IN THIS LIST

S&P Latin America Equity Indices Quantitative Analysis Q3 2021

U.S. Equities Market Attributes September 2021

ETF Transactions by U.S. Insurers in Q2 2021

U.S. Equities Market Attributes August 2021

U.S. Equities Market Attributes July 2021

S&P Latin America Equity Indices Quantitative Analysis Q3 2021

Contributor Image
Michael Orzano

Senior Director, Global Equity Indices

Contributor Image
Silvia Kitchener

Director, Global Equity Indices, Latin America

Latin American equities had a rough Q3 2021, as the S&P Latin America BMI fell 14.7% in USD terms, driven by a steep drop in Brazilian equities and the U.S. dollar strengthening against local currencies. This weak result offset sizable gains from earlier in 2021, leaving the regional benchmark with a 7% loss YTD. However, on a 12-month horizon, the S&P Latin America BMI remained up 25.4%, outperforming the S&P Emerging BMI by about 5%.

While recent political uncertainty and civil unrest in the region have contributed to these results, on a global perspective, events abroad also have had an impact on equities, with emerging markets being the most affected. The S&P 500® ended the quarter nearly flat, up 0.6%, after reaching new records during late August and early September. Uncertainty over China’s Evergrande Group’s debt negotiations also had a negative effect on global markets; the S&P/BMV China SX20 lost 15.7% and the S&P Emerging BMI decreased 6.2% during Q3.

However, at a country level, results were mixed. The countries that performed the best during Q3 were Argentina, Colombia, and Mexico, which had positive returns in local currency as demonstrated by the S&P MERVAL Index (24.0%), the S&P Colombia Select Index (8.7%), and the S&P/BMV IRT (2.8%), respectively. The case of Argentina is particularly noteworthy, with the S&P MERVAL Index posting solid returns of 51.0% in local currency and 28.7% in U.S. dollar terms YTD, making it an outlier in the region. On the flip side, the S&P Brazil BMI and the S&P/BVL Peru Select 20% Capped Index were the underperformers of the group in Q3, down 13.9% and 4.9%, respectively. Chile’s S&P IPSA was nearly flat for the quarter.

All sectors across the S&P Latin America BMI posted negative returns in Q3. Procyclical sectors, such as Consumer Discretionary, Information Technology, and Materials, were the most affected, losing 32.6%, 28.2%, and 21.4%, respectively. Defensive sectors, such as Real Estate and Utilities, had better relative performance, losing only 12.7% and 7.8%, respectively. Lastly, the sole bright spot during the quarter from the sector perspective was Communication Services, which ended nearly flat.

In times of high volatility, it is interesting to see how different factor indices perform under current market conditions. Perhaps unsurprisingly, we saw that in Brazil and Mexico, value, low volatility, and risk-weighted indices performed best in Q3, as lower volatility and value-oriented companies were in favor in a generally risk-off environment. In Q3, the S&P/BMV IPC CompMx Enhanced Value Index gained 2.3% in MXN, while the S&P/B3 Enhanced Value Index returned -1.9% in BRL.

Shifting focus to the longer term, we see that the majority of factor indices outperformed the broader market over the past 10 years, illustrating the benefits of using a non-market-cap-weighted indexing approach.

As the end of the year approaches, many risks are still clouding equity markets in Latin America. The continued spread of COVID-19 variants continues despite increased vaccination rates. Important local elections that will shape the new policies of several countries in the region are also slated to occur. Stay tuned for what promises to be an exciting year end in the region.

