AdvisorShares Weekly Market Review – Week Ending 12/2/2016
Highlights of the Prior Week
Global Political Upheaval
The November jobs report printed on Friday with 178,000 new jobs coming in very close to estimates with the headline unemployment rate dropping to 4.6% which is a number that on its face tests the bounds of full employment. The decline however is being attributed to a downtick in the Labor Force Participation Rate to 62.7%. The broader U6 fell 0.2% to 9.3%. One negative factor was the 0.1% decline in wages (year over year now shows a gain of only 2.5%). A decline in the unemployment rate not playing out as inflationary is something of a contradiction of economic theory but this is unlikely to deter the FOMC from hiking rates next week. One puzzling tidbit in the report was lack of meaningful job gains in the retail sector for the holiday season. These jobs might materialize in the December report or revisions to the November report. The other economic data point of note was the revised Q3 GDP report which came in at 3.2% versus the earlier reported 2.9%.
Now that the political season is finally over in the US….well, sort of kind of, maybe, things appear to be heating up politically in Europe. In France, Francois Hollande will not seek reelection, in Italy Matteo Renzi called for a referendum that would have taken legislative authority from the Italian Senate. The referendum of course failed, a populist result, and Renzi resigned but now Italy has figure a way forward from here. Even in Austria sentiment is extremely divided as the Presidential race came down to an extreme right candidate versus an extreme left candidate (the left won in a non-populist outcome). In the UK, despite confusion and a seeming lack of a clear plan, Theresa May is confident that Article 50 can be triggered by March which would commence the process to actually separate from the European Union.
In other political news, John Key said he would not run for a fourth term as New Zealand’s Prime Minister. The South Korean parliament is only a few votes shy of an impeachment motion against President Park Guen-hye.
The domestic equity markets had a wild ride in the month of November. After selling down slightly at the start of the month they of course embarked on a big and probably counter trend rally. The expectation going into the election was that a Clinton win would be status quo and that a Trump win, low probability that it appeared to be, would be bad for equities. There is of course no way to know what a Clinton win would have meant for equities but a Trump win turned out to be good, at least so far. For the month the Dow Jones Industrial Average gained 5.63%, the S&P 500 added 3.62%, the NASDAQ was the underperformer with a 2.73% lift and as we’ve mentioned before the Russell 2000 was the big winner tacking on 11.1%.
We have chronicled the plight of the bond market all the way up (in yield) during November and that continued last week as the yield on the Ten Year US Treasury Note inched up to 2.39% but got as high as 2.49% on Thursday. The German bund yield moved up to 0.28%, the French OAT continued to trend lower to 0.71%, the UK gilt downticked to 1.38%, the JGB yield has remained positive for three weeks in a row and the Swiss ten year remains in negative territory at -0.13%.
For weeks we have been following the back and forth between OPEC members as they tried to figure out how to agree on a production cut. It could have been said that all the members agreed a cut was necessary but that they should be exempt. News finally broke of an agreement and although it will take a little while for the actual cut to be implemented the news was enough to send the price of West Texas Intermediate Crude rocketing 12% higher to close better than $51/barrel on Friday. WTI is nudging higher, apparently on the Standing Rock news that broke over the weekend.
Bloomberg hosted the ETFs In Depth Conference last week and there several great snippets that came out via the #ETFsinDepth16 Twitter feed:
“Not a shift from active to passive, but a shift from high cost to low cost…” – panelist Barry Ritholtz
“ETFs are replacing futures and swaps because investment banks are shrinking“ – Mark Weidman
“F/X is one of the great untapped markets for ETFs. We haven’t figured out how to jumpstart the liquidity” – Mark Weidman
“Biggest challenge for ETF education is getting advisors to understand that basket liquidity is what’s imp” -O’Leary
If you didn’t post a picture were you really there? That is the question asked by USA Today in What’s The Most Instagrammed Place In Every State? The list includes a mix of National Parks, sports stadiums, beaches and airports.
- Yellowstone National Park
- Glacier National Park
- Flathead Lake
- Big Sky, Montana
- Montana State University
Eric Dickerson vows to avoid Rams games ‘as long as Jeff Fisher is coaching.’ ESPN tells the complicated story:
Hall of Fame running back Eric Dickerson, a star when the team last played on the West Coast, said Monday in a phone conversation with ESPN that Rams coach Jeff Fisher basically told Dickerson he didn’t want him on the sideline during games because some of his public comments have made players “uncomfortable.” According to Dickerson, Fisher later backtracked in that conversation after Dickerson defended his right to speak out, but Dickerson said he vowed to Fisher that he would never go to a Rams game as long as Fisher is the team’s coach.
As for the sectors of the S&P 500, six outperformed the broad benchmark – Energy, Financials, Materials, Industrials, Real Estate, and Utilities. The remaining five – Staples, Healthcare, Telecom, Discretionary, and Technology – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 5.54% for the week ending 12/2/16, with Energy outperforming all, and Technology coming in last.
For November 28th, 2016 to December 2nd, 2016
As measured by the S&P 500 sector indices, respective performances were: