AdvisorShares Weekly Market Review – Week Ending 3/20/2015
The Fed Loses Patience and Highlights of the Prior Week
By Roger Nusbaum, AdvisorShares ETF Strategist
The Federal Reserve Bank apparently figured out how to remove the word “patient” from its guidance without triggering fear and anxiety in the capital markets. The Fed will be data dependent, which is not a new term, and also appeared to take hiking rates in June off the table. The immediate reaction on Wednesday was a huge rally in equities and bonds (yields went back below 2% on the Ten Year Note), a three cent gain for the euro against the dollar which is a huge move, gold also rallied and crude oil even got in on the party rising better than 3% that day.
Those trades mostly reversed direction on Thursday in varying degrees. Then on Friday they all again reversed direction, picking up on Wednesday’s post Fed reaction including another huge move up in the price of West Texas Intermediate Crude.
In last week’s Alpha Call Martin Pring mentioned that the US is importing deflation from most of Europe and Japan. This is evident in the dollar’s general strength against most currencies, economic data that is weaker than that of the US, other countries still in the early stages of quantitative easing versus the US which has ended its asset purchase program (although it will still use proceeds from matured holdings to buy more debt) and the fact that Spain, Portugal, Italy and Ireland have sovereign debt yields below yields available on US Treasury debt despite having inferior credit ratings.
All of this puts up a major obstacle to the Fed’s raising rates anytime soon. All of the above have contributed to the dollar’s strength but too much strength becomes a problem for the US economy for domestic companies selling abroad. Higher interest rates would be likely to lift the dollar even higher, exacerbating the problem for domestic multinational companies. Should the dollar continue higher it would put further pressure on earnings growth which could then impact GDP growth possibly fomenting the next recession.
Domestic equities were volatile but closed the week higher. The Dow Jones Industrial Average gained 2.14%, the S&P 500 added 2.68%, the NASDAQ led the way with a 3.16% lift and the Russell 2000 gained 2.75%.
All of the major foreign equity markets we follow in this report traded higher last week. The DAX was up 1.16%, the CAC 40 gained 1.74%, the FTSE 100 4.11%, the Nikkei 225 1.56%, the Hang Seng 2.38% and Australia was better by 2.81%. The Shanghai Composite went on a 7.26% tear on the heels of a Mario moment which refers to Mario Draghi saying the ECB would do whatever it takes, well China also has tools at its disposal to stimulate economic activity if needed.
The yield on the Ten Year US Treasury Note continued to decline last week, falling below 2% to 1.93%. Yields in Europe generally fell in step with US yields last week. The German bund now yields 18 bp down from 26 bp the week before. The French OAT now yields 44 bp and the Swiss ten year moved further into negative territory at -0.07%. Yields in some of the PIIGS actually moved up slightly; Spain yields 1.18%, Italy 1.20% and Portugal 1.63%.
West Texas Crude had a shockingly volatile week with moves greater than 3% on three out of the five days yet closed the week with a decline of just 64 basis points. As mentioned, gold caught a bid from the Fed news closing up 2.06% for the week. As for the dollar’s weakness, the euro gained 3.08% this week, the British pound gained 1.33% and the dollar fell 1.1% against the yen.
ETF News & Data
GlobalX launched two funds last week, expanding its suite of dividend oriented funds with one targeting emerging markets and the other focuses on REITs.
At the end of 2014 and into the New Year we closely followed $25 billion that flowed into the SPDR S&P 500 and then watched those assets flow right back out and discussed the possibility of window dressing. The first quarter is now winding down and the SPDR S&P 500 is again seeing very large inflows; $8 billion last week alone. We will again track this flow to see what conclusions we might be able to draw.
LinkedIn had an interesting article about How All 50 States Got Their Names.
Wyoming: Derived from the Delaware (Lenape) Indian word mecheweami-ing(“at/on the big plains”), which the tribe used to refer their home region in Pennsylvania (which was eventually named the Wyoming Valley [Wilkes-Barre represent!]). Other names considered for the new territory were Cheyenne, Shoshoni, Arapaho, Sioux, Platte, Big Horn, Yellowstone and Sweetwater, but Wyoming was chosen because it was already in common use by the territory’s settlers.
If it seemed like Thursday’s games in the NCAA Mens Basketball Tournament was one of the best round of 64 days ever you may be right and ESPN put together some numbers to support the idea including the fact that five games were decided by one point which coincidentally is how many games were decided by one point in the 2013 and 2014 tournaments combined.
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, Business Insider, ETF.com, XTF.com, Convergex,ESPN, LinkedIn
Weekly ETF Flows
For March 16, 2015 to March 20, 2015
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark – Telecom, Energy, Financials, Materials and Discretionary. The remaining five – Industrials, Technology, Staples, Healthcare and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 10.59% this week, with Telecom outperforming all, and Utilities coming in last.
For March 16, 2015 to March 20, 2015
As measured by the S&P 500 sector indices, respective performances were: