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Posted by on Jul 11, 2016 in ETF Strategist, Market Insight

AdvisorShares Weekly Market Review – Week Ending 7/8/2016

AdvisorShares Weekly Market Review – Week Ending 7/8/2016

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Highlights of the Prior Week

Markets Take Back Pre-Brexit Levels

Macro

Domestic equities were on their way to a flat week before exploding higher on Friday after the June jobs report hit. The report was unquestionably strong. There were 287,000 jobs created, the workforce grew as the headline unemployment rate came in at 4.9%, the broader U6 printed 9.6% and the labor force participation rate was 62.7%. Wages weren’t so great with a 0.1% rise. The May jobs number was revised down to just 11,000 from the previous 38,000.

Equities took the news by rallying 1.5% on Friday. For the week the Dow Jones Industrial Average gained 1.08%, the S&P 500 was up 1.27%, the NASDAQ added 1.92% and the Russell 2000 chipped in with 1.74%. The S&P 500 closed Friday two points from its all-time closing high which was last set in May 2015. Going 13-14 months without a new high is not a positive indicator for market health so it will be interesting to see if a new high can be made and then held, all the more interesting with earnings season about to commence. Barron’s noted an expectation for S&P 500 earnings to contract by 5.1% versus Q2 2015.

Strong though the report may have been the bond market traded like it didn’t believe the number. Strong economic data should/could be a path to higher rates or at the very least not lower rates. Yet after closing at 1.45% on July 1st, the Ten Year US Treasury Note closed last week at 1.36% which is an all-time low and was two basis points lower than the day before that very strong jobs data.

Negative global rates notwithstanding, the shockingly low rates in the US should be a concern. They are at crisis levels (technically far below where they were during the crisis) but we don’t appear to have an actual crisis at the moment, more like threats of a couple of different type of crises. Either there will be a crisis or the bond market is wrong and this is what the “new normal” as dubbed by old PIMCO is like.

The negative yield parade continued last week. The German bund is down to -0.18%, the Swiss ten year closed Friday at -0.60% and the JGB charges 0.28%. In countries with positive yields, the UK gilt is down to 0.73% and the French OAT may not have a positive yield much longer is down to 0.10%. Italy, with its Baa2 rating, yields 1.19%.

Gold rallied close to 2% which is a little surprising given the gain for equities. While gold does tend to have a low correlation to domestic equities it is also is effectively a currency, not in the sense of buying groceries with a gold coin but in terms of market participants exchanging currencies to buy gold. The paragraph above talking about ever-sinking bond yields is a story about currency debasement and deflation, both of which can make gold look appealing.

Speaking of currencies, the British pound continued to work its way lower, falling four figures last week to 1.29 against the US dollar with most of the decline coming on Tuesday.

ETF News

ETF.com reports strong fund flows into gold and high yield bonds which could both be part of the same story of trying to avoid assets most vulnerable to the deflationary threat that is impacting certain market segments. Outflows were dominated by funds offering international equity exposure.

It was a very quiet week for new funds with just one ETF hitting the market.

Interesting Reads

There are certain bands/musicians that you might go years without hearing or thinking about but you actually know a lot of their songs including that At 77, Gordon Lightfoot Still On The Road, Singing His Enduring Songs;

So what Lightfoot does is tour, doing at least 70 shows a year. He’d just returned from an annual trip to the U.K., where he did 11 shows and was readying for one of his handful of U.S. swings, this one covering the middle of the country, including a stop at the Lied Center for Performing Arts Tuesday. His show, the 77-year-old Lightfoot said, is a good one, two hours plus of all the songs his fans want to hear and some lesser known nuggets from his extensive catalog, played with his four-piece band.

Sports

Kevin Durant’s recent signing with the Golden State Warriors has drawn a lot of attention including an equivalency that Larry Bird ‘couldn’t imagine’ joining Magic Johnson and Lakers from ESPN;

“I know back in the day, I couldn’t imagine going to the Lakers and playing with Magic Johnson. I’d rather try to beat him,” Bird said. “I could never imagine myself going and joining another team with great players, because I had great players and I was in a great situation.”

As a bonus, the MLB Network is airing a documentary called MLB Network Presents: The Bird which is about Mark “The Bird” Fidrych. The Detroit Free Press gives us a preview including an interesting connection to the Harbaugh brothers;

“One of my favorite things are the two Harbaugh brothers,” Cornblatt said. “Just talking to them and how much Fidrych meant to them, just the look in John Harbaugh’s eyes … it was very touching.”

Check your onscreen guide, it is on numerous times.

Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, Lincoln Star Journal, ESPN

2016.07.11_Table1

For July 5th, 2016 to July 8th, 2016

2016.07.11_Table2

S&P Sector Analysis

As for the sectors of the S&P 500, five outperformed the broad benchmark – Discretionary, Healthcare, Technology, Industrials, and Staples. The remaining five – Materials, Financials, Utilities, Telecom, and Energy  – each underperformed.  The dispersion between the top-performing and bottom-performing sectors was roughly 3.44% the week ending 7/8/16, with Discretionary outperforming all, and Energy coming in last.

For July 5th, 2016 to July 8th, 2016

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

 

2016.07.11_Table3

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