AdvisorShares Weekly Market Review – Week Ending 8/5/2016
Highlights of the Prior Week
Jobs Very Strong…Again!
For the second month in a row the non-farm jobs report was surprisingly strong as 255,000 jobs were reported for July following up on the slightly, upwardly revised 292,000 in June. The headline unemployment rate was steady at 4.9% but the broader U6 inched up to 9.7% due to an uptick in the labor force participation rate which reported at 62.8%. Also impressive was the 0.3% wage growth. One of the criticisms of the recovery/expansion has been the extent to which many Americans are earning less than their potential and while this is a valid criticism, persistently stronger wage growth would help to ameliorate this concern.
The jobs number seems at odds with the GDP report that came recently at 1.2%. The divergence is noteworthy even if the GDP number is a Q2 data point as it gives fuel to both the doves and the hawks on the FOMC.
In other central bank/fiscal policy news the Bank of England cut its overnight rate in half to 0.25% (the first cut in seven years according to Barron’s) along with a robust stimulus package and a whatever it takes pledge ahead of the earliest stages of the Brexit process. Japan announced another stimulus policy that will include “handouts” for low income Japanese as well as spending on infrastructure. The Reserve Bank of Australia cut its cash rate by 25 basis points to 1.50%. In this report we regularly track yields of ten year notes from several countries and there are some very low, but positive, yields as well some that are negative. Australia’s ten year currently yields 1.87%.
As for the bond market roundup; the Ten Year US Treasury note closed the week at 1.58% which includes a big jump on the jobs report. The German bund showed -0.06%, the French OAT at 0.15%, the JGB is at -0.9% and the UK gilt ticked down to 0.67%.
The Swiss ten-year was still deeply negative at -0.53%. It has been negative since January of 2015 when the Swiss National Bank unpegged the franc from the Euro. Recently in Barron’s, Jim Grant said “negative rates aren’t a naturally occurring phenomenon in finance but a creation of ingenious central bankers.” That statement coincides with sentiment that negative rates are an experiment of sorts. Since this “experiment” started the Swiss Market Index is down almost 10% and GDP has contracted in two out of six quarters. While negative rates haven’t been ruinous they also don’t appear to have the stimulative effect that was hoped for.
Domestic equities were salvaged by a strong Friday after the jobs data. The Dow Jones Industrial Average gained 0.57%, the S&P 500 tacked on 40 basis points, the NASDAQ gained 1.12% and the Russell 2000 moved ahead 0.91%. European markets were mixed with the DAX gaining 0.29% while the CAC 40 fell 0.77%. The FTSE 100 was cruising to a negative week before the Bank of England news mid-day Thursday contributing to a 1.03% lift. In Asia the Shanghai Composite fell one basis point, the Hang Seng was up 1.2% and the ASX 200 fell 1.16%. The Nikkei 225 was down 1.9% on the week as the above mentioned stimulus was smaller than hoped for.
Insurance companies made headlines this week as some of the larger names in the space took a hit on concerns about annuities. At issue is whether or not these products will become money losers for the insurance companies due to poor returns in the capital markets. If this is becoming an issue it is because of the interest rate environment. Just as it has become more challenging for advisors and individuals to find adequate yield, so too has it become more difficult for pools of capital like annuities and pensions to find adequate yield. While this may be important from an investing standpoint it is also important from a practice management standpoint. Many advisory clients do not realize the extent to which their annuities rely on the market returns.
Despite trending lower for most of the last month, West Texas Intermediate Crude had a very modest gain last week after breaching $40 mid-week. Gold finished the week down more than 1% after a steep drop on Friday following the jobs report.
Factset came out with numbers for July with highlights including iShares bringing in $20 billion and Wisdomtree having endured $10 billion in outflows thus far in 2016. Based on flows to various asset classes, Factset dubbed the month of July as being risk-on which is consistent with the strong gains across markets seen for the month.
The Stoxx Europe 50 Index will be dropping a couple of banks out of its constituency and replacing them with one tech stock and one industrial name later this year. This will impact a handful of ETFs.
Velonews reports on the Headaches, Politics & Compromise: How (The Tour Of) Utah Got Into Zion (National Park). The pictures are stunning;
Gaining access to Zion was not easy. It involved a painstaking three-year process wrought with political wrangling, financial compromises, and last-minute problems. In the end, the race was allowed to pass through a 12.1-mile section of road, which included the historic Zion-Mt. Carmel tunnel. The peloton was forbidden from attacking along the route, and instead proceeded in a neutral procession, per the request of the National Park Service (NPS). The race made other concessions along the way.
Fans of Major League Baseball might be interested in All 30 MLB Stadiums, Ranked from USA Today;
Petco Park is For The Win’s undisputed best ballpark in baseball. Really, it’s great. From the expansive views of the downtown San Diego skyline, to the vast local beer and food options, to the perfect weather, Petco Park is everything MLB teams should want for their ballparks. All that’s missing is a winning team, but we can’t blame the stadium. Petco Park rocks.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, Trading Economics, Velo News, USA Today
As for the sectors of the S&P 500, two outperformed the broad benchmark – Technology and Financials. The remaining eight –Industrials, Materials, Healthcare, Energy, Discretionary, Staples, Telecom, and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.38% the week ending 8/5/16, with Technology outperforming all, and Utilities coming in last.
For August 1st, 2016 to August 5th, 2016
As measured by the S&P 500 sector indices, respective performances were: