AdvisorShares Weekly Market Review – Week Ending 11/24/2017
Highlights of the Prior Week
Market Up, VIX Down; We Know, It’s Shocking!
The list of factors with the potential to influence markets appears to be getting longer and some of those factors seem to be moving in a more serious direction but no matter, equities continue to rally. The Dow Jones Industrial Average gained 0.86%, the S&P 500 added 0.93%, the NASDAQ jumped 1.57% and the Russell 2000 was up 1,72% while the VIX fell to 9.65. Bespoke Investment Group reported over the weekend that the market is in its longest streak by far where more than 40% of the index’s constituents are above their respective 50 day moving averages going back to 1990. Although the title of this week’s update is an attempt to be funny, it reiterates an important point. Reading off all the things going on in the world probably would not lead too many people to conclude the market would be up a lot yet it is. Sometimes, equities do exactly what they shouldn’t and whether you think equities should or should not be higher they are and have not show signs of rolling over, breadth concerns notwithstanding.
In what is a potentially startling admission, Janet Yellen, speaking at an event at NYU, said that price weakness may not be transitory. A risk from the financial crisis was some sort of deflationary outcome. The policies intended to stimulate economic activity in hopes of creating some inflation have not had the intended effect. The FOMC has long maintained that price weakness as visible by anemic CPI data (yes, CPI doesn’t capture healthcare and education costs very well) though, was not expected to persist, it was transitory. Business Insider theorized that the FOMC might not hike in December. Bob Boyd from Pacific Asset Management has long maintained that there is no playbook for how to emerge from quantitative easing and Yellen’s comments would seem to support Boyd’s point.
The Hang Seng Index traded at 30,000 for the first time in more than ten years, getting a boost from the tech sector. The last time the Hang Seng was at 30,000 was coincidental to the peak of the S&P 500 in October 2007. Back then the Hang Seng had a spectacular blow off top, rallying 50% in just over two months. We don’t view 30,000 for Hong Kong today as any sort of harbinger of a 2007 redux but we would be inclined to lighten up if the S&P 500 ever rallies 50% in two months…or even three. Just a quick update on the Zimbabwe Stock Index which we noted had only declined 10% through November 17th in the face of regime change. Upon further review, this is now become a much bigger deal in local markets, with the index now down 40% through this past Friday.
A couple of days ago, Bespoke reported that the tech sector had grown to 24.7% of the S&P 500. Sector weightings can be very constructive for warning of trouble ahead. In 2000 of course tech grew to more than 30% of the index which preceded a 50% decline. Then in 2007 the financial sector grew to about 20% of the S&P 500 which preceded a 50% decline. Twenty-25% in tech might not be problematic the way 20% in some other sectors might be but growing to 30% would be very concerning as an expression of some form of excess in the market that is likely to be corrected. Last week we mentioned a reformulating of the telecom sector to take in media and entertainment companies which could easily result the tech sector dropping from 25% of the S&P 500 to as low as less than 20%as some of the largest names in the sector are due to be reclassified. This creates something of a dilemma for watchers of sector weightings…unless a bear market starts before the change happens. An excess, to the extent there is one, wouldn’t simply be erased by reshuffling the deck.
It’s been a couple of weeks since we checked in on the Bitcoin mania. It topped $9000 over the weekend and Coinbase, one of the leaders for trading the cryptocurrency space added over 100,000 accounts over the weekend. Bespoke tweeted out that Coinbase now has more accounts than Charles Schwab.
ETF flows for the year topped $400 billion last week. Flows exceeded previous annual records a couple of weeks ago but as Eric Balchunas from Bloomberg tweeted out during the week “another mind melter: BlackRock and Vanguard account for 78% of the $400b in ETF flows and all 15 of the Top 15 products.”
An engine captain from CalFire is being credited for saving 2500 homes during that state’s wildfire season:
What followed involved a bulldozer driving up asphalt roads and bursting into the canyon to dig a firebreak while Jerry and other firefighters set a back burn below it that kept the fire within a few feet of reaching 66 Mission Highlands homes and 15 minutes away from the thickly populated Springs area with 2,500 homes.
Like Bill Walton many years ago and Greg Oden more recently, injury prone Derrick Rose is evaluating his future in the NBA:
Rose has missed 11 of the Cavs’ 18 games this season, including the past seven because of a sprained left ankle. Rose’s increasing frustration with injuries is causing him to question his desire to continue playing, league sources told ESPN. One team source told ESPN of Rose: “He’s tired of being hurt, and it’s taking a toll on him mentally.” Rose has been noncommunicative to multiple people close to him inside and outside the Cavaliers in recent days, league sources said.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Sonoma News, ESPN