AdvisorShares Weekly Market Review – Week Ending 1/6/2017
Highlights of the Prior Week
Dow 20,000! Not Yet!
The last big data point of the Obama Administration and first big data point of 2017 was the Non-Farm Jobs report which printed on Friday and generally showed many of the same trends that have been in place for the last few months. There were 156,000 new jobs created in December while revisions to the previous two months were mixed. The headline unemployment rate inched up to 4.7% while the broader U6 unemployment rate held steady at 9.3% as did the labor force participation rate which was unchanged at 62.7%. There were signs of the good kind of inflation as wages got a 0.4% bump. One disappointing item from the report was the year over year decline in new jobs in 2016 versus 2015; 2.2 million compared to 2.7 million. By itself, that decrease could indicate the economic cycle is growing weary but that notion is contradicted the recent relative strength in GDP and the above mentioned wage inflation.
While the Dow Jones Industrial Average borders on useless, it has been a fun few weeks watching it flirt with its next big figure; 20,000. It got oh so close at 19,999.63 on Friday despite an otherwise strong week for domestic equities. The Dow gained 1.02%, the S&P 500 added 1.70%, the NASDAQ was the big winner with 2.56% and the Russell 2000 brought up the rear as it tailed off at the end of the week for 0.75% lift.
It has been a while since we last checked in on the Mexican peso. The dollar has continued to work its way higher against the peso. There was a huge jump in USDMXN (dollar up against the peso) immediately after the election which leveled off for a time before jumping more than 2% last week in the face of several corporate announcements of bringing jobs back from Mexico or not sending them there in the first place. Currency volatility has ramped up in recent months in a way markets have not seen in quite some time. This has the potential to impact other markets as we saw with struggling US multinationals’ earnings reports in 2016 and it also creates a headwind for US investors looking for foreign equity exposure as they are also buying the currency when they buy the foreign stocks.
West Texas Intermediate Crude had a bit of wild ride last week, going straight down on Tuesday over anxiety about the production cuts but trended higher the rest of the week to close above $54. A consensus has built for crude oil to trade in the $50’s and $60’s this year. While it is a good bet that such a consensus will turn out to be wrong, if it is wrong for being too low then it could lead to a large jump in S&P 500 earnings which of course were weakened by the crash in the price of crude.
The yield on the Ten-Year US Treasury Note continued to work its way lower to start 2017. After rocketing higher in the fourth quarter (actually the bounce started shortly after the Brexit vote) it has been trending lower for three weeks and closed Friday at 2.41%. This might just be a reversion to the mean in attempt to consolidate the huge spike from November into mid-December. The German bund yield moved up on the week to 0.29%, the French OAT rallied to 0.83%, the UK gilt traded inline up to 1.38%, the JGB pays 0.05% and the Swiss ten-year charges nine basis points.
Some highlights from State Street’s Year End ETF Report:
- Fixed income ETFs amassed over $90 billion in assets in 2016, nearly doubling 2015 totals of $58 billion. Bond based funds surpassed the 2015 record in August, and added an additional $30 billion to close out the year.
- US focused ETFs had accumulated a meager $6.5 billion in assets through the first six months of the year. In the last six months of the year, they attracted over $160 billion—a record amount and nearly $100 billion more than amassed in 2015.
- High yield ETFs now stand at a record in terms of assets under management with nearly $46 billion.
From the it never ends department, MarketWatch reported that Twitter Suspends Martin Shkreli Over Harassment Of Journalist:
In recent days, Shkreli launched a trolling campaign against freelance reporter Lauren Duca, saying he has “a crush” on her. Among other things, Shkreli asked her to be his date to Donald Trump’s presidential inauguration, digitally manipulated an image of Duca and her husband so she appears to be snuggling on a couch with Shkreli, and posted a collage of images of her. Some of Shkreli’s 192,000 Twitter followers joined the photo-posting fray against Duca.
Bloomberg reports that College Football’s Top Teams Are Built On Crippling Debt:
For some schools, millions in TV money can support a high level of debt service. That includes the University of Alabama, which plays Clemson for the national championship on Monday. The Crimson Tide owes $225 million over the next 28 years. In the Big Ten, also flush from a rich media deal, the University of Illinois owes more than $260 million. If that revenue stream fails to grow or starts to drop, as it already has for some programs in the top tier of college football, the results could be crippling.
As for the sectors of the S&P 500, five outperformed the broad benchmark – Healthcare, Technology, Discretionary, Real Estate, and Industrials. The remaining six – Financials, Staples, Energy, Utilities, Telecom, and Materials – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.17% for the week ending 1/6/17, with Healthcare outperforming all, and Materials coming in last.
For January 3rd, 2016 to January 6th, 2016
As measured by the S&P 500 sector indices, respective performances were: