AdvisorShares Weekly Market Review – Week Ending 4/21/2017
Highlights of the Prior Week
Don’t Fall For The Fallacy Of Explanation
If you’ve read anything from Nassim Taleb you may recall his comments on the fallacy of explanations. We all like to have things, especially bad things, be explainable, it makes us feel better. This relates to capital markets because market followers offer explanations for every movement the market makes when in reality there is often no explanation, the market did what it did (good or bad) for no reason at all. No explanation likely pertains to last week which saw gains across the board for domestic equities with the Dow gaining 0.48%, the S&P 500 adding 0.86%, the NASDAQ moved ahead by 1.82% and encouragingly, the Russell 2000 jumped 2.58%. Bespoke Investment Group in their weekly report was at something of a loss to explain the strength from last week posited “diminishing tension with North Korea, positive comments out of Washington about Health Care or Tax Reform, to positive earnings reports, etc.” They also talked about favorable seasonality after tax day.
We are fascinated by various spread relationships that serve as risk proxies. Long time market participants may recall the TED spread, also in years past AUDCHF, Australian dollar versus the Swiss franc, was just such a measure where, put in today’s terms AUDCHF moving up was viewed as the equivalent of risk on and if the cross moved down it was risk off. YTD AUDCHF is up almost 2.5% but it is down about 3.5% since late February. Dennis Gartman has talked lately about EURCHF playing a similar role but lately the market broadly has been following the yield spread between the French OAT and the German bund. As the spread gets wider it is thought that political uncertainty in the European Union is increasing while a narrowing spread is a sign of decreased political uncertainty. At the close Friday, going into the French election, the spread was at 69 basis points. It had been as high as 85 basis points in February. For some context, this spread has spent most of the last year in the 30-40 basis point range.
Paul Tudor Jones caused a buzz this week with a warning that current valuations should “terrify” Fed Chair Janet Yellen. Jones’ basic thesis is that stock market equity to GDP ratio is as high today as it was in 2000 (we’ll take his word for it). Bloomberg’s coverage of this story quotes several other well known money managers who are also concerned including Seth Klarman who cites insider selling and margin debt levels as reasons to think some sort of significant decline is coming. Of course a large decline is coming, it is the nature of stock market cycles that bull markets end with a large decline that scares a lot of people for somehow “being different” than all previous large declines and then a new bull market begins. There will be a few people who get the timing of the next large decline exactly right so those few people could be the ones quoted by Bloomberg. Or not, there’s no way to know. If you’ve heard that this has been the most hated bull market of all time then you know that people have been predicting it would end all the way up. This is the sort of thing that causes investors to abandon their discipline because “gheez, if Paul Tudor Jones is scared, I should be too.” The best thing any investor can do is stick to whatever process they chose as being best for them when there was no emotion at stake.
Following up on the French election that we have been monitoring here, the worst (for those who want the European Union to remain in tact) was avoided. Emmanuel Macron won the popular vote but was nowhere close to the needed 50%. This sets up a runoff on May 7th against Marine Le Pen who finished in second place. The worst outcome for those favoring the union would have been Le Pen from the far right against Jean Luc Melenchon from the far left in the run off because both want to pull out of the EU. It is believed that Le Pen cannot create the coalition needed to win on May 7th but these sorts of events have of course become far more unpredictable over the last year or so.
Do you remember the movie Being John Malkovich, the one where John Cusack and his girlfriend go into Malkovich’s brain? Then along the way John Malkovich goes into his own brain? Yeah, it was a weird movie but it was funny too. The ETF business may be having its own Being John Malkovich-moment with the launch on April 20th of the ETF Industry Exposure & Financial Services ETF which is being sponsored by Toroso Investments and trades with symbol TETF.
It owns a good mix of companies including the parent companies of iShares and SPDRs but not Vanguard of course which is not publicly traded. It also owns a couple of publicly traded exchanges where ETFs trade, companies that make markets in ETFs, discount brokerages that offer their own ETFs, companies long known for traditional mutual funds but who are also getting into the ETF business as well as a couple of mega cap banks with tiny (for now?) ETF businesses and an index provider.
The bank exposure is big enough that the fund may not end up being immune from interest rate risk but that remains to be seen.
Considering the average ADULT male isn’t supposed to be eating more than 36 grams of sugar in an entire day (and only 25 grams if you’re a woman) – just one of these drinks is going to put you WAY over the edge – making it even worse for kids.
A bunch of pro football teams will need to make new travel arrangements as American Tells Six NFL Teams To Take Their Business Elsewhere;
In fact, my guess would be that American didn’t just outright discontinue their charter service to these teams. More likely they tried to raise the price and a few NFL teams decided they could get service elsewhere. I mean, for the right price, I imagine American could have magically found enough aircraft. And how often do you just fire six major customers?
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Onemileatatime.com, Starbucks, The Food Babe, Global Macro Monitor
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark – Industrials, Discretionary, Technology, Materials, and Financials. The remaining six – Real Estate, Staples, Utilities, Healthcare, Telecom, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.18% for the week ending 4/21/17, with Industrials outperforming all, and Energy coming in last.
For April 17th, 2017 to April 21st, 2017
As measured by the S&P 500 sector indices, respective performances were: