AdvisorShares Weekly Market Review – Week Ending 8/8/2014
Highlights of the Prior Week
Someone might look at last week’s 32 basis point gain for the S&P 500 and conclude it was a boring week but of course that was far from accurate. There were two days strong gains, two days of swift declines and one boring day. For their parts the Dow and NASDAQ we up 35 and 41 basis points respectively.
The bigger story may have been the yield on the Ten Year US Treasury Note closing the week at 2.41% getting as low as 2.37% early in the day on Friday. Last week’s economic data was generally positive but the bond market was more concerned Gaza, Iraq, Ukraine, Ebola and maybe even Shark Week.
The Equity and bond markets seem to be sending conflicting messages of what comes next. Treasury rates are on their way down and not just in the US as Barron’s noted “1.05% yields on benchmark 10-year German bunds, along with French counterparts at 1.44%, and Finland’s at 1.18%, are symptoms of a possible triple-dip recession on the Continent.” There has also been a risk off trade in the bond market as high yield has endured massive redemptions (see below).
For weeks we’ve been noting the relative underperformance of small cap equities versus large cap, YTD the Russell 2000 is down 2.77% versus a gain of 5.33% for the S&P 500, but last week was risk on for equities with the Russell 2000 rallying 1.48%.
Market participants tend to think that the bond market is “smarter” but it remains to be seen whether that stands up now.
The big market news to start the week was consolidation of the Kinder Morgan empire.
The big three European markets, UK, France and Germany, were all down more than 1% last week and continue to trade below their respective 200 day moving averages. Japan fared far worse with a 4.77% decline for the Nikkei.
Interestingly the Shanghai and Hong Kong markets have had huge rallies over the last month. After years of poor performance Shanghai is up 7.6% in the last month and Hong Kong is up 4.7%.
It is also worth mentioning the wild ride this year for the RTS Index in Russia which of course has been a geopolitical hotspot this year. It started 2014 with a 22% dive into March 3, followed by a 23% rally in May and most of June and the latest has been a 14% decline from the interim high on June 24th. As a retaliation to sanctions imposed upon Russia, Vladimir Putin has now imposed his own sanctions of food imports into Russia. It is difficult to see how less food will improve the situation.
ETF News & Data
Much was made of the huge outflows from high yield bond funds in the last week. According to Forbes $7.07 billion flowed out of all high yield funds for the week ending August 6th of which $1.28 billion came from ETFs. The SPDR S&P 500 saw its own massive outflow of $13.3 billion. For some context the largest outflows for a fund in a given week tends to be $1-$2 billion.
There has generally been a rotation out of high yield over the last few weeks but this week’s Barron’s made the case for buying the space based on valuations which the magazine notes have become more attractive in recent weeks.
A massive redemption from a single equity fund looks more like one very large participant reducing its exposure and moving to cash for now as there was no corresponding fund creations in another asset class.
The New York Times Magazine had a lengthy write up that considered whether now might be the time for the Libertarian Party, or movement as it was often referred to in the article, to make an impact on the Presidential Election Cycle. While AdvisorShares does not espouse any political opinions we do encourage learning about different ideologies and as the article noted “if we can have 20 different types of Pop-Tarts, maybe we can have more than two types of political identification” and can’t we all get behind more flavors of Pop-Tarts?
Are you a fan of Major League Baseball and always wondered how trades can occur after the trading deadline on July 31 every season? The MLB website has the answer here but basically the procedure for executing a trade merely changes after the deadline but a player traded after August 31 will not be eligible in the post-season.
Roger Nusbaum, AdvisorShares ETF StrategistSource:Google Finance, Yahoo Finance, Wall Street Journal, NY Times Magazine, MLB.com, Forbes, Barrons
Weekly ETF Flows
For August 4, 2014 to August 8, 2014
Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, six outperformed the broad benchmark –Discretionary, Materials, Staples, Energy, Industrials, and Financials. The remaining four – Utilities, Technology, Healthcare and Telecom – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.23% this week, with Discretionary outperforming all, and Telecom coming in last.
For August 4, 2014 to August 8, 2014
Sector performances, as measured by the S&P 500 sector indices were: