AdvisorShares Weekly Market Review – Week Ending 11/28/2014
Highlights of the Prior Week
Domestic markets were quiet in terms of price action but there was a lot of news that could potentially move prices despite the short week. The Dow Jones Industrial Average was up 17 basis points, the S&P 500 was up 25 basis points the NASDAQ had a much stronger week with a 1.68% lift and the Russell 2000 added 10 basis points however it should be noted that the small cap benchmark had an outsized decline of 1.46% on Friday.
Those results don’t capture the carnage that occurred in the oil patch. West Texas Intermediate Crude was on its way to a 3-4% decline for the week until OPEC met on Thanksgiving and decided it would not cut production. This sent the price for February delivery down 10% to $66.26. Crude has now dropped $40 since late June.
While AdvisorShares is not in the business of making predictions we do take note of investor and market behavior. Friday’s price movement amounts to a crash, crashes have often come close to the end of the decline as they have represented a capitulation. It may be difficult to find a catalyst to move the price back up in the near term but oil is unlikely to go to zero and it is reasonable to wonder if sellers are just about exhausted after an almost 40% drop in less than six months. The asset may be different, the numbers may be different but the manifestation of fear in the capital markets is not new.
Regardless of whether crude sellers are done, the drop in energy prices is a deflationary force. Another market that appears to be on a deflationary track is the bond market. We’ve paid particularly close attention to global bond yields because they continue to confound market participants by going lower.
The yield in the US Ten Year Treasury Note fell 12 basis points to 2.19%. The German bund continued to see buying, sending its yield down to 0.70%. The French OAT broke below 1% to close the week yield 0.97%, Spain now yields 1.90% and Italy at 2.03% is threatening to trade with a one-handle.
There are always deflationary forces in the economy as there are always inflationary forces and one will move the needle. For many years it seemed like we only experienced the good kind of deflation through creative destruction (cheaper technology) but since the financial crisis there have been concerns about true deflation and the collapse in commodity prices and bond yields don’t’ dissuade the idea.
For its part, gold fell a little over 2% for the week while the Euro rose slightly against the dollar, the British pound fell slightly and the dollar continued to rise against the Japanese yen. And to close out something related to gold and currencies that we’ve been following for the last few weeks; the Swiss voted no on a referendum that would have required the Swiss National Bank (the central bank of Switzerland) to hold at least 20% of its assets in gold. The “no’s” had 78% of the vote.
The German Dax followed last week’s 5% rally with a 2.55% gain this past week. France followed through on last week’s gain by adding 0.93% while the FTSE 100 fell 33 basis points. In Asia the Shanghai Composite rocketed ahead 7.88% followed by a 2.3% gain for the Hang Seng and a slight 0.18% drop for the Nikkei. The ASX 200 in Australia managed to gain 0.38% despite it generally being perceived as a commodity based economy.
The National Retail Federation reported that holiday spending over the Thanksgiving weekend fell 11% but many including Barry Ritholtz and Jim Cramer are questioning the accuracy of that report.
ETF News & Data
Fund companies mostly took last week off with only one new fund to hit the market; a domestic equity index fund from SPDR that will own companies that are part of the MSCI All Country World Index that have low carbon-emission profiles. Not surprisingly it is heaviest by far in financial stocks but what might be surprising is that it is only slightly underweight the energy sector, additionally it has eight of its top ten components in common with its benchmark index.
Despite the carnage in the energy sector, the Energy Select SPDR lead inflows with $977 million but this mostly occurred on November 24, before Friday’s crash. Outflows were modest with no fund having more than $350 million heading for the exit.
In the month of November equity ETFs drew $39 billion which brings the year to day number up to $137 billion while fixed income funds added $2 billion last month, down sharply from October, and for the year fixed income has had $50 billion in net inflows.
At AdvisorShares we are suckers for a good dog story. The Daily Mail published a great photo-essay about Mikael Lindnord who traveled from Sweden to Ecuador with his teammates to participate in an adventure race along the lines of the old Eco Challenge. Toward the end of the race while stopped for some food a scruffy looking terrier approached the team and he looked hungry. Mikael gave him a meatball and from that moment forward Arthur as he became known never left Mikael’s side for the rest of the race including riding down river in a kayak and hiking through the mud.
Arthur was in need of substantial veterinary care which Mikael saw to and has brought him back to Sweden to adopt him. The pictures are just as amazing as the story.
ESPN.com took an interesting look at the family dynamic that exists when one of the kids defies the odds and strikes it rich as a professional athlete. Not surprisingly families members can feel entitled to a “their cut.” The article details how and why Dallas Cowboys offensive lineman said no to his family.
One shocking number from the article as that 78% of NFL players are bankrupt within two years after retiring. The actual quality of the writing in the article is terrible but the story is very interesting.
AdvisorShares ETF Strategist
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, ETF.com, XTF.com, New York Times, Convergex, Daily Mail, ESPN
Weekly ETF Flows
For November 24, 2014 to November 28, 2014
S&P Sector Analysis
As for the sectors of the S&P 500, seven outperformed the broad benchmark – Discretionary, Technology, Healthcare, Staples, Utilities, Financials and Telecom. The remaining three – Industrials, Materials and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 11.92% this week, with Discretionary outperforming all, and Energy coming in last.
For November 24, 2014 to November 28, 2014
As measured by the S&P 500 sector indices, respective performances were: