AdvisorShares Weekly Market Review – Week Ending 1/27/2017
Highlights of the Prior Week
The New Black Swan?
Martin Kremenstein from Nuveen was quoted at the Inside ETFs Conference last week as saying “the black swan is a 4am tweet.” This of course refers specifically to President Trump’s proclivity for Tweeting and more broadly the volatility associated thus far with the new administration. Interestingly the political volatility has not been matched in the capital markets. Last week we noted the lack of volatility as exhibited by VIX at 12. Well if you liked VIX at 12, you’ll love it at 10 ½ which is where it closed on Friday. It seems that while social media is in a frenzy over political developments the market are quite calm.
The was reflected in very calm increases across the board for the broad domestic indexes. The Dow Jones Industrial Average gained 1.33% and took the 20,000 level after just 42 days since taking its last big figure, the S&P 500 added 1.01%, the NASDAQ had the strongest week at 1.87% and the Russell 2000 was good doe 1.40%.
Earnings season is of course well underway and Bespoke Investment Group reports that current beat rate on the bottom line is running at 64% thus far which would be the second best quarter in the current decade, only Q2 2016 was better at this point.
Fourth quarter GDP printed on Friday at a lower than expected 1.9% (estimates were looking for 2.2%), down considerably from Q3’s 3.5%. Growth in the 2% range won’t excite too many people but is much better than the deflationary threat that existed a few years ago in the US but still persists in Japan. Its core CPI reported at -0.2% which was the tenth negative monthly print in a row. The JGB yield actually moved up slightly on the news to 0.08%. The dollar also strengthened slightly against the yen, moving to 115. Despite the small lift against the yen the dollar index, which is tracked on many websites as DXY, was down by the slightest of margins during the week perhaps due to the more than 1% gain that the Canadian dollar had against the greenback as well as a small gain for the Australian dollar (both the loonie and the Aussie have small weightings in the DXY Index).
The yield on the Ten-Year US Treasury Note went on a bit of a ride last week heading down to 2.40%, got as high as 2.55% on Thursday before rolling over slightly on the GDP data to close at 2.48%. Bespoke also noted that spreads between high yield debt and treasuries is narrowing toward 4% which expresses a willingness for investors to take risk for yield. When spreads get too narrow it can be interpreted as high yield being overvalued and likely to fall but of course spreads can widen out if treasury yields begin to head lower.
In the UK, GDP printed at 0.6% for the third quarter in a row and while that might not seem so hot, it was ahead of expectations and for now, Brexit continues to not be a deathblow for the UK economy. Not surprisingly, the UK gilt yield moved up to 1.47%. The German bund moved up to 0.46%, remember it went negative shortly after the Brexit vote, and the Swiss ten-year charges six basis points.
Gold took a small tumble of about 2% going below $1200 despite dollar weakness, perhaps in part because of the somewhat dovish economic data. West Texas Intermediate Crude traded in a narrow range, giving up a few cents to $53.20.
Bloomberg says Forget The Vintage Porsche, Everyone Wants An El Camino;
The Hagerty Group, which underwrites much of this vintage metal, said the 40- to 60-year old American models are now the most likely to sell “above condition-appropriate prices.” Translation: Why on Earth would anyone spend six figures on a Pontiac that smells like their father’s mustache oil? When it comes to buyers, though, that shade is falling on ears deafened by eight cylinders. The V-8, common back in the day, is a big part of the draw and perhaps helped by cheap gas prices. Meanwhile, smaller, lighter, more delicate machines hand-tuned in Germany and Italy sputtered on the auction block. Even Porsche, the paragon of a pure driver’s brand, has gone a little soft.
The Wall Street Journal says The Patriots Improved Their Defense By Trading Their Best Player;
As a star approaching some contract turbulence, (linebacker Jamie) Collins fit the operating model at Patriot Place: get something in return for a player that the team isn’t planning to extend. He was in the final year of his rookie contract and reportedly seeking a lucrative extension, something that the Patriots were unwilling to give him given the team’s salary-cap constraints. This week, the Browns gave Collins a 4-year, $50 million extension, with $26 million guaranteed.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, ESPN
As for the sectors of the S&P 500, five outperformed the broad benchmark – Materials, Technology, Financials, Industrials, and Discretionary. The remaining six – Healthcare, Staples, Utilities, Energy, Real Estate, and Telecom – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 5.18% for the week ending 1/27/17, with Materials outperforming all, and Telecom coming in last.
For January 23rd, 2016 to January 27th, 2016
As measured by the S&P 500 sector indices, respective performances were: