AdvisorShares Weekly Market Review – Week Ending 7/22/2016
Highlights of the Prior Week
Surprised That There Were No Surprises
The Republican National Convention came and went with no surprises. While there was talk, or idle speculation, of an attempted “coup” no such thing materialized. The presumptive nominee going in is now the nominee. In this report we don’t wade in with political opinion, we are simply stating that there were no surprises and the markets were flat with an upside bias because of it…maybe, explanation fallacy would say it is futile to attribute movement to specific events or, as the case may be, non-events. Stay tuned for the Democratic version this week.
Rounding up the domestic equity markets, the Dow Jones Industrial Average added 28 basis points, the S&P 500 the Russell 2000 were both up the same 0.60% and the NASDAQ gained 1.37% thanks to strong earnings reports from a few large cap tech stocks. We would make note of the VIX Index which spent much of Wednesday and some time on Thursday below twelve which is very low by historical standards. Although it is still early in the earnings season and year over year earnings are declining, Bespoke Investment Group reports that 71% of companies reporting so far are beating earnings and revenue estimates and that if this rate holds, it would be the strongest quarter by this measure since 2006.
The long road to Brexit probably started last week? Germany et al wants the UK to get on with it, Francois Hollande tried to start setting terms for the UK. For now, we know that Theresa May has replaced David Cameron and that May has said that Article 50 will not be signed this year which makes the earliest possible separation in early 2019.
Foreign equity markets were similarly flat like the US. The DAX gained 0.80%, the CAC 40 inched ahead nine basis points and the FTSE 100 was up 0.88%. In Asia, the Shanghai Composite fell 1.36% while the Hang Seng rallied 1.41%, the Nikkei moved ahead 23 basis points and the ASX 200 jumped 1.26%.
A quick update on Turkey after the coup attempt on July 15th; President Erdogan has implemented a three-month state of emergency which depending on one’s viewpoint will allow him to stabilize the political situation or grab more power. Equities in Turkey declined 12% for the week while the lira fell about 2%. Turkey’s sovereign debt has been downgraded by S&P to BB, a junk status. Barron’s reports that its ten-year bond now yields 4.6% which seems a little low being about a week removed from a failed coup. The latest news Monday is Erdogan’s orders to close various private schools and charities. This is clearly still a fluid situation.
The yield on the Ten Year US Treasury Note declined slightly to 1.57%. There was mixed movement internationally as the German bund declined to 0.03%, the French OAT fell to 0.21% and the UK gilt now pays 0.79%. The Swiss ten-year now charges 0.50% and the JGB closed the week at -0.22%, same as last Friday.
West Texas Intermediate Crude declined 5% as inventories hit all-time highs. The slight rise in the equity market was met with a small decline in gold. Where there was talk of gold priced in USD going to $1400 in late June, that sentiment has subsided as stocks shrug off the Brexit panic.
ETF.com reports a decline in new fund listings versus last year. Through July 21st this year there had been 133 new funds versus 152 at the same point in 2015.
In a related note, there was just one new fund last week that focuses, very narrowly, on 3D printers. One important point of understanding for funds that do target such small niches is that often there is not enough room for all 15 or 20 or 25 companies in a narrow ETF to succeed. Often these funds own companies that compete against each other and some of the companies will lose or otherwise struggle. Regardless of whether 3D printers fall into that description some narrow funds do.
Mohamed El-Erian wrote of Unburdening The Facebook Generation for Project Syndicate. While there is of course an economic slant to the article it is also interesting for its comments on inter-generational dynamics;
In the run-up to the 2008 global financial crisis, we feasted on leverage, feeling increasingly entitled to use credit to live beyond our means and to assume too much speculative financial risk. We stopped investing in genuine engines of growth, letting our infrastructure decay, our education system lag, and our worker training and retooling programs erode.
Here’s an odd one from Saturday night when White Sox Send Chris Sale Home For ‘Clubhouse Incident.’ USA Today tells us more;
There is one source that reported Sale was upset about wearing a throwback uniform, so he ripped it so no one could wear it.
AdvisorShares investigated the Tigers/White Sox game in question Saturday night and the Sox were wearing 1982 vintage uniforms instead of the planned 1976 vintage uniforms. The ‘82 team featured Carlton Fisk and Harold Baines and was managed by Tony LaRussa.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, USA Today, Project Syndicate, Chicago White Sox, ESPN
As for the sectors of the S&P 500, five outperformed the broad benchmark – Technology, Utilities, Healthcare, Discretionary, and Financials. The remaining five – Telecom, Materials, Staples, Industrials, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.30% the week ending 7/22/16, with Technology outperforming all, and Energy coming in last.
For July 18th, 2016 to July 22nd, 2016
As measured by the S&P 500 sector indices, respective performances were: