AdvisorShares Weekly Market Review – Week Ending 10/6/2017
Highlights of the Prior Week
Jobs Weak, Market Doesn’t Care
The jobs report was widely expected to be impacted by the hurricanes but the effect was more than expected, showing a decline of 33,000 jobs versus estimates ranging from 80,000-90,000. The headline unemployment rate actually dropped a tick to 4.2% while the labor force participation rate increased to 63.1%. The broader U6 unemployment rate came in at 8.3% and revisions from the previous two months were a negative 38,000. Perhaps most interesting is that wages moved up out of its multi-month rut of 0.2/2.5 to show a gain in September of 0.5% with the year over year number at 2.9% which would appear to provide some cover for a December rate hike. Barron’s offered a counter opinion from the Liscio Report that jobs lost were lower paying jobs because of the storm thus making the wage boost an anomaly to be subsequently reversed.
Despite stalling out Friday on the jobs report, domestic equities had yet another strong week ahead of Q3 earnings season starting to ramp up. The Dow Jones Industrial Average gained 1.62%, the S&P 500 added 1.16%, the NASDAQ moved ahead 1.42% and the Russell 2000 chipped in with 1.31%.
As fans of the Tour de France we get a kick out of race commentator Paul Sherwen’s tag line about throwing a cat amongst the pigeons which is what President Trump did to the market for Puerto Rican bonds. We’ve covered the territory’s $72 billion debt problem many times over the years and in his visit to the island, Trump appeared to talk seriously about wiping out the debt. Mick Mulvaney later talked about bond holders getting nothing. Legally, there would be several hurdles to clear before such a thing could possibly happen but the reaction in the market was swift with the benchmark 8% of 2035 trading down to the high thirties.
Catalan independence is proving to be market moving. The 30,000 foot catalyst, from our friend Dennis Gartman is that Catalonia is tired of doing the economic heavy lifting for Spain. Pound for pound, growth and tax receipts are greater than other regions of the country. Over the last few weeks the Euro has been moving lower against the dollar but not in a panicked fashion. Three weeks ago EURUSD was trading at 1.20, it closed Friday with a 1.17 handle. Interestingly Catalan independence is not another Brexit, quite the opposite as Bespoke Investment Group reported on Friday, Catalonia wants to stay in the EU and believes it would be better off for doing so.
The yield on Spain’s ten year sovereign debt has generally been trending higher since July, perhaps pricing in this outcome but interestingly the yield dropped over the last few days from 1.78% on October 4th to close the week at 1.70%. Also interesting is that based on Friday’s close of 2.37%, Sapin yields 67 basis points less than comparable US debt. The US Ten Year did flirt briefly with 2.40% early Friday after the jobs data hit. The yield moved toward the higher end of its recent range having run into overhead resistance at about 2.40% three other times since the very end of the first quarter.
Finally, we want to check in on the CBOE Volatility Index (VIX). It remains very low of course below ten but Barron’s made an argument it might even be too high. Either way, this may not come to anything, indeed Laif Meidell from American Wealth Management said in last week’s AdvisorShares AlphaCall, that what matters is the trend of VIX not its level. While that may turn out to be correct, this year has been an anomaly based on the VIX’ history and is something to pay attention to even if it is difficult to know what to look for.
The current Barron’s features its Mutual Fund Quarterly and this quarter the focus was on ESG funds. The arc here begins many years ago with funds or strategies that simply excluded tobacco, alcohol and firearms. It has evolved to include funds that score individual companies based on many factors related to ESG but Barron’s was somewhat critical of that sort of scoring. The idea being that many of the funds offering ESG portfolios don’t vote their shares in a manner consistent with ESG principles.
Also interesting was counting water themed ETFs as being ESG. In looking at the five largest ESG ETFs, numbers two and three were water ETFs as opposed to funds that include the word social or ESG in their names.
A fascinating look inside the collective psyches of The Who back in the mid-1970’s:
“Around the time of The Who by Numbers, we used to have really quite heavy conversations about where music was going to go – particularly in this country – and whether we should be involved in it, and the problem with [drummer Keith Moon] living in America and living that Hollywood lifestyle and whether we should try and force him to come back to England … all those kind of things,” he continued. “Whether our music should change, whether we should let the Who tradition just bash on until it got really boring, whether we should try and force change by starting labels and working with other bands.”
In the NFL’s apparent quest to make the league less engaging for fans we offer the public spat between Pittsburgh Steelers quarterback Ben Roethlisberger and wide receiver Antonio Brown:
“That goes a lot further than throwing a temper tantrum,” Roethlisberger said on his weekly radio spot with 93.7 the Fan. In the second quarter of the Steelers’ 26-9 victory over the Ravens, Brown broke free on a double move, but Roethlisberger worked the other side of the field, resulting in an incompletion intended for running back Le’Veon Bell. From the sideline after the play, Brown flipped a Gatorade bucket and shrugged off offensive coordinator Todd Haley as the coach tried to calm him. Brown said after the game he’s a passionate player and the chance to unwrap that particular play made him feel like a kid excited at Christmas.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Washington Post, ESPN, ultimateclassicrock.com