AdvisorShares Weekly Market Review – Week Ending 6/3/2016
Highlights of the Prior Week
Jobs Report: Whoops
The nonfarm jobs report printed on Friday and as you know it was disappointing to the point of being confusing. Only 38,000 jobs were created in May which was the lowest since September of 2010. The unemployment rate fell quite a bit, down to 4.7% while the broader U6 printed at 9.7%. Wages were ok, they rose 0.2%. The work force numbers were especially shocking as 458,000 left the work force causing the labor force participation rate to drop to 62.6%. If that wasn’t enough, the last two months were revised lower by 59,000 jobs.
Contributing to the confusion was that ADP reported 173,000 jobs for the month and while ADP isn’t exactly flawless it usually isn’t this far off. Of course many of the numbers are subject to revision and the headline number was likely distorted by about 35,000 or 40,000 by the Verizon strike (those workers should come back in the next report) but this leaves the FOMC in a bit of an awkward position. For months, in this report we have expressed uncertainty over how the FOMC would be able to hike into this environment. Clearly the rhetoric would have us believe a hike is coming soon but the report, if nothing else, makes this an even more interesting FOMC cycle.
For the week, domestic equities were flat although the Russell 2000 managed a 1.23% lift. The Dow Jones Industrial Average fell 0.35%, the S&P 500 added two basis points and the NASDAQ gained 0.19%. Foreign equity markets had bigger moves in both directions. The DAX fell 1.78%, the FTSE 100 rallied 0.82% and the CAC 40 declined 1.78%. Interestingly all three of those European markets fell midday Friday as the US jobs report was hitting. The Shanghai Composite gained 4.14%, the Hang Seng Index added 1.78%, the Nikkei 225 gave up 1.14% and the ASX 200 dipped 1.61%.
Not surprisingly, the jobs report caused treasury yields to be bid down significantly to close at 1.70% on the Friday, 15 basis points lower than where it went out the previous Friday. The German bund yield plummeted to six basis points, the French OAT fell to 0.41%, the Swiss ten year note is now at -0.41% and the JGB now resides at -0.09%. The UK gilt now yields 1.27% as polls now show a Brexit as more of a possibility than previously thought. Regarding the potential Brexit, Jim Bianco was quoted in Barron’s over the weekend as saying “if ‘leave’ wins, the markets are not priced for it.”
As might be expected, gold’s reaction to the jobs data was to rise 2.8% which was about the gain for the entire week. At $1246 (Friday at the close) it is still a long way from the $1300 level it flirted with earlier in the spring. West Texas Intermediate Crude fell 1.53% for the week. Dennis Gartman opined that the extreme volatility in crude from the start of the year is likely over and that short lived one to one correlation to equities is also likely over.
Swiss voters went to the polls on Sunday to decide on a basic income referendum whereby every adult would receive a 2500 Swiss franc monthly stipend (the exact amount was uncertain but that was the generally assumed amount). The vote was a resounding no, 78% but globally interest in this concept is gaining interest and there will likely be similar votes held elsewhere on this issue.
In recapping the month of May, FactSet tells us that there was only $2.1 billion of inflows for the month which brings the total YTD to $49 billion. It also notes that it was mostly risk off for the month as bond ETFs had positive flows while equity funds had negative flows.
There were five new funds launched last week. Franklin Templeton brought four smart beta funds to the market and State Street launched a bond ETF in collaboration with Dorsey Wright.
Chile Has So Much Solar Energy It’s Giving It Away For Free, so says Bloomberg;
The main culprit is the northern part of the country, in the Atacama desert. Chile’s increasing energy demand, pushed by booming mine production and economic growth, helped spur the development of 29 solar farms, with another 15 planned, on the country’s central power grid. Now the nation faces slowing demand for energy as copper production slows amid a global glut, and those power plants are oversupplying a region that lacks transmission lines to distribute the electricity elsewhere.
Most baseball fans know that Jackie Robinson’s number 42 has been retired from the game with Mariano Rivera the last player to wear the number. Some now feel that Roberto Clemente should also have his number retired. From Chowder & Champions;
Roberto Clemente undeniably deserves to have his jersey number universally retired. Clemente, the very first Latin or Caribbean player to be enshrined in baseball’s Hall of Fame, is a man who still represents the best that sport can offer to society. Clemente manned right-field for the Pittsburgh Pirates for 18 years and appeared in 12 All-Star games. He finished his career with exactly 3,000 hits, and is still the only player ever to record a walk-off inside-the-park home run.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, FactSet, BBC, Bespoke Investment Group, Chowder & Champions
For May 31st, 2016 to June 3rd, 2016
As for the sectors of the S&P 500, six outperformed the broad benchmark – Utilities, Healthcare, Staples, Materials, Telecom, and Industrials. The remaining four – Discretionary, Technology, Energy, and Financials – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.80% this week, with Utilities outperforming all, and Financials coming in last.
For May 31st, 2016 to June 3rd, 2016
As measured by the S&P 500 sector indices, respective performances were: