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Bob Carey
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  US Stock Markets Ended Jan. 24, 2020
Posted Under: Weekly Market Commentary

 
The widening outbreak of the coronavirus rattled investors, leading to the biggest weekly decline in the S&P 500 since August. The virus has led to 80 deaths in China and five cases have been reported in the U.S. Investors worry a breakout like the SARS virus could lead to a global slowdown. With earnings season in full swing for financials, American Express Co. guided above most analysts' estimates after increasing benefits on some cards and predicting "more rational" value propositions from key competitors. By contrast, Discover Financial Services tumbled after announcing a large increase in spending in the coming year on marketing and technology to mitigate loan losses. Citizens Financial Group moved lower amid a mixed quarter as net interest income remained relatively flat on lower interest rates. In other earnings announcements, shares of Intel Corp. were a bright spot on robust growth from PC and data center processors. International Business Machines Corp. gained after reporting an increase in quarterly sales, snapping a long streak of shrinking revenues. Looking ahead to next week, investors will be watching the spread of the coronavirus and a number of key earnings announcements including Apple Inc., Starbucks Corp. and 3M Co. Economic news will also be center stage with the first reading of fourth-quarter GDP and the Fed's January meeting.
Posted on Monday, January 27, 2020 @ 9:42 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Jan. 24, 2020
Posted Under: Weekly Market Commentary

 
Treasury prices rose significantly over the course of the week on a continuing outbreak of the coronaviras and Eurozone economic news. On Tuesday, the first case of the coronavirus was diagnosed in the U.S. after it broke out in China earlier in the month, with at least 80 deaths attributable to the health issue. On Wednesday and Thursday, China had a strong response to the outbreak, shutting down some public transportation and later locking down the city of origin and two neighboring cities. On Friday, several more cases were reported in the U.S., along with other countries in Europe and Asia, leaving people to worry about a SARS-like outbreak that killed more than 800 people in Asia in 2003. This led investors to seek the perceived safety of Treasuries. The European Central Bank announced on Thursday that the benchmark deposit rate would remain at negative 0.5% and on Friday Manufacturing PMI beat expectations, leaving investors less concerned about the Eurozone. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: December New Home Sales (730k, 719k); Tuesday: December Prelim. Durable Goods Orders (0.5%, -2.1%), January Conf. Board Consumer Confidence (128.0, 126.5); Wednesday: January 24 MBA Mortgage Applications, December Prelim. Wholesale Inventories MoM (-0.2%, 0.1%), January 25 FOMC Rate Decision Upper Bound (1.75%, 1.75%); Thursday: 4Q GDP Annualized QoQ (2.1%, 2.1%), January 25 Initial Jobless Claims (215k, 211k); Friday: December Personal Income (0.3%, 0.5%), December Personal Spending (0.3%, 0.4%), January MNI Chicago PMI (48.9, 48.9), January Final U. of Michigan Sentiment (99.1, 99.1).
Posted on Monday, January 27, 2020 @ 9:40 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 11 of the past 12 calendar years, 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. In 2019, the index posted two negative total returns: -6.35% (May) and -1.58% (August), according to Bloomberg. Despite the steep decline in May, the index finished 2019 with a total return of 31.49%, more than three times the historical norm for a calendar year (see point 5).  
  4. From 2008 through 2019, the S&P 500 Index endured a loss in 45 of the 144 months on a total return basis, or approximately 31.3% of the time. Over that same period, the index posted an average annualized total return of 9.09%, according to Bloomberg. 
  5. For comparative purposes, from 1926 through 2019, the S&P 500 Index posted a loss in 25 of the 94 calendar years on a total return basis, or approximately 26.6% of the time, according to data from Ibbotson Associates/Morningstar. Over that same period, the index posted an average annual total return of 10.20%.
  6. 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. 
  7. As of 1/22/20, the index stood at 3,321.75, 0.24% below its all-time closing high of 3,329.62 on 1/17/20, 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 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, January 23, 2020 @ 1:47 PM • Post Link Share: 
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  Going with the Flow. Does it Make Sense?
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, January 21, 2020 @ 2:45 PM • 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 12/31/19.    
  2. Passive mutual funds and ETFs reported estimated net inflows totaling $475.99 billion, compared to estimated net outflows totaling $61.43 billion for those actively managed.  
  3. The largest amount of total net inflows in the period belonged to the Taxable and Municipal Bond categories at $413.94 billion and $105.47 billion, respectively. 
  4. The only active category garnering more interest from investors than their passive counterpart via net inflows was Municipal Bond. 
  5. Flows to International Equity funds were slightly positive in the period. The U.S. Equity and Sector Equity categories experienced net outflows.     
  6. We intend to monitor net flows moving forward.

This chart is for illustrative purposes only and not indicative of any actual investment. 

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Posted on Tuesday, January 21, 2020 @ 1:27 PM • Post Link Share: 
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  US Stock Markets Ended Jan. 17, 2020
Posted Under: Weekly Market Commentary

 
Stocks closed out another week at all-time highs. Positive economic data from the U.S. and China coupled with easing trade tensions gave market participants a clearer outlook of 2020. With trade in the rear-view mirror, for now, investors are focused on corporate profits and management's outlook for the year. Outside of the U.S., emerging market stocks rallied for the seventh straight week of gains. On the back of the gains in emerging markets, Albermarle Corp returned over 12% last week after China signaled it would not cut subsidies for electric vehicles. The company's main line of business is the production of lithium, a key component in batteries used in electric vehicles. Back in the states, Morgan Stanley reported a better than expected quarter. The CEO, James Gorman, is keeping costs under control with a move to reduce the company's global workforce by 2% and suppressing accelerated promotions. Wells Fargo and The Bank of New York Mellon also reported last week. The two companies rounded out the bottom performing holdings in the S&P 500 after struggling to keep deposit costs down. From the sector perspective, both growth and defensive stocks sat at the top of the leader board. Utilities and Technology stocks were both up around 3% for the week as the S&P 500 index moved up 1.99%. The lone negative sector, at about -1%, was Energy after oil moved lower by about a half of a percent. Looking ahead to next week, 43 more earnings reports will be released by S&P 500 companies. On the economic calendar, home sales and jobs numbers will shape investors' views.
Posted on Tuesday, January 21, 2020 @ 7:57 AM • Post Link Share: 
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  US Economy and Credit Markets Ended Jan. 17, 2020
Posted Under: Weekly Market Commentary

 
On Thursday of last week, the U.S. Treasury department announced that it intends to issue 20-year nominal coupon bonds in the second half of this year. Increasing government debt levels necessitate that the Treasury department review options for additional funding. While the Treasury department has not indicated an interest in adding ultra-long dated maturities, such as a 50 or 100-year issuance, it is actively exploring the possibility. It believes that 20-year bonds can help increase the length of outstanding debt but within the current term structure. Short-dated yields rose last week as strong economic data decreased interest in safe assets. In particular, Friday's Housing Starts data showed a nearly 17% increase in December was well ahead of expectations. All regions registered a gain for the month amid broad based builder activity. Also last week we saw consumer prices and producer prices rise for the month of December. December Retail Sales were up 0.3% which was in-line with expectations with only autos registering a decline. This was the largest monthly gain since 2016. Oil continued to decline last week as the U.S. and Iranian hostilities did not continue to escalate. Major economic reports (related consensus forecasts, prior data) for the upcoming holiday-shortened week include Wednesday: January 17 MBA Mortgage Applications (N/A, 30.2%) and December Existing Home Sales (5.43M, 5.35M); Thursday: January 18 Initial Jobless Claims (214k, 204k), December Leading Index (-0.2%, 0.0%); Friday: Markit January preliminary US Manufacturing PMI (52.5, 52.4).
Posted on Tuesday, January 21, 2020 @ 7:56 AM • Post Link Share: 
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  The Only Constant Is Change
Posted Under: Sectors

 
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 2006-2019, however, no sector in the S&P 500 Index was able to repeat as the top-performer on a calendar year basis.
  5. The three top-performing sectors in the chart for Q4'19 were as follows (total returns): 14.40% (Information Technology), 14.37% (Health Care) and 10.44% (Financials). They were the only sectors that surpassed the 9.06% total return posted by the S&P 500 Index. The other eight sectors generated total returns ranging from 8.99% (Communication Services) to -0.54% (Real Estate).  
  6. The three top-performing sectors for 2019 were as follows (total returns): 50.29% (Information Technology), 32.69% (Communication Services) and 32.09% (Financials), according to Bloomberg. They were the only sectors that surpassed the 31.48% total return posted by the S&P 500 Index. The other eight sectors generated total returns ranging from 29.32% (Industrials) to 11.81% (Energy).    
  7. Despite the strong showing, investors were net sellers of sector funds over the 12-month period ended December 2019. Sector Equity mutual funds and exchange-traded funds (ETFs) reported estimated net outflows totaling $31.36 billion (-$28.93 billion/Active vs. -$2.43 billion/Passive), according to Morningstar. 

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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Posted on Thursday, January 16, 2020 @ 12:13 PM • Post Link Share: 
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  Trump Rally (11/8/16-1/10/20) vs. Trump Tariffs (3/8/18-1/10/20)
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 cumulative 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 1/10/20. 
  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. The U.S. dollar, which can be a safe-haven destination for foreign investors, has strengthened since the tariffs commenced, creating some headwind for U.S. investors holding foreign stocks. From 3/8/18 through 1/10/20, the U.S. dollar rose by 7.96%, 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%.
  5. The Trump administration's use of tariffs is now 21 months old and counting. The mid-December announcement that the U.S. and China had struck a "Phase One" trade deal is encouraging. 
  6. We believe that this is a timely example of the potential rewards that can be associated with the notion of "time in the market." 
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, January 14, 2020 @ 1:26 PM • Post Link Share: 
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  US Stock Markets Ended Jan. 10, 2020
Posted Under: Weekly Market Commentary

 
Despite heightened geopolitical risks, the S&P 500 set all-time highs and returned 1% last week. U.S.-Iranian hostilities reached an apex last Tuesday when Iran fired some 15 ballistic missiles at U.S. and coalition forces in Iraq. While 10 of the missiles hit the U.S. base, no Americans were killed. On Friday the U.S. announced sanctions on Iranian metal exports along with more leaders of the embattled country. According to Bloomberg, the top performing factors for U.S. stocks were Growth and Size while the bottom performing were Value and Volatility last week. This marks the fifth straight negative weekly return for Value and the seventh straight for Momentum. Walgreens Boots Alliance Inc. announced quarterly results last week as revenue and earnings came in below analyst estimates which caused the stock to plummet over -8% for the week. Management blamed most of the underperformance on weakness their Medicaid business. Energy exploration and production company Apache Corp. shot up nearly 27% Tuesday, its biggest daily gain in nearly 50 years, after announcing a significant oil discovery off Suriname's coast which the company will have a 50% ownership stake. Salesforce.com was up over 8.4% last week as the PaaS (platform as-a service) company was RBC's top pick for 2020 and received several other analyst upgrades last week. Looking ahead to next week, Wall Street heads into quarterly earnings season as 26 names in the S&P 500 are expected to report results. They include mega-cap banks JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Bank of America Corp., U.S. Bancorp, Goldman Sachs Group Inc. along with health insurance giant UnitedHealth Group Inc., railroad operator CSX Corp. and energy servicer Schlumberger Ltd.
Posted on Monday, January 13, 2020 @ 9:12 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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