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Bob Carey
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  Health Care Stock Returns Have Outpaced Rising Health Expenditures
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. Today's blog post is another attempt to show that investors have a potential long-term remedy for mitigating rising health care costs – owning health care stocks.
  2. As indicated in the chart, from 2007 through 2016, the annual percentage rise in U.S. health expenditures ranged from 2.9% (2013) to 6.5% (2007). There were no years in which costs fell.  
  3. Over that same period, the S&P 500 Health Care Index posted a cumulative total return of 149.68%, or an average annual return of 9.57%, according to Bloomberg. This period included a 22.8% decline in 2008 and 2.7% decline in 2016.
  4. In 2016 (most recent year for data), U.S. health care spending rose 4.3% to $3.34 trillion, according to the Centers for Medicare & Medicaid Services. 
  5. Out-of-pocket health care costs for consumers rose 3.9% in 2016, the fastest growth rate since 2007, according to The Washington Post. It also points out that 29% of people who were getting insurance through their employer in 2016 were enrolled in high-deductible plans, up from 20% in 2014. Deductibles rose by 12% in 2016, compared to just a 7% hike in 2014.
  6. Rising health care costs is an ongoing problem in need of some long-term solutions. Perhaps one of them might be to invest in the very companies that are raising said prices.  
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 of the projections cited will occur. The S&P 500 Health Care Index is a capitalization-weighted index comprised of S&P 500 constituents operating in the health care sector. 

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Posted on Thursday, September 20, 2018 @ 11:34 AM • Post Link Share: 
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  Trump Rally (11/8/16-9/14/18) vs. Trump Tariffs (3/8/18-9/14/18)
Posted Under: Conceptual Investing

 
View from the Observation Deck  

  1. A common thread running through the Trump Rally and the Trump Tariffs is President Trump's policy of "America First." 
  2. While each of the equity indices featured in the chart have posted positive average annualized total returns (green bars) since Donald Trump won the presidential election on 11/8/16, the U.S. equity indices have clearly outperformed their foreign counterparts through 9/14/18. 
  3. On 3/8/18, President Trump signed a proclamation authorizing tariffs on imported steel (25%) and aluminum (10%). Since that initial proclamation, the Trump administration has authorized additional tariffs, primarily targeting China.
  4. We believe that the tariffs have negatively impacted the total returns (white bars) of the two foreign equity indices since 3/8/18, with emerging markets suffering the most. The U.S. equity indices have continued to perform well, largely due to the passage of the Tax Cuts & Jobs Act on 12/22/17 and the pro-U.S. tariffs.
  5. The U.S. dollar has strengthened since the tariffs commenced, creating some headwind for foreign stocks. From 3/8/18 through 9/14/18, the U.S. dollar rose by 5.27%, as measured by the U.S. Dollar Index (DXY), according to Bloomberg. That represents a reversal from how the U.S. dollar performed after Trump's victory in the presidential election and the start of the tariffs. From 11/8/16 through 3/8/18, the U.S. Dollar Index declined by 7.85%. 
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 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) 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 MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. 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 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, September 18, 2018 @ 2:26 PM • Post Link Share: 
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  Optimism at a 20-Year High
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 Tuesday, September 18, 2018 @ 11:46 AM • Post Link Share: 
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  US Stock Markets Ended September 14, 2018
Posted Under: Weekly Market Commentary

 
After falling last week, equities regained their footing and posted solid gains for the week on renewed trade deal optimism. President Donald Trump directed aides to procced with tariffs on an additional $200 billion in Chinese goods. However, the administration has delayed an announcement on the new round of tariffs due to concerns raised by corporations. Information technology stocks rallied, recovering part of the losses the sector suffered last week on fears of more stringent regulation and the effect of tariffs on the industry's trade-dependent companies. In economic news, U.S. core inflation unexpectedly dropped in August as medical-care costs and apparel prices fell, leaving room for the Federal Reserve to continue to raise rates slowly. The Fed is widely expected to raise rates later this month. In stock news, Activision Blizzard, Inc. released a new multiplayer battle royale game to compete with Fortnite. Apple Inc. unveiled three new smartphones with higher price tags and a next generation watch with added health features. Shares of Sonic Corp. jumped after the restaurant chain pre-announced better-than-expected comparable store sales on increased store traffic. Discovery, Inc. shares moved higher following a licensing agreement with Hulu to provide over 4,000 episodes on the streaming service. Looking ahead to the future, trade sentiment will likely continue to drive sentiment in the market over the short-run with earnings season nearly a month away. With the S&P 500 in reach of recent highs, continued strength in corporate profits could propel the market to new highs in the coming quarters. The S&P 500 is projected to grow earnings by 19.3% next quarter and 23.5% for 2018.
Posted on Monday, September 17, 2018 @ 8:09 AM • Post Link Share: 
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  US Economy and Credit Markets Ended September 14, 2018
Posted Under: Weekly Market Commentary

