AdvisorShares Weekly Market Review – Week Ending 11/17/2017
Highlights of the Prior Week
A Lot of Market Stuff & the Maui Invitational!
Domestic equity markets were mixed last week with little net change. The Dow Jones Industrial Average fell 0.28%, the S&P 500 slipped 0.14%, the NASDAQ added 0.46% and the Russell 2000 showed some strength with a gain of 1.20%. Day to day there was a little more action in the headlines and price movement as reflected in the VIX trading above 13 on Wednesday before settling in with an eleven handle at the close on Friday.
In something of an ironic twist, the Government Pension Fund of Norway is proposing a divestiture of its oil stocks. Ironic because of course Norway’s accumulated wealth and economy are both dependent on crude. It is actually that dependence that is the catalyst for the proposed strategy change. The possible implications are vast. First would be the obvious of $30-40 billion worth of supply (shares) coming to the market. Further though, is Norway calling a top in energy? Dennis Gartman in making a bearish case for oil has long said that there must be frackable land elsewhere in the world, it can’t just be the US that has it. Saudi Arabia has been in the news an awful lot late and part of the story there is the desire to list shares in Saudi Aramco, the big oil company (arguably another calling of a top), would the divestiture if it were to happen, adversely effect that deal?
Earlier this year the REIT industry was carved out of the financial sector into its own sector. Now there is news of a second sectorology shift, this time in the telecom sector. The sector is due to include media and entertainment companies along with telecom. While “telecom” will be getting bigger, other sectors will also be impacted, notably the discretionary sector which has a lot of media companies in it. This means there will be quite a few ETFs impacted by the change. This isn’t due to occur until September but advisors using sector funds will want to follow this story and adjust portfolios if appropriate.
The spread between two year and ten year treasuries narrowed to 63 basis points last week (61 basis points this morning), keeping fears alive that we are on the way to an inversion. T. Rowe Price made some noise last week calling for the spread to zero out in 2018 with most of the narrowing coming from increases in Fed policy. The FOMC obviously understands the implication of an inverted curve (it’s recessionary because lending is no longer profitable) so something may have to give in terms of the FOMC stopping short or allowing the curve to invert if the market doesn’t bail them out with higher long rates.
You probably heard about the “this is not a coup” in Zimbabwe against 93 year old president Robert Mugabe. The country has a stock market with 62 companies. Not surprisingly there are a lot of agriculture and mining companies but other sectors like tech and healthcare are also included. Interestingly, despite regime change, the Zimbabwe Stock Index only fell about 10% in the face of Mugabe’s ouster. We don’t think there is a volatility index for Zimbabwe but if there was one, it would pretty low just like our VIX.
Oh, and Bitcoin went whizzing past $8000 over the weekend.
One of the bigger investment themes of the last year or two has been the “death of retail” induced by growing to the sky success of online retailing. ProShares launched two ETFs that attempt to capture the idea. The ProShares Long Online/Short Stores ETF (CLIX) is as the name implies, long the e-tailers and short the stores. One interesting observation is dispersion in average market caps between the longs and shorts, favoring the longs $58 billion to $18 billion. The Proshares Decline Of The Retail Store ETF aside from having a complete sentence for a name trades under the painful symbol EMTY. This fund targets 1x the inverse of the Solactive-ProShares Bricks and Mortar Retail Store Index and unlike CLIX, EMTY is equal weighted.
In the late 1950s, the Cleveland National Forest gained its first hotshot crew called the El Cariso Hotshots. In 1961, the group tested an early fire shelter design, and at the same time, the Interregional Fire Suppression Program became a reality. This system—known as the IRFS—established 6 crews of thirty men across the West of the United States, close to airports so that they might have quick and immediate transportation to fires with the highest priority levels. Due to their value and effectiveness when it came to fire management, the IRFS program grew to 19 crews by 1974.
The host’s famous defeat of a Cavalier team, featuring Ralph Sampson, in 1982—a game only played because Virginia was looking to play one on the islands on their way back from a tournament in Japan—was the impetus for the creation of this tournament, which expanded to eight teams in 1986.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Mashable, The Atlantic