Investment Themes

Sign up to receive Indexology® Blog email updates

In This List

Fed Proposes, Market Disposes

What can an index do for me?

Q1 Buybacks Slightly Up, But Fewer Shares Repurchased

CPI Rises in May: How much inflation protection have commodities provided?

S&P GSCI Precious Metals Hits Lowest Since October 2010

Fed Proposes, Market Disposes

Contributor Image
David Blitzer

Managing Director and Chairman of the Index Committee

S&P Dow Jones Indices

two

The FOMC statement and Ben Bernanke’s press conference was not well received this afternoon.  Hopes for something that would smooth over the recent volatility with assurances that QE3 would last for many more months to come were dashed by comments during the press conference that most FOMC members could see bond buying tapering off this fall and ending by sometime in 2014. Despite those remarks, the Fed expects rates to remain low into 2015.

Behind all this is a factor bigger than even the Fed — the economy.  If the economy continues to strengthen interest rates will rise and if the economy reverses and turns down, rates will drop. Given the Fed’s 2015 forecast of 2.9% to 3.6% GDP growth, inflation of 1.7% to 2% on Core PCE and unemployment of 5.8 to 6.2%, interest rates will be slightly higher in 2015 but not out of sight. Look for the ten year treasury to be 3.5% to 4.5% in 2015.  The rest of the Fed’s economic projections slightly lowered the outlook for the rest of 2013 and made 2014 look a bit better.

In the short run traders can’t fight the Fed, but in the long run the Fed can’t fight the economy.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

What can an index do for me?

two

David Blitzer, Managing Director and Chairman of the Index Committee, answers the question, “What can an index do for me?

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Q1 Buybacks Slightly Up, But Fewer Shares Repurchased

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

two

Q1 Buybacks Slightly Up, But Fewer Shares Repurchased
Breakdown shows a broader participation in share count reduction – but it is slow

Q1,’13 S&P 500 buyback expenditures slightly increased 0.8%, to $100.0B from $99.1B in Q4,’12, and was up 18.6% for Q1,’12 $84.3B (record was Q2,’07 at $172B).
12 months ending Mar,’13 increased 3.8% to $414.6B from the $399.5B posted in the prior 12 month period (12 month high was 2007, at $589.1B)

Companies continued to protect their earnings from dilution due to option execution, however, actual shares repurchased were down, as the 0.8% increase in expenditures failed to keep pace with the 6.8% increase in the average share price for the quarter.

Even with programs and authorizations setting record levels and receiving extensive press coverage, the number of companies moving back to share count reduction is slow, but they are increasing, with 81 issues reducing their share count by at least 1% in Q1 (over Q4,’12), a general measure of share count reduction, as compared to just 36 issues for Q4 2012 (over Q3,’12). In Q1, 328 issues reported share repurchases, up from 317 in Q4, with 212 of them reducing their share count, up from 98 in Q4.

While buybacks remain the instrument of choice to prevent earnings dilution from employee options and dividend reinvestment plans, the first quarter appeared to fall short of the needed shares. Overall shares have slightly increased, as issuance has outpaced repurchases. In the first quarter the overall share count was up, with the Information Technology sector, the leader in buybacks, slightly increasing its overall share count by 0.9%. The Telecommunications Sector, led by AT&T, which has reduced its share count by 6.9% over the last four quarters, reduced its overall share count by 3.5%.

The Information Technology Sector held its position as the largest repurchaser, spending $17.5B, which was down from the $22.7B spent in Q4.
The Health Care Sector was right behind IT, as it increased to $16.8B from $11.4B, with Telecommunications increasing from $4.4B in Q4,’12 to $6.5B in Q1.

AT&T led with a $5.9B expenditure (up from $4.4B), followed by Exxon Mobil ($5.6B), Pfizer ($4.6B), IBM ($2.6B), and JP Morgan ($2.6B).

Given all of the talk and authorizations, there is great expectation for the second quarter, especially from Apple, which announced a record authorization.
Share prices for Q2,’13 are running 6.3% higher than Q1,’13 and 19.3% higher than Q2,’12. This means that companies will need to spend more just to buy back the same number of shares, and spend additional funds if they wish to create share count reduction. They talked the talk, now we’ll see if they walk the walk.

(FYI – cash has again set a new record, be it by 0.17% gain)

The posts on this blog are opinions, not advice. Please read our Disclaimers.

CPI Rises in May: How much inflation protection have commodities provided?

Contributor Image
Jodie Gunzberg

Managing Director, Head of U.S. Equities

S&P Dow Jones Indices

two

After two months of deflation, headline CPI (Consumer Price Index) gained 0.1% in May, marking its second positive reading in at least the past seven months. Over the past 12 months, CPI inflation is up 1.4%, accelerating from April’s 1.1% reading. http://www.bls.gov/news.release/cpi.nr0.htm

Historically, commodities as an asset class have had positive correlation to inflation. In the past 10 years, using yoy% (year-over-year) monthly return data from 1/2003-12/2012, the DJ-UBS CI has had correlation of 0.64 to CPI yoy Index and the S&P GSCI has had correlation of 0.74 to CPI yoy Index. This is because commodity indices reflect our changing expectation of future prices by including futures contracts as constituents. Further, since food and energy are major components of the CPI and are among the most volatile of inflation, they are the key drivers of the indices.

CPI vs Commodity Indices

HOW MUCH INFLATION PROTECTION HAVE COMMODITIES PROVIDED?

Commodity index investments may provide a levered response to inflation.  In other words, one dollar of commodities may hedge more than one dollar of the portfolio from inflation. This concept is called inflation beta. Historically from 1992-2012 for every 1% increase in CPI, the S&P GSCI has had a 16.0% increase and the DJ-UBS CI has had a 10.2% increase. (It is like stock beta, where if stock XXX increased 2% if for every 1% increase S&P 500, then the beta would be 2.)

Inflation Beta

Last, please click here to watch a special video on commodities and inflation from our Index Matters Series with Bob Greer of PIMCO and Boris Shrayer from Morgan Stanley. 

The posts on this blog are opinions, not advice. Please read our Disclaimers.

S&P GSCI Precious Metals Hits Lowest Since October 2010

Contributor Image
Jodie Gunzberg

Managing Director, Head of U.S. Equities

S&P Dow Jones Indices

two

On April 15, 2013 the S&P GSCI Precious Metals dropped 9.6% in one day, entering a bear market from the 2013 high occurring on January 23Since then, the index has fallen further to hit its lowest level of 1733.52 since October 1, 2010 when it was at 1717.53.  The precious metals index is down 20.1% YTD, and is off  21.3% from its 2013 peak of 2202.41.

Uncertainty ahead of the Federal Reserve meeting may be causing gold investors to fear whether the Fed will signal the end or a reduction to the quantitative easing.

The S&P GSCI Precious Metals Hits the Lowest Since Oct 1, 2010 Source: S&P Dow Jones Indices. Daily data from 1/6/78 - 6/18/12. Charts and graphs are provided for illustrative purposes only.  Indices are unmanaged statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities the index represents.  Such costs would lower performance.  It is not possible to invest directly in an index.  Past performance is not an indication of future results. The inception date for the S&P GSCI was May 1, 1991, at the market close.  All information presented prior to the index inception date is back-tested.  Source: S&P Dow Jones Indices. Daily data from 1/6/78 – 6/18/12. Charts and graphs are provided for illustrative purposes only. Indices are unmanaged statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities the index represents. Such costs would lower performance. It is not possible to invest directly in an index. Past performance is not an indication of future results. The inception date for the S&P GSCI was May 1, 1991, at the market close. All information presented prior to the index inception date is back-tested.

 

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.