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Posted by on Dec 12, 2016 in ETF Strategist, Market Insight

AdvisorShares Weekly Market Review – Week Ending 12/9/2016

AdvisorShares Weekly Market Review – Week Ending 12/9/2016

Highlights of the Prior Week

2016: Not Going Out Quietly

Macro

Equity markets continued to march higher last week prolonging the so called Trump rally. This has been a wild year on many fronts (David Bowie passed away and the Cubs won the World Series) and it appears to not be ending quietly in the stock market. The Dow Jones Industrial Average gained 3.06%, the S&P 500 rallied 3.08%, the NASDAQ added 3.58% and the Russell 2000 had a so-so year for the week as it went up 5.61%. If you’re curious, that makes 16% for small caps since the election which about triples the gain for the S&P.

The other big post election trend that continued last week was for interest rates to move higher. Although surging yields may have subsided for now the march to “normal” continues as the Ten Year US Treasury Note closed at 2.46% on Friday. The German bund moved up to 0.36%, the French OAT tacked on 10 basis points to 0.81%, the UK gilt now yields 1.45%, JGBs pays six basis points and the Swiss ten year is threatening to go positive for the first time since January 2015, closing out the week at -0.06%.

Speaking of continuing, post election trends, Barron’s Streetwise Column weighed in on the run up in bank stocks, the idea being that higher rates and a steeper yield curve should make lending more profitable. Barron’s was skeptical; “But make no mistake: Gravity will reassert itself. Right now, financials are “held up by air.” It also noted the extent to which betas for banks have gone up to 1.4 which it says would magnify the impact of a decline/correction/reversion to the mean.

Of course, the FOMC is scheduled to meet this week and it would truly shock markets if they decided to stand pat. To the extent interest rate normalization is part of the story moving rates higher, the expected Fed action this week should already be priced into the bond market. In Europe, Mario Draghi caught markets off guard by announcing that asset purchases would continue through the end of 2017 which is longer than expected but is trimming back the monthly value of those purchases by €20 billion per month to €60 billion per month. The reduction could actually make it easier to execute QE as finding €80 billion worth of paper to buy every month has not been easy to do.

Many are attributing the push higher in rates in the US to a more inflationary environment with more pro-growth policies believed to be on the way. If that is the case though, it would appear that gold did not get the memo. It was down 1.5% last week and in the month since the election the larger ETFs that track gold are down just over 9%. All the more surprising given the large run-up in the price of West Texas Intermediate Crude. While crude tends to be influenced by its own set of drivers and isn’t necessarily a proxy for inflation, a higher oil price will move the needle for CPI and other measures of price inflation.

The political saga in South Korea continued last week as the vote to impeach president Park Geun-hye passed. It could take as long as six months to remove her from office and while a lot can happen in that time, Barron’s put a positive spin on this, noting that her replacement is like to take a more pro-growth stance which could be a net benefit for the equity market.

Finally, recapping foreign equity markets, they kept up with the US last week. The DAX gained 6.57%, the CAC 40 jumped 5.17% and the FTSE 100 was up 3.32%. In Asia, South Korea added 2.74% despite the political news, the Nikkei 225 was good for 3.17% while the Hang Seng chipped in with 75 basis points. The Shanghai Composite was the lone hold out, dropping 0.32%.  

Interesting Reads

Here’s a strange one: Tourist Denied Entry To Kazakhstan Because New Zealand Isn’t A Country;

Phillips-Harris was taken to a tiny interrogation room where there was a large map of the world stuck up on the wall, one that did not include New Zealand, meaning she couldn’t point out where she was from.

Sports

With the recent trade for former White Sox starter Chris Sale, some are starting to refer to the Boston Red Sox as the new Evil Empire, a Star Wars reference long used to refer to the New York Yankees. In addition to the Sale trade, Pablo Sandoval (Kung Fu Panda) has gotten into fantastic shape after he Got Complacent With Big Red Sox Deal. ESPN tells the story;

“My career had fallen into an abyss because I was so complacent with things that I had already accomplished,” Sandoval said by phone in his first public comments since August. “I did not work hard in order to achieve more and to remain at the level of the player that I am and that I can be.”

Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, ESPN, BoardingArea.com
 
2016-12-12_table1
 
S&P Sector Analysis

As for the sectors of the S&P 500, five outperformed the broad benchmark –Financials, Technology, Telecom, Real Estate, and Discretionary. The remaining six – Materials, Staples, Utilities, Energy, Industrials, and Healthcare – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.20% for the week ending 12/9/16, with Financials outperforming all, and Healthcare coming in last.

For December 5th, 2016 to December 9th, 2016

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

2016-12-12_table3

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.

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