AdvisorShares Weekly Market Review
Highlights of the Prior week
For the week of August 12 – August 16
Despite the release of more positive indicators about the state of the economy, US stock market indices ended lower for the second week in a row. The first pieces of good news came on Tuesday, when the NFIB small business optimism index increased for July and retail sales numbers rose 0.2% for the same month. The S&P 500 experienced its biggest daily decline in two months on Thursday, but the selloff was actually caused by good US economic data. The Labor Department’s numbers for weekly jobless claims fell to 320,000 or the lowest level since October of 2007. However, investors are focused on interest rates and the Federal Reserve so this data caused investors to fear that the Fed would feel economic conditions are ripe for ending its large asset purchasing program. Another factor that may lead the Fed to consider tightening monetary policy is that core inflation rose to 1.7% (and the headline CPI rose 2.0%) for the 1 year period ending July 31st. While industrial production was flat in July and the manufacturing component actually fell 0.1%, the Empire State Manufacturing Survey reached a 16-month high as plans for capital expenditures rose 14.3%. Hopefully, this indicated that manufacturing activity will pick up later in the year. On Friday, housing starts data was released for July and the number of starts increased by 5.9% to an annualized rate of 890,000, after experiencing a 7.9% drop in June. Despite declining for two consecutive weeks, the S&P 500 is only 3.1% below the record level it reached on August 2nd. Stock markets in the rest of the developing world fared better last week, as the MSCI EAFE only fell 0.07% and most indices in Europe increased for the week. The recession in the Euro-zone is officially over, as GDP for the Euro-area as a whole grew slightly in the second quarter of 2013.
The good US economic data caused a sell-off in the Treasury market and the 10-year Treasury yield reached its highest level in over 2 years. Higher interest rates seem to be having an effect on the consumer as the Thomson Reuters/University of Michigan consumer sentiment index fell sharply from its July levels, probably in large part due to rising mortgage rates that consumers face. Prices for municipal bonds also fell as mutual funds that invest in the space have continued to experience net outflows. Although investment grade corporate bonds fell in price, there was strong demand for new issues and many deals were oversubscribed. Prices for high yield corporate bonds also fell, although there is relatively little trading in this asset class in August. High yield bonds issued by US airlines were especially hard hit, after the Department of Justice attempted to stop the merger of American Airlines and US Airways. Emerging market debt had a bad week, largely because turmoil in Egypt caused investors to avoid the space. Of the countries that reported second quarter GDP growth numbers last week, Singapore and the Czech Republic surpassed estimates, while Peru and Romania fell short of them.
 Source: Bloomberg as of 8/15/2013