AdvisorShares Weekly Market Review – Week Ending 10/20/2017
Highlights of the Prior Week
Dow 23,000 Hats For Everyone!
Domestic equity markets inched higher last week other than the Dow Jones Industrial Average which moved up 1.99% taking a new big figure in the process, closing at an all time high on Friday. The S&P 500 gained 0.85%, the NASDAQ was up 0.34% while the Russell 2000 added 0.41%. The outperformance of the Dow can be attributed to a well received, even if for just meeting expectations and not guiding lower, earnings report from Big Blue. The Dow being price weighted of course means an especially good or bad showing for a stock with a three digit price will likely cause the type of divergence we saw last week.
Don’t look now but progress may have been made last week toward the much awaited tax reform. The Senate used reconciliation to get a bill through that will start to move the ball forward. Goldman Sachs believes that tax reform would be good for another 12% lift for the S&P 500. Treasury Secretary Steve Mnuchin has been very public in tying the near term fate of the stock market to the tax plan; passing means stocks go up, no reform means stocks go down. Just as a quick reminder, no one should be surprised if it turns out that tax reform is already priced in, setting up a possible sell the news situation. The tax plan looks like it will add to the deficit. Do deficits matter? If they don’t now, will they in the future? While you might think so, thus far they arguably haven’t….for whatever reason.
The yield on the Ten Year US Treasury Note jumped on Friday to close at 2.38% which is as high as it has been since early July. Barron’s cited a strategist from JP Morgan who opined that based on this point in the cycle, yields should be higher. He noted distortions that have been created by QE and other extraordinary stimulative efforts as being a “weight” on yields. Another fund manager is worried about the flattening trend warning of a recession in the offing. Actually, in the last month the curve has steepened but of course the trend for 2017 has been to flatten as the FOMC has hiked rates. Should the yield curve actually invert we will certainly bang the recession drum here, it won’t be different this time, but until that time it is important to remember that we are in unchartered waters in terms of emerging from a zero percent world. The more conservative approach would be to expect consequences to continue to emerge from years of free money.
The investment community marked the 30th anniversary of the Crash of 1987 last week. All we’ll add is what an excellent example the crash was for how fast declines (crashes) have tended to work which is to say they are better to buy than to sell. After the crash, the Dow bottomed a few weeks later in early December. And while the two years it took to regain those highs may have seemed like a long time, those who held on were better off than those who did not. This has repeated many time since 1987. The market panics down quickly and retraces some portion of that decline quickly. Another great example is the mini crash in October 1989 that ensued due to a failed LBO of one of the legacy airlines. If you were in the business then, do you remember that one? If you weren’t in the business then, have you ever even heard of this one? The Dow fell 289 points and it was a big deal…that was also better to buy than to sell.
TD Ameritrade will be giving its commission-free ETF program something of a backhanded enhancement starting November 20th as it almost triples the number of funds available in the program but at the same time will be removing many funds from iShares and Vanguard which of course offer many of the largest, broad based index funds. ETF.com’s coverage observes a shift to narrower and more tactical funds. Although not the worst thing it is somewhat surprising. For the typical account that an advisor might manage, TD’s $6.95 commission is negligible but this could make implementation a little more difficult for smaller accounts that advisors might manage like for adult children of existing clients.
Men’s Health explored the idea of diminishing returns that come from too much exercise, it’s actually unhealthy:
They discovered that people who exercised at three times the recommended guidelines, which would come out to at least 450 minutes of moderate physical activity per week, were 27 percent more likely to show significant levels of coronary artery calcium than those who exercised less than 150 minutes per week.
The Undefeated updated the 50 Greatest NBA Players of All Time. The biggest head scratcher to be added was Steve Nash. Great player? Yes. Top 50? Not so sure. Removing Robert Parrish hurts, we disagree with removing Bill Walton and removing Pete Maravich is felonious.
Tim Duncan, Kobe Bryant and LeBron James were stone-cold locks. We were nearly unanimous about adding Allen Iverson and three Hall-of-Famers-to-be whose longevity is as impressive as the originality of their games: Kevin Garnett, Dirk Nowitzki and Dwyane Wade. Then the debates started.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Men’s Health, The Undefeated