Fourth-quarter 2016 earnings largely positive for large-cap growth companies

Investments in R&D lay the groundwork for potential future growth

JohnFrank_smAs fourth-quarter earnings season winds down, it appears that US large-cap companies are on solid footing. Average year-over-year earnings for the S&P 500 Index grew two consecutive quarters to close out 2016 — the first time that has happened in more than two years.1

Large-cap growth companies fared especially well during the fourth quarter, with the Nasdaq-100 Index recording its third consecutive quarter of year-over-year earnings growth. Both the Nasdaq-100 Index and the S&P 500 Index exceeded Wall Street earnings expectations in the fourth quarter — beating average consensus estimates by 7.1% and 2.6%, respectively.1

Continue

Fed hikes short-term rates, citing expanding economic activity

Rate hike is third in 15 months, two more likely in 2017

Bloom Jason_sm_150dpi_RGBThe Federal Reserve raised interest rates today by 0.25% — the third such rate hike in the past 15 months. The Fed’s decision was largely priced into the financial markets, which assigned a 98% probability to the rate increase in the days leading up to today’s announcement.1 In keeping with its two previous rate hikes, the Fed explained today’s decision as an appropriate response to an economy expanding at a moderate pace and a labor market experiencing solid jobs gains.

Rate hike seems unlikely to derail US economic growth

Continue

Aerospace and defense: Investment opportunities are on the radar

A potential increase in defense spending and an uptick in commercial aircraft orders could boost the industry’s prospects

Nick KalivasThe defense industry has been a strong performer since the Nov. 8 US elections. Between Nov. 8, 2016, and Feb. 24, 2017, the SPADE Defense Index has rallied 14.54% — outpacing the S&P 500 Index by more than 3%.1 Given the scale of the Trump administration’s proposed defense budget, as well as positive trends in commercial airline orders, I believe prospects are favorable for aerospace and defense firms.

US aerospace and defense orders are rising

After showing flat to declining growth since 2010, US defense orders — which include aircraft, related parts and other military hardware produced by the Department of Defense — have been trending upward and are now approaching

Continue

Three reasons building and construction stocks have risen

Improved corporate profits, new activity could be key to future performance

Nick KalivasInfrastructure spending has been a hot topic since the November elections. Building and construction stocks have been buoyed by the outlook for infrastructure spending — most Democrats in Congress and President Donald Trump agree that additional spending is needed to improve our infrastructure. The Dynamic Building & Construction Intellidex Index rallied 17.73% between Nov. 8, 2016, and Feb. 21, 2017 — well ahead of the S&P 500 Index, which rose 11.23% during this same period.1 A cyclical recovery in the economy is also creating tailwinds for leading indicators of construction activity.

Here are three reasons I believe building and construction stocks have moved higher:

Continue

How have factors responded to investors’ newfound optimism?

Pairing factors can help capitalize on market trends, while providing a potential hedge

Nick KalivasAlthough investment factors have shown the ability to outperform market-cap-weighted benchmarks over time, factors are cyclical by nature — falling in and out of favor depending on market conditions. In my view, a particularly useful way to assess performance and grasp shorter-term cyclical factor movements is by considering excess returns on a 12-month rolling basis.

Excess return is defined as the difference in return between a factor index or exchange-traded fund (ETF) and a benchmark index, such as the S&P 500 Index. Assessing excess returns on a rolling basis captures performance in overlapping 12-month periods — allowing investors to gauge the consistency of returns over time.

With that in mind, let’s take a look at rolling 12-month excess returns for a small sample of investment factors versus the S&P 500 Index. The chart below begins in April 2012, based on the inception date for the longest-tenured of these factor indices.

Continue

SEC moves to amend its circuit breaker rules

New reforms focus on issues that exacerbated the 2015 flash crash

Eric PollackovThe events of Aug. 24, 2015, were a wake-up call for many in the exchange-traded fund (ETF) industry. After a market selloff in Asia spread to North America on that day, a flash crash ensued — creating upheaval in the US equity markets. In addition to widespread market volatility, ETFs were hurt by diminished liquidity and price dislocation. This was due in part to the breakdown of trading mechanisms that were designed to prevent volatility.

Within a year, the Securities and Exchange Commission (SEC) enacted several changes designed to stem market volatility, including abolishing its controversial Rule 48 — a mechanism designed to ensure orderly trading, but one that created its own set of problems.

Left unresolved were harmonization between exchanges and the shortcomings of “limit-up/limit-down” rules. These rules were originally intended to put the brakes on extraordinary market volatility by halting trading in a security. But they occasionally do the reverse by reducing price visibility and preventing a security from recovering after a sharp price drop.

These issues are now being addressed. On Jan. 19, the SEC moved to amend its circuit breaker rules — formally known as The National Market System Plan to Address Extraordinary Market Volatility — by adopting what’s known as Amendment 12.

What is Amendment 12?

Continue