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Bob Carey
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  Small-Capitalization (Cap) Stocks Leading The Way In 2018
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. While it is not always the case (see 2014 returns in table), there are some who believe that the recent strength in the U.S. dollar, if sustained, could provide a boost to small-cap stocks moving forward. Small-caps lagged their larger counterparts significantly in 2017, when the dollar was weak. 
  2. Small-cap companies are expected to benefit from having a more concentrated domestic revenue exposure, according to MarketWatch. As such, small-caps are less vulnerable to a stronger U.S. dollar and trade tensions, which can potentially negatively impact foreign sales of the big multinationals.   
  3. With respect to revenue streams, small-caps have the highest domestic exposure at 79% of total sales in 2017, compared to 73% for mid-caps and 71% for large-caps, according to S&P Dow Jones Indices.  
  4. The outlook for corporate earnings appears to favor small-caps at this time. As of 4/30/18, Bloomberg's consensus earnings growth rate estimates for the indices in the table were as follows (2018 & 2019): S&P SmallCap 600 (31.60% & 18.37%); S&P MidCap 400 (22.62% & 12.27%); S&P 500 (17.54% & 9.97%); and S&P 100 (16.34% & 9.76%).
  5. Small-caps also stand to benefit from the Trump administration's deregulation efforts, according to MarketWatch. 
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. 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 S&P 100 Index is a capitalization-weighted index based on 100 highly capitalized stocks selected from the S&P 500 for which options are listed. 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 Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. 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 Thursday, May 24, 2018 @ 1:17 PM • Post Link Share: 
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  A Snapshot Of Dividend-Payers & Non-Payers In The S&P 500 Index
Posted Under: Stock Dividends

 
View from the Observation Deck  
  1. One of the ways in which S&P Dow Jones Indices tracks the performance of the constituents in the S&P 500 Index is by separating those that pay a dividend from those that do not. 
  2. While the S&P 500 Index is capitalization-weighted, constituents are equally weighted in this comparison. 
  3. As of 4/30/18, there were actually 505 stocks in the index and 415 of them distributed a cash dividend to shareholders. Companies that do not pay a dividend tend to be more growth-oriented, in our opinion. 
  4. The number of S&P 500 companies that distribute dividends fluctuates over time. Since 2002, the numbers have ranged from a year-end low of 351 in 2002 to a year-end high of 423 in 2014.
  5. From 2002-2017, the dividend-payers category outperformed the non-payers category, on a total return basis, in 10 of the 16 calendar years, but lagged year-to-date through April 2018. 
  6. With respect to the non-payers, two years in the table stand out: 2003 and 2009. Both marked the first year of a new bull market, which helps explain the huge disparity in performance over the dividend-payers, in our opinion.
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.

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Posted on Tuesday, May 22, 2018 @ 1:14 PM • Post Link Share: 
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  US Stock Markets Ended May 18, 2018
Posted Under: Weekly Market Commentary

 
Stocks fell for the week as investors grappled with higher bond yields, political risks around the globe, trade tensions and higher energy prices. The real estate and utilities sectors, which tend to be bond proxies due to their high dividend yields, lost over 2% for the week. By contrast, the materials and energy sectors posted the biggest gains as investors are starting to price in higher inflation expectations. In economic news, retail sales rose 0.3% in April, in-line with forecasts, as higher paychecks from tax-cuts offset rising fuel costs. In stock news, both Walmart Inc. and Cisco Systems Inc. fell after announcing quarterly results, despite both companies beating earnings expectations. Shares of Macy's Inc. gained 14.6% for the week on strong earnings results as comparable sales increased by 4.2% and management increased full-year fiscal guidance. Campbell Soup fell after the company announced another disappointing quarter and guided down for the full year. Despite missing estimates, Deere & Co. shares gained as the maker of heavy equipment announced price increases to offset higher freight and raw material prices. With earnings season nearly in the books, the S&P 500 is on pace to grow earnings by 24% in the 1st quarter and by 22% for 2018. While higher interest rates and inflation could provide some headwinds to the market moving forward, it is most likely not enough to derail the market if domestic economic growth and earnings growth remain robust. The earnings multiple for the S&P 500 has contracted year-to-date as markets are up marginally versus an over 20% rise in earnings, leaving room for equity gains in the near term.
Posted on Monday, May 21, 2018 @ 8:16 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 18, 2018
Posted Under: Weekly Market Commentary

 
Treasury prices dropped moderately over the course of the week on strong economic data and speculation that both the Federal Reserve and European Central Bank may raise interest rates more quickly than previously expected. On Tuesday, April Advance Retail Sales were solid while March sales figures were revised to 0.8%, and May Empire Manufacturing was higher than expected, causing a risk-on environment which led to a significant drop in Treasury prices. It was also reported on Tuesday that the U.S. and China were very far apart on trade negotiations, leading to speculation of a trade war that could push both prices and inflation higher and Treasury prices lower. On Monday, a member of the ECB's governing council said that the end-date for asset purchases was approaching and that the ECB would need to give guidance on rate increases, which heightened expectations of more rapid rate increases from the ECB. Somewhat mitigating the drop in Treasury prices was weak inflation data that led investors to speculate that a more conservative approach to raising rates would be necessary. Altogether, the market-implied probability of future rate increases remained steady. On Friday, Treasury prices rebounded as the fears of geopolitical concerns with trade negotiations with China, the report that a NAFTA agreement was not close, and North Korea threatening to cancel talks led investors to seek the perceived safety of Treasuries. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Wednesday: May 18 MBA Mortgage Applications (N/A, -2.7%), May Preliminary Markit US Manufacturing PMI (56.5, 56.5), April New Home Sales (678k, 694k); Thursday: May 19 Initial Jobless Claims (220k, 222k), April Existing Home Sales (5.55m, 5.60m); Friday: April Preliminary Durable Goods Orders (-1.4%, 2.6%), May Final U. of Mich. Sentiment (98.8, 98.8).
Posted on Monday, May 21, 2018 @ 8:13 AM • Post Link Share: 
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  A Snapshot of Retailers (Digital vs. Traditional)
Posted Under: Sectors

 
View from the Observation Deck  
  1. Overall, the retailing industry is alive and well. From 12/30/16 through 5/15/18, the S&P 500 Retailing Industry Group Index posted a cumulative total return of 54.3%, compared to 24.4% for the S&P 500 Index (not in chart), according to Bloomberg. 
  2. We chose the end of 2016 as our starting point because it appears to have marked a notable shift in investor sentiment, at least for now, away from the traditional brick-and-mortar model toward e-commerce (online) companies.  
  3. As indicated in the chart, the three Retail equity REITs representing brick-and-mortar stores, regional malls and shopping centers posted negative cumulative total returns for the period, compared to a 64.9% cumulative total return for the Dow  Jones Internet Composite Index, an e-commerce benchmark.  
  4. In 2017, U.S. consumers spent $453.46 billion online for retail purchases, up 16.0% from 2016 and the highest year-over-year growth rate since the 17.5% increase registered in 2011, according to Digital Commerce 360. Total retail sales in the U.S. reached $5.076 trillion in 2017. This suggests that approximately 91% of all retail sales were made in a physical store. We would like to note that online sales statistics vary by source.
  5. The growing popularity of online shopping has definitely impacted the brick-and-mortar model. Business Insider estimates that there will be around 3,600 retail store closings in 2018, on top of the roughly 7,000 closings in 2017, according to Kiplinger. Marketing and data analysis firm Cushman & Wakefield thinks it could be much worse than 3,600. It is anticipating more than 12,000 store closings this year. 
  6. Green Street Advisors estimates that mall and strip center REITs were trading at 21.6% and 21.5% discounts to the value of their assets as of the start of May, compared to an 8.5% discount for the broader REIT market, according to The Wall Street Journal. 
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 Dow Jones Internet Composite Index is a modified capitalization-weighted index that tracks companies involved in Internet-related activities. The S&P 500 Retailing Industry Group Index is a capitalization-weighted index comprised of companies from the retail subsector. The FTSE NAREIT All Equity REITs Index is a free float adjusted market capitalization-weighted index that includes all tax qualified REITs listed on the major U.S. exchanges. Three retail subsectors of the FTSE NAREIT All Equity REITs Index include Free Standing, Regional Malls and Shopping Centers. 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. 

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Posted on Thursday, May 17, 2018 @ 2:27 PM • Post Link Share: 
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  S&P 500 Index Earnings And Revenue Growth Rate Projections
Posted Under: Broader Stock Market

 
View from the Observation Deck  
  1. On 5/14/18, the S&P 500 Index closed the trading session at 2,730.13, 4.97% below its all-time high of 2,872.87 set on 1/26/18, 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 1926-2017 (92 years), the S&P 500 Index posted an average annual total return of 10.2%, according to Ibbotson & Associates/Morningstar. 
  4. As indicated in the table, Bloomberg's 2018 and 2019 consensus year-over-year (y-o-y) earnings growth rate estimates for the index were 22.1% and 10.7%, respectively, as of 5/11/18. 
  5. Nine of the 11 major sectors that comprise the index reflect double-digit y-o-y earnings growth rate estimates for 2018, compared to five for 2019. 
  6. Bloomberg's 2018 and 2019 consensus y-o-y revenue growth rate estimates for the index were 7.7% and 4.9%, respectively, as of 5/11/18.
  7. Seven of the 11 major sectors reflect y-o-y revenue growth rate estimates of 5.0% or more for 2018, compared to six for 2019. 
  8. Overall, the forecast for earnings and revenue growth is encouraging, in our opinion. 
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 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) 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.

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Posted on Tuesday, May 15, 2018 @ 2:35 PM • Post Link Share: 
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  The Correction is Over!
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 Monday, May 14, 2018 @ 12:28 PM • Post Link Share: 
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  US Stock Markets Ended May 11, 2018
Posted Under: Weekly Market Commentary

 
The S&P 500 posted its first weekly gain in the past three weeks with a 2.49% return and the best weekly gain over the past two months. Investors are more confident that inflation will remain at bay after trade tensions have eased with the rest of the world. The US dollar exhibited a calmer week as it was little changed, while the 10-year treasury steadied under 3%. Volatility is still present in other markets, with oil bouncing off highs not reached since the end of 2014. In turn, energy stocks traded higher to post the best weekly gain in the S&P 500. The group was led by Occidental Petroleum and Devon Energy which are both involved in exploration and production of crude. The gains in oil were spurred by President Trump's decision to quit the Iran nuclear deal. A bullish feeling fell over the market this week after a plethora of US companies posted quarterly results that beat analyst estimates. The sentiment emanated from executives less cautious feelings concerning inflation, rising global interest rates, and trade wars with foreign countries; specifically China. Foreign relations around the globe seem to be improving every day, but Iran and Syria are still rife with conflict. Emerging stocks rallied around the news of a June 12th meeting between Kim Jong Un and President Donald Trump in Singapore. The release of three US prisoners from North Korea to the United States was an outward motion to the world that North Korea is willing to put aside a long held grudge against the West. Looking ahead to next week, the state of the economy will be on display with releases of mortgage, retail sales, and housing data.
Posted on Monday, May 14, 2018 @ 8:03 AM • Post Link Share: 
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  US Economy and Credit Markets Ended May 11, 2018
Posted Under: Weekly Market Commentary

 
Last week began with Treasury yields climbing higher as oil prices rallied above $70 a barrel for the first time since 2014. After President Trump withdrew the U.S. from the Iran nuclear deal, the prospect of new sanctions on oil exports led to concerns that the potentially reduced supply could intensify inflationary pressures and cause the Fed to hike rates more aggressively. On Wednesday, April PPI data came in below consensus, however the benchmark Treasury 10-yr note still closed above 3%. CPI data was released on Thursday and also showed softening prices in April, nudging down longer-dated Treasury yields. The consensus forecast was for a 0.3% increase; however, CPI rose only 0.2%. Average hourly earnings were unchanged in April and prices declined for new and used vehicles. Although producer and consumer prices were more muted than forecast, they are still rising at a healthy pace and the labor market continues to strengthen.  The Bloomberg implied probability of four rate hikes this year continues to increase and the 2-yr Treasury note yield is now above 2.5%, a level not seen since August of 2008. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: May Empire Manufacturing (15.0, 15.8), April Advance Retail Sales MoM (0.3%, 0.6%); Wednesday: May 11 MBA Mortgage Applications (N/A, -0.4%), April Housing Starts (1310k, 1319k), April Industrial Production MoM (0.6%, 0.5%); Thursday: May 12 Initial Jobless Claims (215k, 211k), April Leading Index (0.4%, 0.3%).
Posted on Monday, May 14, 2018 @ 8:02 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 a number of 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 5/9/18, the S&P 500 and S&P MidCap 400 Indices closed 6.09% and 3.58% below their respective all-time highs set on 1/26/18, according to Bloomberg. The S&P SmallCap 600 Index closed at its all-time high on 5/9/18. 
  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 were 44%, 54% and 59%, 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 were 51%, 53% and 56%, respectively.
  6. The percentage of stocks trading above their 50-Day moving average by sector ranged from 18% (Consumer Staples) to 97% (Energy). 
  7. The percentage of stocks trading above their 200-Day moving average by sector ranged from 21% (Utilities) to 75% (Information Technology).
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, May 10, 2018 @ 1:34 PM • 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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• Let's Call It A Comeback
• US Stock Markets Ended May 4, 2018
• US Economy and Credit Markets Ended May 4, 2018
• Some Insight Into The S&P 500 Index Dividend Payout
• The Price Of Crude Oil Has Risen To An Interesting Level
• US Stock Markets Ended April 27, 2018
• US Economy and Credit Markets Ended April 27, 2018
• Every Year Looks Volatile Compared To 2017
• Consider The Potential Opportunity Costs Before You Sell In May And Go Away!
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