pdf-icon PD F Download Full Article

U.S. Equities Market Attributes September 2021

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes September 2021

MARKET SNAPSHOT

The S&P 500 opened the month well, posting a new closing high (54th of the year), on Sept. 2, 2021 (4,536.95; it has posted at least one new closing high in each month since November 2020). It should have closed the month and quarter then (and missed all the fun in Washington), but instead, it went on to live up to the September tradition of being the worst month of the year (averaging a decline of 0.99%; the month is negative 53.8% of the time), as it struggled (to put it nicely) the rest of the month. To be fair, the damage was controllable and the sells were orderly (with the worst one-day drop being -2.04%, on Sept. 28, 2021), as the month ended with a 4.76% decline—the first monthly decline since January 2021's -1.11%, and the worst since March 2020's 12.51% decline. September ended leaving the index up a modest 0.23% for the quarter (Q3 2020 was up 8.47%), 14.68% YTD (15.92% with dividends), up 27.21% (30.62%) from the pre-COVID-19 Feb. 19, 2020, high (3,386.15), and up 92.52% (97.28%) from the March 23, 2020, recent low (2,237.40). To be fair again (and I don't want to make a habit of it), September is when the market gets back to business after summer vacation, as do those nice people in Washington. This year, however, seemed to put more on DC's plate than the annual budget, which was approved and signed hours before the deadline (debt limit and a few stimulus programs remain in negotiations), and normal political games, which have increased in intensity. The Fed set a tentative schedule for tapering to start this year (and end mid-2022), as it indicated a potential interest rate increase in late 2022 or early 2023. The market initially accepted the two schedules with a slight decline, rather than a correction, but then it focused on higher interest rates, as the 10-year U.S. Treasury Bond rose above 1.50% (reaching 1.56% and closing at 1.49%; it closed September 2020 at 0.68%, September 2019 at 1.68%, and September 1981 with an extra digit, at 15.85%). In the background was also the YTD gains waiting to be taken (20.41% at the end of August), the impact of the COVID-19 variant, which most on the Street still see as "transient," and the Fed's makeup (two resignations and the Warren-Powell issue, which on a higher level is more about the battle within the Democratic party).

On my front page were the new records for Q2 2021 stats: earnings were up 9.7% over Q1 2021 and 94.2% over a COVID-19-depressed Q2 2020; sales came in up 5.5% from Q1 and 21.7% year-over-year; and margins increased 13.55% (the average from Q1 1993 is 8.07%). Buybacks and dividends also did well (Q3 dividend payments have set a new record, and we'll do a release next week; Q2 buybacks were 11% away from a record).

At this point, a nice shakeout has been due for so long that when it comes, there should be few surprises (but there will be some). Higher interest rates, short-term (hopefully) COVID-19 spread, shortages, and volatile U.S. economic dominance may all justify a downturn, but in the end, one is due (and possible if the buying stops). The bottom line for September in the market is if -4.76% is the payback (which it likely won't be; more could be expected), then "play it again, Sam" (absent COVID-19). The S&P 500 closed at 4,307.54, down 4.76% (-4.65% with dividends), from last month's 4,522.68 close, when it was up 2.90% (3.04%) and the prior month's 4,395.26 close, when it was up 2.27% (2.38%). The three-month return was 0.23% (0.58%), the YTD return was 14.68% (15.92%), the one-year return was 28.09% (30.00%), and the index was up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high. The Dow® ended the month at 33,843.93, down 4.29% for the month (-4.20% with dividends), from last month's 35,360.73 close, when it was up 1.22% (1.50%), as the three-month return was -1.91% (-1.46%), the YTD return was 10.58% (12.12%), and the one-year gain was 21.82% (24.15%).

The S&P 500 posted 1 new closing high in September (12 in August) and 54 YTD; it has posted new closing highs in every month since November 2020 (it missed October 2020 but had new closing highs in August and September 2020). The index closed up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high (73 new closing highs). Since Biden won the Nov. 3, 2020, U.S. election, the S&P 500 has gained 27.85% (29.62%), and there have been 52 closing highs since his inauguration. The bull market was up 92.52% (97.28%) from the low on March 23, 2020. The index closed down 5.06% from its closing high of 4,536.95 (set Sept. 2, 2021).

On Capitol Hill, the U.S. Congress raced to find a compromise on the debt and budget in order to avoid a government shutdown. Congress passed a stop-gap budget through Dec. 3, 2021, with Biden signing hours before the deadline. The USD 3.5 billion healthcare, education, and climate bill started to take shape, including a 2% tax on buybacks by publicly traded issues, but remained a work in progress. A vote on the USD 1 trillion Infrastructure bill was delayed into October as talks continued, as progressives attempted to link the USD 3.5 trillion climate, education, and social bill to it.

The S&P 500 one-year target price increased for the month (even though the index declined), as it broke 5,000 for the first time, at USD 5,018 (a forward high estimate), a 16.5% gain (10.4% last month) from now (USD 4,993 last month and USD 4,905 the previous month). The Dow target price was USD 39,270 (a forward high estimate), a 16.0% gain (10.8%) from now (USD 39,166 last month and USD 38,796 the month before).

pdf-icon PD F Download Full Article

ETF Transactions by U.S. Insurers in Q2 2021

Contributor Image
Raghu Ramachandran

Head of Insurance Asset Channel

INTRODUCTION

The second quarter of 2021 saw as much trading as the first, as insurance companies continued to trade ETFs actively.  While trading volume was lower relative to 2020, insurance companies traded in the first half of the year almost as much as they held in their portfolios at the beginning of the year.  In this report, we analyze these trades and explore the differences between the two quarters.

ETF TRADES

In the first quarter of 2021, insurance companies traded USD 15 billion in ETFs.  In the second quarter, insurance companies increased this amount slightly to USD 16 billion.  In the first half of the year, insurance companies traded USD 31 billion in ETFs.  The amount of trading was slightly lower than for the same period in 2020, when companies traded USD 38 billion.  However, the COVID-19 crisis affected the trading volume in 2020.

As seen before, trading volume isn’t uniform over the period.  Insurance companies traded more at the end of each quarter, with irregular spikes during the middle of the quarters (see Exhibit 1).

In terms of asset classes, the trading pattern was markedly different between the first and second quarters.  In the first quarter, the trades were roughly even between Equity and Fixed Income ETFs.  However, trading in Equity ETFs dominated the second quarter (see Exhibit 2).

pdf-icon PD F Download Full Article

U.S. Equities Market Attributes August 2021

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes August 2021

MARKET SNAPSHOT

"I hope my meaning won't be lost or misconstrued, but I'll repeat myself," as I update the weeks, but it is now the 13th week in a row that the S&P 500 has posted a new closing high (starting the week of June 7, 2021; 27 in that time period), and it has posted 53 new closing highs YTD (tied for fourth, so far, since 1926; the record is 1995 with 77). For the month, the index posted 12 new closing highs in its 22 trading days, so the odd day was when it didn't post a new high; the index was up 2.90% for August. If that doesn't take your "breadth" away, consider that 442 of the S&P 500 issues have gained YTD (average 26.29%), with 248 of them up at least 20% (38.66% average). If you can't gasp that, from the 2019 (pre-COVID-19) close, 394 were up (average 57.51%), and 354 (average 35.96%) if you exclude the 50 that have at least doubled. To be fair to the song, and more importantly the market, "There must be 50 ways to" play this market, including "just slip out the back, Jack, make a new plan, Stan, you don't need to be coy, Roy," just take your profits given we are up 20.41% YTD (after 2020's 16.26% and 2019's 28.88%). And I might as well repeat myself on this one too, "This Market Is Nuts" (from the NYT front page), but if you’re not in it, you're nuts—and most likely out of a job.

The U.S. Senate stayed in session to pass a bipartisan USD 1 trillion (69-30) infrastructure bill, passing it on to the House, as it also passed a USD 3.5 trillion framework bill along party lines (50-49), permitting them to start the debate. The Taliban completed taking control of Afghanistan as the U.S. was leaving, taking the capital city of Kabul and occupying executive offices, as President Ghani left the country. Biden went on national TV and defended the departure, affirming the Aug. 31, 2021, total pullout date. Reports showed people trying to leave the country, as most exits were controlled and limited. On Aug. 26, 2021, two bombs attributed to suicide bombers went off at the Kabul airport, killing 13 U.S. troops (first U.S. serviceperson killed since February 2020, when an agreement for the pullout was reached) and at least 170 Afghans, as the attack was attributed to an ISIS affiliate (which is fighting with the Taliban). The U.S. completed its departure on Aug. 31, 2021, and the market did not react to the situation.

Concern grew that due to the COVID-19 variant, herd immunity may not be reached after 70% of the population is fully vaccinated and may need to be increased; discussed target rates were over 80%. The fight over requiring grade school students to be masked grew, as political beliefs appeared to overpower the issue (or wellness of children). The U.S. Food and Drug Administration (FDA) authorized COVID-19 boosters (a third shot) to medically vulnerable people. The CDC recommended that individuals get booster shots eight months after they received their first shot of either Moderna (MRNA) or Pfizer (PFE). Biden encouraged (starting the week of Sept. 20, 2021) a third booster shot for those fully vaccinated (with Moderna or Pfizer; Johnson & Johnson (JNJ) was still being reviewed), starting eight months after the second shot, utilizing a priority rollout (expected to include healthcare workers, those at risk, the elderly, etc.). Similar to the rollout of the first vaccine shots, this is expected to vary by state (since there is no federal mandate). Later in the month, the FDA officially approved Pfizer's COVID-19 vaccine, changing its emergency use approval to permanent use, and some companies and municipalities moved to require their workers to get the vaccine. Johnson & Johnson said a booster shot (to their one-shot vaccine) resulted in a strong immune response of antibody levels.

The EU recommended that its member states (27) halt all nonessential travel to the U.S. for non-vaccinated individuals, citing the high COVID-19 variant spread; it had added the U.S. to the safe list in June 2021. U.S. COVID-19 vaccinations have surged to an average 898,000 per day from 620,000 at month-end July (900,000 in June and 1.7 million in May), as the Delta variant continued to spread, reaching 280,000 cases per day, up from 67,000 at the end of July. The increase also resulted in many companies delaying their return-to-work schedule and putting back-to-school schedules in jeopardy. Florida remained the epicenter for the Delta variant, as the state continued to set infection records. The vaccine rate in the U.S. (for having at least one shot) reached 70% for adults, as the general eligible population was at 61.7%, with 52.4% being fully vaccinated. Several states (including Louisiana) and areas (including San Francisco) reinstated mask requirements, as California became the first state to require all teachers and staff to be vaccinated or tested in order to return to work, followed by New York City requiring proof of vaccination to enter events, gyms, and restaurants. The U.S. will require all military personnel to be vaccinated by Sept. 15, 2021.

Many companies (Home Depot, McDonalds, Target, Tyson Foods) reinstated their mask requirements, with some companies delaying their return to office (BlackRock, Citigroup, and Wells Fargo, with Amazon delaying into 2022) or requiring vaccinations (Microsoft, United Airlines for U.S.-based employees). On Broad and Wall, the New York Stock Exchange said all people on the trading floor will need to be vaccinated by Sept. 13, 2021.

pdf-icon PD F Download Full Article

U.S. Equities Market Attributes July 2021

Contributor Image
Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes July 2021

MARKET SNAPSHOT

It was a good July for investors.  The S&P 500 continued up, which has become the norm, setting new highs along the way.  The U.S. reopening was front and center (along with the sounds of clinging registers and swiping cards at merchants), even as the COVID-19 Delta variant spread dramatically (especially among the unvaccinated).  Globally, however, things were not as good, as the recovery appeared to be on hold (or moving at a slower pace) due to the fourth wave, as countries (including the U.S.) tried to convince people to get the vaccine (markets were one sided YTD, as the S&P United States BMI was up 16.48%, compared with the S&P Global Ex-U.S. BMI’s 6.62%).  France and Italy restricted entry to certain establishments without a vaccine, while the U.K. declared a “Freedom Day” by eliminating restrictions, even as COVID-19 continued to spread in that country, and the Prime Minister was forced to isolate due to exposure.  In the U.S., the CDC updated its recommendations to advise everyone (regardless of vaccination status) to wear masks inside where there may be a risk, with Biden requiring federal employees to wear them, while Los Angeles and New York City are requiring them in schools (starting in September).

For the S&P 500, however, it has been a good year, with some thinking of closing out and going on vacation for the rest of the year—but why do that when so many people (domestic and foreign) are pouring money in (strong inflows) to support stocks?  The award-winning supporting role for the second quarter in a row was played by earnings in the second half of the month, as they easily beat estimates (both on earnings and sales, with an 88% beat rate), while margins remained high (Q2 looks like it will be at 13.1%, which would be a record) and guidance improved (with some footnotes about the Delta variant and supplies), and companies appeared to be able to pass along higher costs to the ever-spending consumer.  For July, the index posted 7 new closing highs (8 in June; 41 YTD); it has posted new closing highs in every month since November 2020 (it missed October but had new closing highs in August and September 2020).  The index closed the month up 2.27% (after June’s 2.22% gain) and up 17.02% YTD (after 2020’s 16.26% gain).

The U.S. proposal for a global minimum tax won the support of 130 countries, as part of an international taxing code change.  The proposal must now be detailed and worked out, with expected difficulties with individual nations attempting to protect their own concerns.

Democrats on the Senate Budget Committee agreed on a USD 3.5 trillion human and infrastructure bill (USD 4 trillion sought by Biden, and USD 6 trillion by progressives in his party), which could pass without Republican support.

In a separate bill, the U.S. Senate voted 67-32 to start working (and voting) on a USD 1 trillion infrastructure deal, which would actually add USD 548 billion more to the existing allocations.  Given the vote and political makeup, the bill is expected to eventually be approved.


Processing ...