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Posted by on Oct 31, 2016 in ETF Strategist, Market Insight

AdvisorShares Weekly Market Review – Week Ending 10/28/2016

AdvisorShares Weekly Market Review – Week Ending 10/28/2016

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Highlights of the Prior Week

Scandals Still Moving Markets

Macro

From the it never ends-department the FBI announced it is considering new evidence in the investigation into whatever actually occurred with Hillary Clinton’s email server. This moved prices in the capital markets Friday sending equities somewhat lower and bond yields a few basis points lower. The nature of modern society is that it is much harder to hide flaws. Each of the major party candidates have long lists of flaws that appear to be on full display. That another shoe appears to be dropping on one candidate should be a warning that there will continue to be more shoes that drop (be that investigations or video with unflattering comments) regardless of who wins the election.

The first look at Q3 GDP in the US was very strong on the headline at 2.9% versus an expectation of 2.6%. As a reminder, GDP has been muddling on either side of 1.0% for quite a while. The number got a boost from exports as well as a build in inventories which accounted for about half of the headline print and detracts from the quality of the headline number.

With all of that the Dow Jones Industrial Average managed to eke out a gain for the week of nine basis points while the other broad, domestic indexes declined. The S&P 500 fell 0.68%, the NASDAQ dropped 1.28% and the Russell 2000 slid 2.54%. Yields backed up around the globe including a ten basis point gain up to 1.84% for the US Ten Year Treasury Note yield. The trend of rising rates has been in place for several weeks and in that time the larger intermediate and longer dated treasury ETFs have seen declines of 6% to as much as 9% in that time. While we won’t guess whether this is the turn in rates or not, the last month provides an example of how quickly interest rates can change direction and how quickly and how far certain funds can decline.

South Korean GDP printed slightly above estimates at 0.7% overcoming problems in the manufacturing industry tied to taking smart phones off the market, the Hanjin Shipping bankruptcy and worker stoppages in the auto industry.  

Bespoke Investment Group provides a wealth of earnings and economic data including CPI from many countries around the world. Friday was a big day for CPI from several countries and the tone of the text in terms of beating, meeting or lagging estimates was appropriately from a deflationary point of view. It used to be that a “beat” would be CPI lower than expectations. This has changed since the financial crisis as creating inflation, the goal of central bank policy these days, has become elusive. While the threat of a deflationary debt spiral seems quite remote markets have been living with a sort of deflationary malaise for many years now. If the above mentioned GDP report stands up to revisions and can repeat in subsequent quarters then there could light at the end of the deflationary-malaise tunnel.

West Texas Intermediate Crude rolled over last week after a generally favorable run of late likely due to the unraveling of the recently proposed production limits. For now, the threat isn’t so much countries cheating, although that may come, but many OPEC countries feel that they should be exempt from the cuts for various reasons.

ETF News

ETF.com took a look at M&A funds performance being “flat” at a time when merger activity is quite robust. The article is not incorrect but it fails to overtly state what the objective of merger arb funds actually is. M&A funds are not proxies for equity market performance, they capture an alternative strategy that is designed to provide more of an absolute return result.

It is important to understand the actual objective of any ETF or other investment product. A merger arbitrage fund is not going to keep up with the stock because it is not designed to do that. By the same token it is very unlikely that an M&A fund would go down as much as the stock market during that part of the cycle either.

Interesting Reads

The United States isn’t the only country with an upcoming election. Quartz.com reports Iceland’s Pirate Party Looks Likely To Take The Country’s Election Next Weekend;

If you’re worn out and depressed with the US election campaign, ponder what’s going on in Iceland for a moment. The country’s Pirate Party, founded less than four years ago by a group of activists, anarchists, and hackers, is poised to upend Icelandic politics with an Oct. 29 general-election victory. More than 22% of Icelanders are ready to pick the anti-establishment Pirate Party, according to a recent poll by the Social Science Research Institute, conducted for the Morgunbladid newspaper. That puts the party just slightly ahead of its closest rival, the Independent Party, which currently governs in a coalition with the Progressive Party.

Sports

NBA history is full of players with tremendous potential who for reasons of injury or other things never fulfilled that potential. ESPN reports that Former No. 1 Draft Pick Greg Oden Back With Buckeyes As Student Coach.

“I’m still trying to figure out my life. Since I’ve been in fourth grade, all I’ve known was basketball. I’m just trying to better myself and work on my degree and set something up for the future of my family.” Oden’s NBA career lasted all of 105 games because of multiple microfracture knee surgeries and other issues, including a plea deal with prosecutors to settle battery charges involving a former girlfriend.

Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, New York Times, ESPN
 
2016-10-31_table1
 
For October 24th, 2016 to October 28th, 2016

2016-10-31_table2
 
S&P Sector Analysis

As for the sectors of the S&P 500, six outperformed the broad benchmark – Healthcare, Financials, Utilities, Discretionary, Industrials, and Energy. The remaining five – Technology, Staples, Telecom, Materials, and Real Estate – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.33% for the week ending 10/28/16, with Healthcare outperforming all, and Real Estate coming in last.

For October 24th, 2016 to October 28th, 2016

As measured by the S&P 500 sector indices, respective performances were:

2016-10-31_table3

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