Investment Themes

Sign up to receive Indexology® Blog email updates

In This List

June 2013: What's Hot and What's Not

Dividends: Love'm or Leave'm

Who Dun it?

A Conventional Down Month

Only a Few Hours Left, but June’s Returns Have Not Been Seen Since 2008

June 2013: What's Hot and What's Not

Contributor Image
Jodie Gunzberg

Managing Director, Head of U.S. Equities

S&P Dow Jones Indices

two

Read about some commodity highlights in June from an interview with Courtney Nebons, our studio producer.  Click here to watch the video.

Q1.  This month we heard a lot about the Fed easing its monetary policy, so how did that impact commodities?

Commodities reacted negatively to the news that the Fed may ease its bond buying program since as the dollar strengthens, goods priced in dollars become more expensive for other currencies.  On June 20th, after the meeting all 24 commodities in the S&P GSCI fell, and the news sent Coffee, Nickel, Silver and Gold into bear markets for the year. Gold lost 12.2% in its worst month since January 1981.

Q2.  Was there anything else besides the quantitative easing driving down commodities this month?

The weather was an overarching theme, driving down grains and natural gas. Grains dropped 6.5% in June from adequately moist soil and larger than expected crop yields. The same mild weather also drove natural gas down 11% in June and is now at the same level as at the start of the year. At its peak on April 19 it was up 26.7% for the year from cold weather but as the weather warmed and inventories grew, the natural gas index gave up its gains.

Q3. Were any commodities hot like the weather?

In the index in June, livestock gained 3.1%, petroleum was up 3.0% and cotton was the big winner returning 7.8%.   Fundamentals were key to overriding the risk off declines from the quantitative easing.  For example, there is concern over a pig virus that may further curb production while meat-packers cut slaughter rates to offset tighter-than-expected seasonal hog supplies, which reduced the flow of pork to end-users at a time when demand heats up for summer vacations and outdoor cookouts.

Q4. Given crude oil is such a heavyweight, can you tell us briefly about the fundamental driver in that market?

WTI crude oil in the index was up 4.8% in June from the growing capacity to ship crude from the Cushing, Oklahoma delivery point in the U.S.

Q5. Is there anything else you would like to add?

Overall, the S&P GSCI was once again driven by the themes of the quantitative easing, Eurozone crisis, and Chinese demand. Although the quantitative easing and uncertainty over China’s demand were strong negative influences on commodities this month, the fundamentals prevailed pulling the index into positive territory, finishing up 23 basis points.

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

Dividends: Love'm or Leave'm

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

two

Now that the short-term speculators have left the dividend market, core investors can get back to their boring stocks, collecting their tax advantaged yield (you may not like the increase to 20% from 15%, but I remember when it was 70%, and that was before New York State, City or unincorporated business tax got hold of you – talk about a minority interest).  The linked dividend report below is on U.S. domestic common stock for Q2 2013, and shows another good quarter.  My takeaway for the S&P 500 is below:

I expect dividend growth in the second half for the S&P 500 to be less than the first half due to the large December 2012 payout which was inspired by tax concerns.

The numbers works out to an upper-single digit second half increase, putting the 2013 dividend payment gain into double-digit territory.

The expected 2013 payment would set a new record over the current 2012 record – a year which included significant accelerated payments from 2013.

2013 would be the third double-digit gain in a row; the record is 4, set in 2004-7 and 1947-50.

2014, as the Fed would say, is data dependent (economy).

http://yhoo.it/120LeYu

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

Who Dun it?

Contributor Image
David Blitzer

Managing Director and Chairman of the Index Committee

S&P Dow Jones Indices

two

Beginning in May and then aggressively following Fed Chairman Ben Bernanke’s June 19th press conference interest rates rose.  The yield on the 10 year treasury both led the way and spooked the markets world-wide.  Analysts raised the specter of an early end to QE3, cited Bernanke’s comments and hinted that the central bank was about to abandon the markets. Stocks responded with a sharp slide. Just as it seemed that all were united in castigating the Fed for bringing on the inevitable end to bond bull market, a counter attack was launched.

In the week and a half since the press conference, the Fed has put on a full court press with speeches from two Fed Governors and timely news stories pitching the idea that the rate rise was a case of premature market jitters. Why did rates rise? Some of the comments in Bernanke’s press conference reminded everyone that sooner or later QE3 would end and that, if the Fed’s economic forecast proved reasonably correct there would be no QE4.  While no one wanted to be reminded that QE3 would end; there were other factors in the press conference and the market.  Bernanke talked about beginning to taper off QE3 if the unemployment rate slipped into the neighborhood of 7%.  Some may have confused this with comments from a few months ago that the Fed Funds target would remain zero to 25 bp until the unemployment rate reached 6.5% . (It is 7.6%, at least until the next report on Friday morning). The Fed has two unemployment rate targets – one for QE3 and another for the Fed Funds rate.

More important than the double unemployment rate targets, the Fed confirmed both in the press conference and in those recent speeches that monetary policy will respond to the economy and that it believes the economy is beginning to improve.  The Fed’s own forecast for 2014 looks almost rosy at 3% to 3.5% real growth, at or above trend.  That growth, rather than monetary policy, will boost interest rates.

Who dun it? The number one suspect is the economy. As to the central bank, one might consider it an accessory before the fact – and offer a compliment for their success.

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

A Conventional Down Month

Contributor Image
Craig Lazzara

Managing Director and Global Head of Index Investment Strategy

S&P Dow Jones Indices

two

Whenever you want to argue that rising interest rates are bad for the stock market, count June 2013 as a point in your favor.  The long end of the US Treasury yield curve notched a -4.07% decline in June (following May’s -6.71% tumble), as rates on the S&P/BGCantor 20+ Year US Treasury Index rose by 66 basis points from their April low.  Equities followed suit, with the S&P 500, e.g., off -1.34% for the month.

June, in that sense, feels like a conventional down month (unlike May, when equities rallied despite wretched bond performance).  Defensive sectors (Telecom, Utilities) were the best performers, while more cyclically-sensitive sectors (Materials, Information Technology, Energy) were the worst.  The US outpaced the rest of the developed world (with the sole exception of Japan) in June and for the first six months of 2013, and emerging markets lagged even further behind.  US equities might not be, as we’ve suggested previously, the very best house in a bad neighborhood, but they’re not far off that mark.

The brightest spots in June’s US performance came from defensive strategy indices.  The S&P 500 Low Volatility Index actually rose (+0.60%) in June, and yield-sensitive strategies like the S&P 500 Value or the Dow Jones US Select Dividend Indices outperformed broad market gauges.  Volatility was the month’s biggest winner, as the S&P 500 VIX Short-Term Futures Index gained +7.26%.  Volatility’s performance also benefited the S&P 500 Dynamic VEQTOR Index, which allocates between stocks and vol, and rose +0.42% in June.

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

Only a Few Hours Left, but June’s Returns Have Not Been Seen Since 2008

Contributor Image
Kevin Horan

Director, Fixed Income Indices

S&P Dow Jones Indices

two

U.S. Treasury Bonds:
There are just a few hours of trading left to the month of June, but on the whole the month took its toll on fixed income products.  Treasuries, as measured by the S&P/BGCantor U.S. Treasury Bond Index, are down -0.91% for the month.  Year-to-date this index is returning -1.55%.  Yields are up across fixed income products as seen by the Bond Yield Summary Chart.

U.S. Corporate Bonds & Senior Loans:
Only giving up -0.83% for the month, the S&P/LSTA U.S. Leveraged Loan 100 Index stayed out of the fixed income fray and has returned a positive 1.99%, year-to-date.

After reaching a year-to-date low Option Adjusted Spread (OAS) of 378 bps on May 8, the spread for the S&P U.S. Issued High Yield Corporate Bond Index reversed direction.  Throughout June the spread rose and peaked on June 24 at 483 bps.  Since then it has come down to 464 bps.  On the month, the index is returning -2.79%. For the year it is at +0.92%.

The FOMC meeting took its toll on investment grade credit as well.  June 19 and 20 showed the two worst daily returns of -0.72% and -0.93%, respectively for the S&P U.S. Issued Investment Grade Corporate Bond IndexThe current month-to-date return of -2.71% will be the largest monthly loss since October of 2008’s -5.38%.

Bond Yield Summary

 

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