AdvisorShares Weekly Market Review
Highlights of the Prior week
For the week of August 19 – August 23
Most US stock indexes (the exception being the Dow Jones Industrial Average) finished the week slightly higher as good economic data and corporate earnings numbers offset concerns about rising interest rates. Both the S&P 500 and the Dow Jones Industrial average had their longest streaks of daily loses for the year. The S&P 500’s 4 day losing streak ended on Monday, while the Dow Jones Industrial average didn’t snap its 6 day stretch of losses until Thursday (the most consecutive down days in 13 months). The Fed released minutes from its July 30-31 meeting on Wednesday, which gave more evidence that it start scaling back on its assets purchases by as soon as September. On Thursday, a computer glitch caused the Nasdaq to stop trading for 3 hours in the afternoon. Economic news for the week was mostly benign. Jobless claims of 336,000 pointed to a continued improvement in the labor market, while the Markit flash PMI increased to 53.9. While new home sales for July came in at their lowest level in 3 year (394,000 sales), existing home sales rose to 5.39 million. A moderate cooling of the housing market is to be expected given that mortgage rates have recently risen from their historic lows.
Treasury inflation protected securities (TIPS) underperformed traditional Treasury bonds again, as prices have fallen by over 9% since the year began. Surprisingly though, Thursday’s $16 billion auction of 5-year TIPS received strong demand as the inflation-adjusted yields were more attractive than in previous auctions. US Treasury yields rose for most of the week, but bond prices increased enough on Friday that they ended the week with lower yields than they had at the beginning. In fact, the 10-year Treasury yield hit a new two-year record high after the Fed released minutes from its July 30-31 meeting on Wednesday. While high yield corporate bonds and municipal bonds underperformed for the week (especially debt issues with longer-maturities), floating rate bank debt saw price gains as investors are attracted to the low interest rate sensitivity of these debt instruments.