 
Treasury prices dropped moderately over the course of the week on increased supply of short-term debt. On Tuesday, an offering of short-term treasuries, which are most vulnerable to interest rate increases, was met with tempered demand causing Treasury prices to fall in order to make room for the new supply. Investors continue to expect faster rate hikes from the Federal Reserve as the implied probability of a second rate hike by December rose to 77.2%, compared to 66.9% a week ago. Wholesale inflation of -0.1% was lower than the expected 0.2% and consumer prices rose only 0.2% compared to an expected 0.3%, which tempered fears of increased inflation, especially after a higher than expected increase in wages. Treasury yields did not move very much the rest of the week as retail sales growth of 0.1% was below an expected 0.4% but industrial production was up 0.4% compared to an expected growth of 0.3%. Yields rose slightly on Friday as investors were more optimistic with regard to the trade tensions between the U.S. and China. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: September Empire Manufacturing (23.0, 25.6); Wednesday: September 14 MBA Mortgage Applications (N/A, -1.8%), August Housing Starts (1.24m, 1.168m); Thursday: September 15 Initial Jobless Claims (210k, 204k), August Leading Index (0.5%, 0.6%), August Existing Home Sales (5.38m, 5.34m); Friday: September Prelim. Markit US Manufacturing PMI (55.0, 54.7).
Posted on Monday, September 17, 2018 @ 8:06 AM • Post Link Share: 
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  A Snapshot of Moving Averages
Posted Under: Broader Stock Market

 
View from the Observation Deck  
  1. In today's post, we are showing the percentage of stocks in some major U.S. stock indices that are trading above their respective 50-Day and 200-Day moving averages.
  2. Moving averages tend to smooth out day-to-day price fluctuations and can be a useful tool for traders to identify both positive trends and reversals, in our opinion.
  3. On 9/11/18, the S&P 500 and S&P MidCap 400 Indices closed 0.90% and 0.75% below their respective all-time highs set on 8/29/18, according to Bloomberg. The S&P SmallCap 600 Index closed 1.46% below its all-time high set on 8/31/18. 
  4. The percentage of stocks in the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices trading above their 50-Day moving averages on 9/12/18 were 62%, 53% and 50%, respectively.
  5. The percentage of stocks in the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices trading above their 200-Day moving averages on 9/12/18 were 63%, 59% and 63%, respectively.
  6. The percentage of stocks trading above their 50-Day moving average by sector ranged from 23% (Energy) to 100% (Telecommunication Services). 
  7. The percentage of stocks trading above their 200-Day moving average by sector ranged from 38% (Financials & Materials) to 86% (Utilities).
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 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 (Real Estate was added as the 11th major sector in 2016 but data is not available for this chart) are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 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.

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Posted on Thursday, September 13, 2018 @ 1:38 PM • Post Link Share: 
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  A Snapshot of Bond Valuations
Posted Under: Bond Market

 
View from the Observation Deck  
  1. Today's blog post is one we do ongoing so that investors can monitor fluctuations in bond prices relative to changes in interest rates.
  2. The yield on the benchmark 10-year Treasury note (T-note) rose from 2.04% at the close of 9/7/17 to 2.94% on 9/7/18, or an increase of 90 basis points (bps), according to Bloomberg. The closing low for the period was 2.04% (9/7/17), while the closing high was 3.11% (5/17/18). The all-time closing low for the yield on the 10-year T-note was 1.36% on 7/8/16, according to Bloomberg. 
  3. Since 9/7/17, the Federal Reserve (the "Fed") has increased the federal funds target rate (upper bound) 75 bps, from 1.25% to 2.00%. For the 30-year period ended 9/7/18, the federal funds target rate (upper bound) averaged 3.24%, according to Bloomberg. 
  4. Brian Wesbury, Chief Economist at First Trust Advisors L.P., sees the Fed raising the federal funds target rate two more times in 2018 and four times in 2019. At the current quarter-point per hike pace, the benchmark lending rate would end 2019 at 3.50%, just above the 30-year average of 3.24%. 
  5. The S&P/LSTA U.S. Leveraged Loan 100 Index was the only index in the chart that posted a price gain for the 12-month period ended 9/7/18. 
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 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, in the U.S. domestic market. 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. The S&P/LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. 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 in its domestic market. 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 Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets. 

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Posted on Tuesday, September 11, 2018 @ 2:19 PM • Post Link Share: 
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  Historical Perspective on the Yield Curve
Posted Under: Weekly Market Commentary
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, September 10, 2018 @ 2:51 PM • Post Link Share: 
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  US Stock Markets Ended September 7, 2018
Posted Under: Weekly Market Commentary

 
Stocks lost ground for the week, ending a three-week stretch of weekly gains, as technology stocks and trade fears drove markets lower. Internet stocks were especially weak within information technology on concern of tougher regulation, after Facebook Inc. and Twitter Inc. executives testified before Congress about their handling of election interference by Russia. Trade fears also continued to weigh on the market as a trade deal with Canada has yet to be resolved and businesses made a last-ditch effort to persuade President Trump to change course on a plan to enact tariffs on $200 billion of Chinese imports. Instead, the trade war with China intensified on Friday as President Trump told reporters he has identified an additional $267 billion in goods to be targeted by a potential new round of tariff measures. In economic news, nonfarm payrolls added 201K jobs in August and wages unexpectedly grew by 2.9%, the largest gain since 2009. In stock-specific news, shares of Tesla Inc. plummeted after news that Elon Musk smoked marijuana during a live-stream interview and two executives were leaving the company. Nike Inc. also sold-off after unveiling a controversial ad campaign with former NFL quarterback Colin Kaepernick. By contrast, shares of Lululemon Athletica surged following a strong quarterly announcement with comparable-store sales jumping 20%, driven by e-commerce sales. Cloudera, Inc., a pure-play on big data and machine learning, soared over 20% on strong quarterly results due to better-than-expected billings growth, a 33% jump in average selling price and higher guidance for the fiscal year. Looking ahead, investors will remain focused on any new trade deal developments with China and Canada. Additionally, August's Produce Price Index reading will be watched attentively for signs of pipeline inflation pressure after Friday's strong wage growth report increased the likelihood of more rates hikes.
Posted on Monday, September 10, 2018 @ 8:56 AM • Post Link Share: 
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  US Economy and Credit Markets Ended September 7, 2018
Posted Under: Weekly Market Commentary

 
U.S. Treasury note yields rose early in the week as U.S. investors returned from Labor Day weekend to the ISM Manufacturing Index hitting a 14-year high of 61.3, easily beating the consensus estimate of 57.6. The strong data suggests that despite trade fears, U.S. industry remains strong. U.S. Treasury note yields pulled back on Thursday as investors saw private sector payrolls come in lower than expected with August ADP Employment Change at 163,000. Despite the weaker-than-expected private sector payrolls, initial jobless claims hit a 49-year low of 203,000, while productivity remained unchanged. U.S. Treasury note yields rebounded early Friday as economic data poured in. Nonfarm payrolls rose 201,000 in August, beating the consensus estimate by more than 10,000. Unemployment remained unchanged at 3.9%, but investors were encouraged by average hourly earnings increasing 0.4%. The increase in worker's wages pushed the yearly growth rate to 2.9%, the fastest wage growth since 2009. Gains in U.S. Treasury note yields largely held Friday afternoon as investors digested President Trump threatening more tariffs on goods imported from China. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: July Final Markit Wholesale Inventories MoM (0.7%, 0.7%); Wednesday: September 7 MBA Mortgage Applications (N/A, -0.1%), August PPI Final Demand MoM (0.2%, 0.0%); Thursday: August CPI MoM (0.3%, 0.2%), August CPI YoY (2.8%, 2.9%), September 8 Initial Jobless Claims (210k, 203k); Friday: August Retail Sales Advance MoM (0.5%, 0.5%), August Industrial Production MoM (0.3%, 0.1%), September Preliminary U. of Michigan Sentiment (96.7, 96.2).
Posted on Monday, September 10, 2018 @ 8:53 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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Sector Performance Via Market Capitalization (Year-to-Date)
The U.S. Dollar Is Actually Down Since 12/16/15
Looking Back to Understand the Future
US Stock Markets Ended August 31, 2018
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Accentuate the Positive
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