AdvisorShares Weekly Market Review – Week Ending 6/20/2014
Highlights of the Prior Week
Last week we noted that markets have become more complex of late due primarily to geopolitical events in Iraq and while the Iraqi story appears to still be escalating it did not prevent domestic equities from putting in an even larger gain for the five days ending June 20th; up 1.38% versus 68 basis points the week before.
Most of that 1.38% gain came on Wednesday as Fed Chair Yellen’s press conference was generally received at dovish by markets. The highlights from the presser included reduced asset purchases, aka tapering, will continue, recent inflation worries are noise and interest rates are going to stay low for a very long time.
Barron’s used the word ‘experiment’ to describe the unprecedented and ongoing policy to buy assets and keep rates close to zero for what has been many years now. There has been plenty of commentary over the years explaining why this is not right and while refuting that argument is intellectually difficult the fact remains that domestic equity markets have continued to work higher and interest rates have not rocketed higher.
The VIX, the CBOE Volatility Index, started the week above 12 (relatively high for the last couple of weeks, shockingly low for the history of the index) but went back below 11 on the Yellen reassurance.
The US Ten Year Treasury Note continued to trade very close to 2.6% as it has for the last couple of weeks.
Foreign markets also mostly moved higher. In Europe the DAX in Germany added 75 basis points, the FTSE 100 was up 70 basis points while the CAC 40 lost four basis points. Asia was more of a mixed bag; the Nikkei was up 1.67% but the Shanghai Composite was down 2.13%. The Hang Seng and ASX 200 were both up modestly.
After a rough start to 2014 (continuing a rough 2013), emerging markets as measured by the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM) are up 14% since bottoming in early February compared to just under 10% for the S&P 500 in that same time period.
Emerging markets may have embarked on a longer term run of outperformance like in the previous decade or not but if not now then at some point they will and depending on the circumstance could be a difference maker for portfolio performance as was the case in the previous decade which is an argument for maintaining diversification across the various market segments even when one rotates out of favor.
ETF News & Data
Summer doldrums may have hit the ETF market as XTF.com reports that there were no new funds launched last week.
The top of the inflow/outflow boards from last week could be described as risk on/risk off. The SPDR S&P 500 (NYSEARCA:SPY) led the way with $3.8 billion in creations followed by the iShares Core S&P Mid-Cap (NYSEARCA: IJH) at $1.8 billion. Redemptions were lead by $3.3 billion leaving the iShares 7-10 Year Treasury Bond (NYSEARCA:IEF)and $1.2 billion coming out of the ProShares Ultra 7-10 Year Treasury (NYSEARCA:UST).
The New York Times had an interesting writeup on the “boomerang kids” which refers to recent college graduates moving back in with their parents and staying for an extended time to try to figure out what comes next (this can refer to what comes next professionally or emotionally).
Part of the equation here is a more difficult job market combined with students graduating with far larger student loan burdens than past generations of graduates (this will not be news to anyone reading this update).
This apparent change though is likely deeper than the issues the Times explores. While kids still want independence do they take fewer steps to have independence? Do you know any high school or college aged kids old enough to drive but who have never obtained a driver’s license? Are kids more dependent on their parents financially for things like cell phones?
Productivity may take another hit this week as in addition to the World Cup continuing, the Wimbledon Championship starts on Monday.
ESPN will be covering both events with live Wimbledon coverage every day this week from 7am EDT-11:30am EDT on ESPN and then will also be shown on ESPN News and ESPN2 around the World Cup coverage.
The World Cup schedule is different than last week. Instead of three games a day, this week there will be four games a day Monday-Thursday with no games on Friday. There will be two games shown simultaneously twice per day. The first two games will be at 12PM on ESPN and ESPN2 and the second two games will be at 4pm on ESPN and ESPN2.
Oh, and the NBA draft is Thursday night.
Happy viewing from AdvisorShares!
Roger Nusbaum, AdvisorShares ETF StrategistSource:Google Finance, ETF.com, Barron’s, XTF.com, Wall Street Journal, NY Times
Weekly ETF Flows
For June 16, 2014 to June 20, 2014
Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark – Utilities, Energy, Healthcare, Staples, and Materials. The remaining five – Financials, Industrials, Discretionary, Telecom, and Technology – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.79% this week, with Utilities outperforming all, and Technology coming in last.
For June 16, 2014 to June 20, 2014
Sector performances, as measured by the S&P 500 sector indices were: