AdvisorShares Weekly Market Review – Week Ending 10/17/2014
Highlights of the Prior Week
The hysteria underway over Ebola provides great insight into the nature of how people tend to overreact to certain types of news. To allay fears, to get Ebola you need to have direct contact with bodily fluids of someone who is already infected and even that may not be sufficient.
Despite the incredibly remote possibility of contracting the disease the media has fed the fire with words like epidemic and outbreak. Bloomberg cited research that there could be as many as two dozen cases in the US by November, so that is 24 cases out of 310 million people. How many people will die today driving to work?
Capital markets are of course famous for overreacting and this played out early in the week. By mid-day Wednesday the S&P 500 was down 4.25%, again that’s just two and half trading days. In our update from September 21 we noted the high that appeared to be coinciding with the Alibaba IPO. Highs, whether they are short term or a real cyclical high often occur around very exciting events which is another form of human overreaction that repeats from cycle to cycle.
From the Alibaba high to the Wednesday low the S&P 500 was down almost 8%. An 8% decline in so short a period of time would meet a reasonable definition of being a fast decline and as we noted last week, history shows us that slow declines tend to be more a problem than the sort of fast decline we’ve had over the last month which might be supported by the 3.6% snapback that occurred in the second half of the week although the benchmark is currently below its 200 day moving average.
Despite the wild ride the Dow closed Friday with a weekly loss of 0.88%, the NASDAQ fell 0.42%, the S&P 500 was down 1.00% but surprisingly the Russell 2000 was up 2.99%.
Markets in Europe followed a similar trajectory to the US dropping meaningfully by midweek only to snap back at the end of the week. The Dax in Germany finished the week with a 48 basis point gain after recovering from a 5% drop in the middle of the week. Markets in France were down 0.95% and the UK was down 51 basis points although both were down markedly by Wednesday.
The Nikkei in Japan had a crash of its own falling more than 7% with no recovery. Hong Kong and Shanghai saw toothed higher to start the week but closed out with declines of 0.29% and 1.41% respectively and Australia marched to its own beat going up every day to a 1.61% gain for the week.
As interesting as equities were last week, bonds may have been more so, especially on Wednesday when the yield on the US Ten Year Treasury Note fell 35 basis point to trade at 1.86% four approximately four minutes before trading back up. It finished out the week with a 2.22% yield. Yields in Germany closed out the week at 0.86%, France, 1.29%, Spain at 2.17% still below the US but Italy spiked to 2.51%.
Crude oil fell 1.97% while gold added 0.41%. The dollar was mixed last week falling against the euro, flat against the yen and up against the British pound.
ETF News & Data
There were three new ETFs last week covering a wide range of exposures from commodities to core bond and emerging markets excluding BRIC markets.
Fund flows last week saw a mix of creations and redemptions across all asset classes with little distinction except domestic small cap equities. As noted above, small caps had a very good week, performance-wise, which was reflected in almost $3 billion of new money coming into the space. Notably absent from the redemption list were any of the PIMCO funds which raises the possibility that Bill Gross’ departure may now be fully priced in…or not as not so coincidentally Janus, Gross’ new firm, bought niche ETF provider VelocityShares. Stay tuned.
Over the last few months we’ve taken several looks at the concept known as tiny houses. These are generally very small (obviously) and often mobile with the big attraction being that they provide homeownership opportunities in a downsized fashion (financially, literally and emotionally).
While this is interesting and can be the solution for some folks there are downsides to consider.
As a bonus interesting read is some partial click-bait of items that have been repurposed in very interesting ways. Our link is to page two of five which we found to be the most interesting.
Heisman Trophy winner Jameis Winston apparently cannot stay out of trouble, making bad decision after bad decision. The first story has to do with an alleged sexual assault from two years ago and while we certainly have no idea what happened we do know the investigation never seems to quite close. Along the way there was an incident involving his not having paid for crab legs at the grocery store, recently he got suspended for a game for an Animal House-like prank which involved his yelling a profane/offensive phrase in the dining hall and now it has surfaced that he has signed at least 2000 items that a sports memorabilia company has for sale with the presumption that one way or another he will be compensated. This last story is still playing out so there is no conclusion yet but fair or not this sort of compensation violates NCAA rules. At some point he will try to go to the NFL but is he sabotaging his draft status which by extension would cost him millions in guaranteed money (more and more NFL contracts have a guaranteed component to them that previously did not exist).
AdvisorShares ETF Strategist
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, ETF.com, XTF.com, Yahoo.com, Financial Times
Weekly ETF Flows
For October 13, 2014 to October 17, 2014
S&P Sector Analysis
As for the sectors of the S&P 500, four outperformed the broad benchmark – Industrials, Materials, Utilities and Discretionary. The remaining six – Technology, Telecom, Energy, Financials, Staples and Healthcare – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 5.13% this week, with Industrials outperforming all, and Healthcare coming in last.
For October 13, 2014 to October 17, 2014
As measured by the S&P 500 sector indices, respective performances were: