AdvisorShares Weekly Market Review – Week Ending 6/5/2015
Highlights of the Prior Week
Bond Market Bedlam
One interesting theme in global markets for 2015 has been the heightened volatility in just about every asset class except US equities. Many of the various fixes applied to the Great Recession, both past and current policies, were unprecedented which created visibility for unknown consequences and one those consequences could be extreme moves in currencies, yields, certain commodities and even the news. Whether connected or not there is no denying how volatile some of the asset classes and headlines have been this year.
This was on full display last week as equities had modest price moves while some markets experienced bedlam and the news was dramatic. The Dow Jones Industrial Average dropped 89 basis points, the S&P 500 fell 69 basis points, the NASDAQ was essentially flat and the Russell 2000 gained 1.15%.
Most of the foreign equity markets we regularly follow here had more pronounced moves, mostly to the downside with the exception of the Shanghai Composite which rallied 8.93% taking back the 5000 level for the first time since early 2008. The ASX 200 in Australia fell 4.9%, the FTSE 100 fell 2.57% while the German Dax declined 1.9% and the CAC 40 gave up 1.64%. The two flat markets were the Hang Seng and Nikkei 225 which dropped 58 basis points and 51 basis points respectively.
As for bond market bedlam, yields went up dramatically in the face of news highlighted below. The US Ten Year Treasury Note yield moved up 29 basis points to 2.40%. The German bund yield now stands at 84 basis points up 35 basis points from last week. The French OAT yield moved up to 1.16%, Swiss ten year paper is still quite low at 11 basis points and both Spain and Italy are well north of 2% at 2.22% and 2.24% respectively.
Perhaps contributing to action in the bond market might have been that the International Monetary Fund (IMF) took the unusual step of publicly suggesting that the US Federal Reserve should pushback any rate hikes into 2016 as opposed to the Fed’s stated intention of implementing a hike this year. The IMF noted a positive environment for job creation in the US but expressed concern over the drag caused in the first quarter by winter weather as well as the threat to exports caused by dollar strength through most of 2015 but we would note that the currencies have generally gained ground over the last two months.
Another factor might have been that Greece of course missed its €240 million payment to the IMF that was due last Friday. It now says it will bundle four payments all into one €1.6 billion payment on June 30th. This news was generally attributed as being the reason that European equities sold off on Friday. It was apparent all week that the payment would be missed.
Not to be left out; currencies were also volatile. The euro gained 1.20% against the dollar but in the middle of the week it had topped out with a 3% gain. The dollar was mostly flat against the yen until midday Friday when it jumped about 1% in the US session. The British pound was fairly subdued rising modestly against the greenback.
Did we mention it was a jobs Friday? The nonfarm jobs report showed 280,000 new jobs in May with the headline unemployment rate coming in at 5.5% and the broader U6 unemployment rate remained at 10.8%. Hourly earnings increased by 0.3%. The labor force participation rate was steady at 62.9%. This report seemed to reaffirm the Fed’s stated intention to raise rates later this year.
ETF News & Data
Inflows and outflows were somewhat schizophrenic last week. There were inflows into bond funds tracking the Barclays Aggregate Index but outflows from various Treasury ETFs. There were inflows into developed foreign equities but outflows from emerging market equities. There were large inflows into domestic small cap equities but outflows from domestic large cap equities.
It is very common for companies to implement policies for their employees regarding their use of social media. ISIS is likely to do something similar after one of its member posted a selfie while standing in front of a base and apparently he bragged about the capabilities they had. The post was found by the US military and the base was destroyed by airstrikes 22 hours later.
Air Force Gen. Hawk Carlisle said in recent remarks that airmen at Florida’s Hurlburt Field were scouring open-source online feeds when they found a photo of “some moron standing at this command” and “bragging about the command and control capabilities” of the group. He declined to provide further details about the site’s location, but said that “about 22 hours later through that very building,” three Joint Direct Attack Munitions — guided bombs — demolished the base.
The Waltonian (as in Bill Walton) saga of Kyrie Irving continued as the young point guard fractured his left kneecap in overtime of Cavaliers’ game one loss to Golden State in the NBA Finals. As ESPN reports Kyrie Irving Of Cleveland Cavaliers Fractures Kneecap, Will Have Season Ending Surgery.
Irving did not speak to reporters Friday before having his left knee evaluated. Cavaliers coach David Blatt said he was informed that Irving was still on crutches when the star guard left the hotel Friday morning. Irving played well in the opener, scoring 23 points with seven rebounds, six assists, four steals and two blocked shots. His block on Stephen Curry late in the fourth quarter helped the Cavs push the game to overtime.
On a lighter note, the Athletics Call Up Switch-Pitcher Pat Venditte from Triple A.
For the first time since a single inning in 1995, and only the second time in the modern era of baseball, a major-league pitcher will throw with both arms. The Oakland Athletics reportedly recalled switch-pitching reliever Pat Venditte from Triple-A on Friday. His eventual major-league debut will be worth watching and come with much fanfare. But this isn’t a Bill Veeck-style promotional stunt. Pitching with both the right and left arms may be a novelty, but for Venditte it’s no gimmick. He’s the real deal and worthy of the big-league promotion.
Venditte has custom glove with two thumbs to easily switch pitching hands. He pitched both Friday night and Sunday afternoon against the Red Sox and was effective in both appearances despite the A’s losing both games.
For June 1st, 2015 to June 5th, 2015
As for the sectors of the S&P 500, three outperformed the broad benchmark – Financials, Discretionary, and Industrials. The remaining seven – Healthcare, Technology, Energy, Materials, Telecom, Staples, and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.90% this week, with Financials outperforming all, and Utilities coming in last.
For June 1st, 2015 to June 5th, 2015
As measured by the S&P 500 sector indices, respective performances were: