to 2020 but could see the overall semi shortage lasting into 2022. Financial markets are still struggling to digest just how much of the headline inflation is transitory and how much is fueled by the growing US money supply. OPEC+ struck an oil production deal after a standoff between the UAE and Saudi Arabia was negotiated. Oil closed near multi-year highs at $75.25 on Tuesday but after the deal was struck the price of oil sold off to close the week at $71.81. Earnings season began in earnest last week after the five largest US banks announced quarterly results. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and Goldman Sachs Group Inc. all reported strong quarterly results and offered outlooks that continue to show a strong U.S. economy. Looking ahead to next week, earnings season is scheduled to continue as bellwether names Johnson & Johnson, The Coca-Cola Co., Netflix Inc., Verizon Communications Inc. and Intel Corp. are all expected to report quarterly results.
Posted on Monday, July 19, 2021 @ 8:08 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 16, 2021
Posted Under: Weekly Market Commentary

 
Federal Reserve Chairman Jerome Powell presented to Congress last week and indicated that the central bank would raise interest rates should inflation show any indication of being out of control but he repeatedly stated that he expects price inflation to be transient in nature. While granting that inflation is currently higher and more persistent than expected, he continues to believe it will reverse with the resolution of supply bottlenecks. He also discussed the monthly rate of Treasury and mortgage securities purchase, currently at $120 billion, and noted that while some members would like to taper purchases, he didn't feel it was an urgent step needing to be taken. The market seems to be agreeing with the Chairman's assessment as 10-year treasury yields fell for a third straight week. The upward price action in bonds has defied expectations of reopening strength leading to a steepening of the yield curve. As concerns about the delta variant, global reopening, and economic growth mount, there has been a correspondent rise in negative yielding debt. According to Bloomberg, negative-yielding debt rose $730 billion, to $15.2 trillion, for the week ending July 16. These concerns and an OPEC+ spat have also weighed on oil prices as the market worries a supply gut could be forthcoming. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: June Housing Starts (1.59M, 1.57M); Wednesday: July 16 MBA Mortgage Applications (N/A, 16.0%); Thursday: July 17 Initial Jobless Claims (350K, 360K), June Leading Index (0.9%, 1.3%), and June Existing Home Sales (5.9M, 5.8M); Friday: July preliminary Markit US Manufacturing PMI (62.0, 62.1).
Posted on Monday, July 19, 2021 @ 8:06 AM • Post Link Share: 
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  Top-Performing S&P 500 Index Subsectors Since 12/14/20
Posted Under: Sectors

 
View from the Observation Deck  
  1. Today's blog post is for those investors who want to drill down below the sector level to see what is performing well in the stock market.
  2. We chose 12/14/20 as our start date because we wanted to show how the S&P 500 Index has performed since Joe Biden was elected president. While the election took place on 11/3/20, the Electoral College's vote on 12/14/20 made it official. 
  3. The S&P 500 Index is currently comprised of 11 sectors and 124 subsectors, according to S&P Dow Jones Indices.
  4. As indicated in the chart above, Industrials and Financials both had three subsectors on the list. Surprisingly, not a single subsector from Information Technology cracked the top 15.   
  5. As of 7/14/21, the most heavily weighted sector in the S&P 500 Index was Information Technology at 27.89%, according to Bloomberg. Financials and Industrials came in at 10.96% and 8.40%, respectively. 
  6. The 15 top-performing subsectors in the chart posted total returns ranging from 35.72% (Building Products) to 74.15% (Steel). 
  7. With respect to the 11 sectors, all of them posted positive total returns for the period captured in the chart. 
  8. From 12/14/20-7/13/21, the top-performing S&P 500 sector indices were Energy, Financials and Real Estate, up 37.11%, 32.17% and 30.80%, respectively, on a total return basis, according to Bloomberg. The S&P 500 Index posted a total return of 20.77% for the period. 
  9. There are a growing number of packaged products, such as exchange-traded funds, that feature S&P 500 subsectors.
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, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

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Posted on Thursday, July 15, 2021 @ 11:51 AM • Post Link Share: 
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  For Those Equity Investors Concerned About Valuation Levels
Posted Under: Broader Stock Market

 
View from the Observation Deck  
  1. In the table above, the line shaded in yellow shows the S&P 500 Index's average price-to-earnings (P/E) ratio and average annual total return from 1960 through 6/30/21. It offers a long-term perspective on the stock market.
  2. One of our key takeaways from the table is the 10.42% average annual total return from 1960 through 6/30/21. It is essentially in line with the index's average annual total return of 10.28% from 1926-2020 (not shown in table), according to Morningstar/ Ibbotson & Associates. The buy and hold investment strategy still works...if you let it.  
  3. While the average P/E on the S&P 500 Index from 2020 through 6/30/21 is an elevated 25.85 (see table), due to strong earnings projections, the estimate for year-end 2021 stood at 22.87 (not shown in table), according to Bloomberg.  
  4. As of 7/2/21, Bloomberg's consensus year-over-year earnings growth rate estimate for 2021 was 35.94%. 
  5. Historically speaking, there is nothing uncommon about P/E expansion. This time around, we have to acknowledge the significant influence of the Federal Reserve's ("Fed") prolonged easy monetary policy and bond buying programs designed to help mitigate the economic fallout from the 2020 COVID-19 pandemic by keeping rates and yields artificially low. Its posture has not changed even though the trillions of dollars of stimulus/aid from the federal government has helped stabilize the U.S. economy.  
  6. As a result of the Fed keeping short-term rates artificially low and intermediate-term Treasury yields suppressed, we believe that more and more investors have turned to equities in search of higher returns.  
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.


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Posted on Tuesday, July 13, 2021 @ 1:15 PM • Post Link Share: 
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  US Stock Markets Ended July 9, 2021
Posted Under: Weekly Market Commentary

 
Markets were mixed for the holiday-shortened week with growth stocks leading the way as a rise in cases from the Delta variant and declining yields led traders to favor technology stocks. President Biden's executive order to limit the power of many of the largest corporations sent jitters through the market on Thursday before the S&P 500 rallied to an all-time high on Friday. Economic datapoints were mixed with the ISM Non-Manufacturing missing the consensus forecast but remained a still strong 60.1.  Corporations are experiencing robust consumer demand, however, supply-chain issues, labor shortages and rising costs are current headwinds many firms face. In stock news, Group 1 Automotive Inc. pre-announced positive results that were nearly double the consensus estimates, despite limited inventory, as the owner of car dealerships sold vehicles for a higher margin. Railroad shares traded lower over speculation that President Biden's executive order is perceived to take aim at perceived anti-competitive pricing in ocean shipping and railroad industries. Shares of Kansas City Southern finished the week off over 3%. In tech news, the Joint Enterprise Defense Infrastructure (JEDI) Cloud contract, originally awarded to Microsoft Inc. was shelved for a multi-vendor approach that is likely to see Amazon Inc. as a big winner. Next week is the unofficial start to earning season with heavy reporting from the banking sector. Investors will be keyed in on the pace of the recovery as growth remains robust but could start to slow in future quarters as the second quarter 2020 was the nadir for S&P 500 earnings. In our view, equities could still see future gains if earnings continue to expand at a healthy clip.
Posted on Monday, July 12, 2021 @ 8:34 AM • Post Link Share: 
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  US Economy and Credit Markets Ended July 9, 2021
Posted Under: Weekly Market Commentary

 
U.S. government bonds rallied last week before yields rebounded on Friday as markets reconsidered bets on high economic growth and inflation, known as the reflation trade. The lower-than-expected reading of the ISM Services Index released on Tuesday particularly dampened the growth outlook. Despite missing expectations, the data showed the service sector continued to expand rapidly in June, albeit at a slower pace than May's all-time high. Hiring challenges, materials shortages, and inflation all limited June's expansion. Meanwhile, Fed minutes released last week showed a more hawkish Federal Reserve that might be willing to taper stimulus and raise interest rates earlier than expected. Concerns about Covid-19's Delta variant also dampened growth expectations and contributed to the bond rally. This week, the June Consumer Price Index reading will be released on Tuesday, the first since it rose 5% in May from a year earlier. Markets are currently pricing in the Fed's view that the high inflation rate is temporary. A rally in high yield markets, for example, recently pushed yields on below investment grade debt below May's year-over-year inflation rate. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: June CPI MoM (0.5%, 0.6%); Wednesday: July 9 MBA Mortgage Applications (N/A, -1.8%), June PPI Final Demand MoM (0.5%, 0.8%); Thursday: July 10 Initial Jobless Claims (350k, 373k), June Industrial Production MoM (0.6%, 0.8%), July Empire Manufacturing (18.4, 17.4); Friday: July Preliminary U. of Mich. Sentiment (86.5, 85.5), June Retail Sales Advance MoM (-0.4%, -1.3%).
Posted on Monday, July 12, 2021 @ 8:32 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 Global Snapshot Of Equity Returns Spanning The COVID-19 Pandemic
• A Snapshot Of Growth vs. Value Investing (Small-Caps)
• US Stock Markets Ended July 2, 2021
• US Economy and Credit Markets Ended July 2, 2021
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• US Stock Markets Ended June 25, 2021
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