MAJOR MARKET INDEXES

Question 1

NASDAQ Composite Index

Answer 1

Symbol = COMP (Price Return Index in USD)

• Index Methodology = The NASDAQ Composite Index is a market capitalization-weighted index.
• Today the NASDAQ Composite includes over 3,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.
• To be eligible for inclusion in the Composite, a security’s U.S. listing must be exclusively on the NASDAQ Stock Market (unless the security was dually listed on another U.S. market prior to 2004 and has continuously maintained such listing), and must be one of the following security types:

1. American Depositary Receipts (ADRs)
2. Common Stock
3. Limited Partnership Interests
4. Ordinary Shares
5. Real Estate Investment Trusts (REITs)
6. Shares of Beneficial Interest (SBIs)
7. Tracking Stocks

• Closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities are not included. If at any time a component security no longer meets the above criteria, the security becomes ineligible for inclusion in the Composite Index and is removed.

Top 10 Securities by Weight (9/30/19)

1. MSFT = 8.81%
2. AAPL = 8.40%
3. AMZN = 7.12%
4. FB = 3.55%
5. GOOG = 3.51%
6. GOOGL = 3.03%
7. INTC = 1.89%
8. CSCO = 1.75%
9. CMCSA = 1.70%
10. PEP = 1.59%

Industry Breakdown

1. Technology = 46.93%
2. Consumer Services = 20.17%
3. Health Care = 9.98
4. Financials = 7.57%
5. Industrials = 7.18%
6. Consumer Goods = 5.67%
7. Utilities = 0.92%
8. Telecommunications = 0.78%
9. Oil & Gas = 0.47%
10. Basic Materials = 0.33%

Question 2

NASDAQ-100

Answer 2

Symbol = NDX

• Market Methodology = The NASDAQ-100 is a modified capitalization-weighted index. The stocks’ weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components.
• The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization
• There are two NASDAQ exchange focused stock indexes: the NASDAQ Composite and the NASDAQ 100. It is important to understand which one is being discussed. The NASDAQ 100 index tracks the 100 largest non-financial stocks listed on the NASDAQ exchange. The NASDAQ Composite index is the most widely followed of the two by general market participants. The NASDAQ 100 is very focused on the technology sector, and is a widely-held tracking index for futures, options and exchange-traded fund trading.
• While the composition of the NASDAQ-100 changes in the case of delisting (such as transferring to another exchange, merging with another company, or declaring bankruptcy, and in a few cases, being delisted by NASDAQ for failing to meet listing requirements), the index is only rebalanced once a year, in December, when NASDAQ reviews its components, compares them with those not in the index, re-ranks all eligible companies and makes the appropriate adjustments

Top 10 Securities by Weight (9/30/19)

1. MSFT = 8.81%
2. AAPL = 8.40%
3. AMZN = 7.12%
4. FB = 3.55%
5. GOOG = 3.51%
6. GOOGL = 3.03%
7. INTC = 1.89%
8. CSCO = 1.75%
9. CMCSA = 1.70%
10. PEP = 1.59%

Question 3

S&P 500 - Financials

Answer 3

(4/30/2020)

The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

Eligibility - To be included, companies must have an unadjusted market cap of USD 8.2 billion or greater

Public Float - Companies must have a float market cap of at least USD 4.1 billion

Financial Viability - Companies must have positive as-reported earnings over the most recent quarter, as well as over the most recent four quarters (summed together).

Company Type - All eligible U.S. common equities listed on eligible U.S. exchanges can be included. REITS too. Close-ended funds, ETFs, ADRs, ADS, and certain other types of securities are ineligible for inclusion.

Historical Performance-

1. YTD Annualized Financials Net Total Returns = -25.59%
2. YTD Annualized S&P 500 Net Total Returns = -9.46%
3. 3 Year Annualized Financials Net Total Returns = 0.37%
4. 3 Year Annualized S&P 500 Net Total Returns = 8.4%%
5. 10 Year Annualized Financials Net Total Returns = 7.11%
6. 10 Year Annualized S&P 500 Net Total Returns = 11%

Risk

1. 3 Year Annualized Financials Standard Deviation = 21.89%
2. 3 Year Annualized S&P 500 Standard Deviation = 16.79%
3. 10 Year Annualized Financials Standard Deviation = 18.66%
4. 10 Year Annualized S&P 500 Standard Deviation = 13.82%

Fundamentals

1. P/E Trailing = 11.96
2. P/E (Projected) = 14.21
3. P/B = 1.52
4. Indicated Div Yield = 2.83%
5. P/Sales = 2.12
6. P/Cash Flow = 25.28

Top 10 Constituents by Index Weight

1. Berkshire Hathaway B
2. JPM
3. BAC
4. Wells Fargo
5. Citigroup
6. S&P Global Inc
7. CME Group
8. American Express CO
9. BlackRock Inc
10. Goldman Sachs Group

Banking Sector:

1. The banking sector’s profitability increases with interest rate hikes. Institutions in the banking sector, such as retail banks, commercial banks, investment banks, insurance companies, and brokerages have massive cash holdings due to customer balances and business activities.
2. Increases in the interest rate directly increase the yield on this cash, and the proceeds go directly to earnings. An analogous situation is when the price of oil rises for oil drillers. The benefit of higher interest rates is most notable for brokerages, commercial banks, and regional banks.
3. For example, a brokerage has $1 billion in customer accounts. This money earns 1% interest for customers, but the bank earns 2% on this money by investing it in short-term notes. Therefore, the bank is yielding $20 million on its customers’ accounts but paying back only $10 million to customers.
4. If the central bank brings up rates by 1%, and the federal funds rate rises from 2% to 3%, the bank will be yielding $30 million on customer accounts. Of course, the payout to customers will still be $10 million. This is a powerful effect. Whenever economic data or comments from central bank officials hint at rate hikes, these types of stocks begin to rally first.
5. Another indirect way in which interest rate hikes increase profitability for the banking sector is the hikes tend to occur in environments in which economic growth is strong, and bond yields are rising. In these conditions, consumer and business demands for loans spike, which also augments earnings for banks.
6. As interest rates rise, profitability on loans also increases, as there is a greater spread between the federal funds rate and the rate the bank charges its customers. The spread between long-term and short-term rates also expands during interest rate hikes because long-term rates tend to rise faster than short-term rates. This has been true for every rate hike since the Federal Reserve was established early in the 20th century

Question 4

S&P 500 - Technology

Answer 4

(4/30/2020)

The S&P 500® Information Technology comprises those companies included in the S&P 500 that are classified as members of the GICS® information technology sector.

Eligibility - To be included, companies must have an unadjusted market cap of USD 8.2 billion or greater

Public Float - Companies must have a float market cap of at least USD 4.1 billion

Financial Viability - Companies must have positive as-reported earnings over the most recent quarter, as well as over the most recent four quarters (summed together).

Company Type - All eligible U.S. common equities listed on eligible U.S. exchanges can be included. REITS too. Close-ended funds, ETFs, ADRs, ADS, and certain other types of securities are ineligible for inclusion.

Historical Performance-

• YTD Annualized Technology Net Total Returns = 0.22%
• YTD Annualized S&P 500 Net Total Returns = -9.46%
• 3 Year Annualized Technology Net Total Returns = 21.29%
• 3 Year Annualized S&P 500 Net Total Returns = 8.4%
• 10 Year Annualized Technology Net Total Returns = 16.69%
• 10 Year Annualized S&P 500 Net Total Returns = 11%

Risk

• 3 Year Annualized Technology Standard Deviation = 19.02%
• 3 Year Annualized S&P 500 Standard Deviation = 16.79%
• 10 Year Annualized Technology Standard Deviation = 17.53%
• 10 Year Annualized S&P 500 Standard Deviation = 13.82%

Fundamentals

• P/E Trailing = 26.72
• P/E (Projected) = 22.87
• P/B = 7.54
• Indicated Div Yield = 1.32%
• P/Sales = 5.06
• P/Cash Flow = 25.94

Top 10 Constituents by Index Weight

1. MSFT
2. APPL
3. Visa
4. Intel
5. Mastercard Inc A
6. Cisco Systems
7. Nvidia
8. Adbobe
9. PayPal Holdings Inc.
10. Salesforce.com

Technology Sector:

The technology sector is the category of stocks relating to the research, development and/or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology.