AdvisorShares Weekly Market Review – Week Ending 1/15/2016
Highlights of the Prior Week
Well, The Market Didn’t Fall As Much
Capital markets had another rough week with price declines in just about everything except treasuries, even gold backed off slightly. It should be noted that gold did post gains on Wednesday and Friday as equities endured their largest declines of the week. In addition to all the global news including China, it probably didn’t help that economic data points like retail sales, industrial production and jobless claims were all weak.
For equities the Dow Jones Industrial Average fell 2.20%, the S&P 500 was down 2.18%, the NASDAQ gave up 3.35% and the Russell 2000 slid 3.69%. Foreign markets fared slightly to much worse. The FTSE 100 was “only” down 2.01%, the CAC 40 fell 3.1% and the DAX dropped 3.09%. Declines in Asia were steeper led by the Nikkei 225 which lost 9.91%, Shanghai which fell 8.93%, the Hang Seng gave back 4.56% and Australia was “only” off by 2.14%.
While there is no shortage of opinions about whether this is or is not a bear market for equities, we would say that the typical advisor doesn’t need to be correct about if it is a bear market but simply needs to meet client expectations in terms of communication and when appropriate, defensive action. And if this is the next bear market then it is important for clients to be reminded that bear markets historically are much shorter than bull markets and once a bear market ends, the next bull begins.
West Texas Intermediate Crude was of course down again falling 8.65% after dropping more than 10% the week before and giving up the $30 level. While it is easy to accept that the supply and demand equation for oil has changed (supply growth appearing to be faster than demand growth), a price decline of more than 2/3rds in a little over a year and a half is quite possibly about more than just supply and demand and might also be a decline that is overdone.
Given the week for equities it was not a surprise that US Treasury yields declined with the Ten Year Note closing the week at 2.03% after trading briefly with a one handle early on Friday. Yields in Europe were not necessarily on the same page as the German bund went up three basis points to 0.54%, the French OAT was essentially flat at 0.87%, the Swiss ten year dropped five basis points to -0.14%, Spain inched up to 1.75% and Italy moved up to 1.56%.
The dollar was modestly stronger against the euro and the yen but the British pound gave up 1.73% against the greenback over fears of, what else, a slow down. One currency pair to mention is USD/CAD. Canada is obviously very oil dependent and the crash in crude has led to a crash in the currency. In the trailing 12 months the US dollar has gained almost 20% against its Canadian counterpart.
ETF News & Data
Inflows and outflows offered no surprises in light of the market’s performance. There were large outflows from all manner of equity products and high yield funds and inflows into treasury and corporate debt ETFs. Energy sectors funds also showed up on the inflow leaderboard but that was at least in part to meet demand for short sellers.
There were four new funds launched last week including a generic drug fund and two ETFs focusing on equity dividends.
Slate tried to explain Who Controls Your Facebook Feed:
Every time you open Facebook, one of the world’s most influential, controversial, and misunderstood algorithms springs into action. It scans and collects everything posted in the past week by each of your friends, everyone you follow, each group you belong to, and every Facebook page you’ve liked. For the average Facebook user, that’s more than 1,500 posts. If you have several hundred friends, it could be as many as 10,000. Then, according to a closely guarded and constantly shifting formula, Facebook’s news feed algorithm ranks them all, in what it believes to be the precise order of how likely you are to find each post worthwhile. Most users will only ever see the top few hundred.
The issue of match-fixing has been raised in men’s professional tennis as Novak Djokovic’s People Offered $200K For Star To Lose Match in 2007. From ESPN’s coverage:
A number of players reacted to the BuzzFeed/BBC report that says there has been widespread match-fixing in men’s tennis and that authorities in the sport ignored it. The report did not name players because a direct link to betting could not be proved, but it said there is a core group of 16 suspected men who have been ranked in the top 50, including a US Open champion, involved.
For Janary 11th, 2016 to January 15th, 2016
As for the sectors of the S&P 500, five outperformed the broad benchmark – Utilities, Energy, Healthcare, Telecom, and Industrials. The remaining five – Staples, Technology, Materials, Financials, and Discretionary – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.80% this week, with Utilities outperforming all, and Discretionary coming in last.
For Janary 11th, 2016 to January 15th, 2016
As measured by the S&P 500 sector indices, respective performances were: