AdvisorShares Weekly Market Review – Week Ending 10/14/2016
Highlights of the Prior Week
Hang In There, The Election Will Be Over Soon
Earnings season is now well under way with the big US banks generally delivering strong results. The financial sector has been the center of attention lately for scandals, potentially large fines to be paid, a spinning out of REITs into its own sector and the promise of higher rates from the Federal Reserve which is generally accepted as a catalyst for better profitability. Hated though the banks may be, they still are essential to the economy’s ability to function.
Markets seem to be paying more attention now to the election with it just a few weeks away. We will keep this report politically neutral but note that the popularity of both major party candidates is quite low with distasteful stories about both coming on an almost daily basis. In terms of market implications, In a conference call last week, Chris Kelleher, a portfolio manager at Newfleet suggest that while markets are pricing in a Fed rate hike in December, a GOP win could reduce that likelihood.
Whether it was election fatigue or something else, domestic equities rolled over into another week of modest declines. The Dow Jones Industrial Average fell 0.55%, the S&P 500 was down 0.95% the NASDAQ dropped 1.46% and the Russell 2000 slid 1.94%. During the month of September, the NASDAQ and Russell 2000 led the Dow and SPX which can be taken as a sign of confidence or that risk is on. October thus far has reversed that trend indicating risk, for the time being, is off.
Foreign markets were a mixed bag last week. On the positive side, the DAX was up 0.85%, the CAC gained 0.50% and the Shanghai Composite jumped 1.92%. On the downside the FTSE 100 fell 0.44%, the KOSPI dropped 1.52%, the Nikkei 225 gave up 43 basis points and the Hang Seng had a 2.34% set back.
Although not evident in market returns last week, economic data from China was, as Bespoke Investment Group described it, grim. Both imports and exports have dropped considerably including, as Bespoke notes, large declines to countries who rely on oil to (awful pun alert) fuel their economies. Better news came on Friday when PPI had its first positive report since 2013. China has the world’s second largest economy and has long offered the promise of tremendous growth but it has also long been a confusing market to understand.
The yield on the Ten Year US Treasury Note grinded its way higher to 1.80% with a little more we really mean it talk from Janet Yellen. The German bund yield inched higher to 0.05%, the French OAT moved up to 0.33%, the UK gilt continued its swift gain in yield, taking back 1% to 1.09%, the Swiss ten year has also been working higher but at -0.46% it is in no danger of going positive anytime soon.
Gold drifted lower in the week to the tune of 0.64% while crude oil was up just over 1%, maintaining the $50 level.
A couple of weeks ago we noted concerns over Deutsche Bank’s exchange traded note business. Yahoo Finance also notes concerns with its exchange traded fund business due in large part to currency hedging having become less popular;
Thus far in 2016, Deutsche’s fairly expansive ETF family has seen nearly $6.7 billion in outflows, representing roughly a one-third decline in assets. The bank has moved down a notch, from 10th to 11th, among leading ETF providers, with $13.3 billion in assets currently, according to FactSet.
The vote in Great Britain to leave the EU will have several consequences in the future but there has already been some fallout including a shortage of Marmite which although very popular in the UK, has a flavor most Americans don’t understand. The New York Times reports that Marmite Survives After “Brexit” Spurs Tesco-Unilever Price Dispute;
Fears that Marmite and other British classics, like the PG Tips brand of tea, might disappear from store shelves had gripped Britons after reports that the supermarket chain Tesco and the owner of those brands, the British-Dutch consumer goods company Unilever, were locked in a price dispute over who should bear the cost of the weakening pound. Marmite was briefly unavailable in Tesco’s online market, and store supplies dwindled.
Here’s a strange one; NFL Exec Tom Brady Explains NFL’s New Social Media Policy.
But the NFL’s social media chief, a man named Tom Brady (no, not that one), says the policy is more nuanced than that. Brady spoke exclusively to Yahoo Finance to explain and defend the changes. He says most news stories about the policy got it wrong: “Everyone has focused on the fining, or that we’re clamping down, whereas the reality is the overall policy is evolving to allow teams to do much more than before.” Here’s how the policy actually works: teams cannot post in-game footage to their official social media accounts on their own, independent of the league; they can only post footage that the NFL has first dropped into an internal server for the teams to access. But the NFL will put more content on that server than ever before.
As for the sectors of the S&P 500, six outperformed the broad benchmark – Utilities, Real Estate, Telecom, Staples, Technology, and Industrials. The remaining five – Financials, Energy, Discretionary, Materials, and Healthcare – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.55% for the week ending 10/14/16, with Utilities outperforming all, and Healthcare coming in last.
For October 10th, 2016 to October 14th, 2016
As measured by the S&P 500 sector indices, respective performances were: