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Posted by on Jul 5, 2016 in ETF Strategist, Market Insight

AdvisorShares Weekly Market Review – Week Ending 7/1/2016

AdvisorShares Weekly Market Review – Week Ending 7/1/2016

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Highlights of the Prior Week

Markets Brecover?

Macro

Brexit of course continued to be the dominant story in markets last week after the results first were known and reflected in June 24th trading. In last week’s update we noted the following;

In trying to put context around Friday, the initial reaction was a fast, semi-panicked decline. The nature of fast declines is that they often snap back quickly. A fast recovery, should it happen, won’t be a surprise but would do nothing to solve the fundamentally uncertainties.

That is of course exactly what happened, again that is the nature of fast declines, there is still great uncertainty but perhaps the market panic is over and price discovery will focus on what the fundamental impact will be. Make no mistake, the impact could be negative and lead to lower prices but hopefully the actual panic has concluded.

In midst of the Brexit reaction, the second quarter ended with some pretty rough numbers for international markets for the quarter and year to date but not too bad at home. While the Nikkei 225 was falling 7.72% for the quarter (down 18% YTD) and the Shanghai Composite fell 2.37% (17.22% decline for the year) the Dow Jones Industrial Average and the S&P 500 are each up low single digits for the quarter and YTD.

For the week, the domestic equity markets rallied 3%. European markets had larger bounces last week because they had larger declines the week before. The FTSE 100 jumped 7%, the CAC 40 added 4% but the DAX could only muster a 2.29% gain. Last week we noted the 12% decline for the IBEX in Spain as part of the Brexit fallout. It managed to take back half the decline with a 6% lift.

In Europe the DAX and the CAC 40 were each down 4% for the quarter and YTD they are down 10% and 8% respectively. It might come as a surprise that the FTSE 100 was actually up 4.44% for the quarter and up just under 4% for the year despite the Brexit induced volatility. The ASX 200 was also up 4% for the quarter, perhaps thanks in part to the 8% rally in gold for the second quarter.

West Texas Intermediate Crude rallied 4% for the week, closing at $49.28.

The yield on the Ten Year US Treasury Note traded all over the place only to have a modest decline of two basis points to 1.45%. The yield for the German bund fell quite a bit further into negative territory at -0.12%, the French OAT fell dramatically to 0.15%, the Swiss ten year fell as well and now charges 0.58% and the JGB fell to -0.25%. The UK gilt yield took another huge drop down to yield 0.86%.

Part of the declines in yield can be attributed to talk from Mark Carney (head of the BOE) that rate cuts could be in the offing. When central banks first embarked on rate cuts and asset purchases so many years ago now the expectation was that growth would be stimulated and economic activity promoted and facilitated. While there has been growth it has generally lagged behind that of previous recovery/expansionary periods.

So here the markets sit with negative yields in many places in hope of, again stimulating growth but it is arguably having a deflationary impact (other than in the equity markets). There is no playbook for how to recover out of the sinkhole of negative interest rates and based on the most recent action in global bond markets, no one should be surprised if more investment destinations confront negative rates whether as a matter of central bank policy or market dynamics. Barron’s reported that only 6% of sovereign debt outstanding trades with a yield above 2%.

In case you missed it, Puerto Rico defaulted on $779 million worth of general obligation bonds about ten minutes (well it seemed like just ten minutes) after President Obama signed a “rescue bill” for the island intended to give it breathing room to work out some sort of compromise. Puerto Rican bonds have historically been popular holdings in municipal bond funds for their triple tax free status and relatively attractive yields. The Wall Street Journal reported that GO’s were trading about 67 cents on the dollar on Friday perhaps implying all may not be lost but any investors, or funds, holding that paper may need to be patient to see any recovery. Again, there is no playbook for this.  

ETF News

FactSet published its scorecard for the 2016 halfway mark. Highlights include a 28% increase in AUM year to date for alternatives, a 21% gain for commodity funds and 18% for inverse funds. Categories with losses were muted, the 4% contraction for asset allocation funds saw the largest decline. The numbers are interesting in that they show a search for diversification away from equities and fixed income.

XTF reports eight new funds listing last week including two specialized tech sector ETFs from State Street and two ESG funds from iShares that track foreign equities.

Interesting Reads

Here’s an interesting, long read about The Triumph And Tragedy Of In-N-Out’s First Family from KCET;

As Guy’s addictions deepened, he would often hole up in his old motor home trailer, which was parked inside a seldom-used In-N-Out warehouse in Baldwin Park. Day to day operations were handled by Esther and her “boys,” and the company’s expansion continued unabated. By 1997, In-N-Out boasted 124 locations. In 1999, Guy Snyder died of an accidental drug overdose. At 79, Esther Snyder had lost both of her children, and had a growing empire to run and one grandchild on which to place the burden of the In-N-Out legacy.

Sports

Philadelphia 76er’s fans have had years of frustration with finishing last in the standings and draft lottery picks who don’t play that much if at all. ESPN reports on the man behind this misery with The Man Who Just Can’t Win: Sam Hinkie (Finally) Speaks;

The league has never hidden its distaste for tanking, and sources around the NBA say Silver grew more irritated after the Sixers lost their first 18 games last fall and Okafor was involved in multiple off-court incidents. Ultimately, those sources say, it is likely that a combination of all those factors led to Jerry Colangelo’s hiring. The 76ers are hardly the first team to build through the draft; The Process was once known as The OKC Thing. But the Sixers’ plan to openly exploit the lottery system by amassing high picks threatened to expose the draft’s flaws and make the NBA look ridiculous.

While Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, KCET.org, ESPN
 
2016.07.05_Table1
 
For June 27th, 2016 to July 1st, 2016

2016.07.05_Table2
 
S&P Sector Analysis

As for the sectors of the S&P 500, five outperformed the broad benchmark – Energy, Financials, Industrials, Healthcare, and Discretionary. The remaining five – Technology, Materials, Staples, Telecom, and Utilities  – each underperformed.  The dispersion between the top-performing and bottom-performing sectors was roughly 3.28% for the week ending 7/1/16, with Energy outperforming all, and Utilities coming in last.

For June 27th, 2016 to July 1st, 2016

As measured by the S&P 500 sector indices, respective performances were:

2016.07.05_Table3

 

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