AdvisorShares Weekly Market Review – Week Ending 1/12/2018
Highlights of the Prior Week
The Bond Bear Has Started…Again!
Domestic equities have had a mediocre year in the first two weeks of 2018 which is to say the market is up a lot for such a short time. Humorously, the title of this week’s Barron’s Trader column was The S&P 500 Is On Pace To Triple This Year. For the week, the Dow Jones Industrial Average was up 2%, the S&P 500 gained 1.56%, the NASDAQ added 1.72% and the Russell 2000 led the way with 2.02%.
Interest rates continue to be the most interesting game in town. The yield on the Two Year Treasury Note moved above 2% last week for the first time since 2008. The Ten Year also spiked, closing Friday at 2.55%. We’ve been chronicling the extent to which the curve has been flattening and while the interest rate differential between the two notes didn’t change much, both moved out of their recent trading ranges.
A few things may have contributed to the move higher including comments from Japan about reducing its QE which would mean fewer treasury purchases by the Bank of Japan. There were also rumblings about China possibly selling some of its $1.2 trillion of its US debt. This threat has popped up a couple of times before without ever having much teeth as it would appear to be contrary to China’s own interests to sell. Despite the decline in PPI, CPI actually came in above expectations which sparked hope that inflation could get to and perhaps even exede the Fed’s 2% target.
Bill Gross declared the start of the bond bear market…again. Barron’s made the case for the yield on the ten year rising up to 2.75%. While predicting interesting rates is a loser’s game, such a gentile lift would be surprise us, we might expect a more extreme outcome in either direction as opposed to just 20 basis points. If a bear market has truly started, we would expect higher yields. Or if something triggers a recession we would expect much lower yields. Take this as a call for volatility, not a guess of what rates will actually do.
It’s been a while since we checked in on the US dollar. It has been in a downtrend since late 2016. A year ago we noted the serious upside resistance of 103 for the US Dollar Index. Since that time the dollar as measured by DXY has steadily declined, closing Friday at 90.74. For some recent context, the DXY traded near 80 in 2013 and 2014. We would remind readers that currency tends to move for years at a time, favoring the currencies in the 2000’s, favoring the US dollar for this decade until last year and now perhaps favoring the currencies again. If so, that would create a tailwind for increasing foreign equity holdings.
If you missed it, Eastman Kodak, when was the last time you thought about that company, made a stab at relevance last week announcing it would launch a cryptocurrency to be called KODAKcoin and the stock rallied a couple hundred percent on the news. While it seems funny it raises a question about how much the cryptocurrency space needs Bitcoin if various forms of initial coin offerings become an increasingly popular way to access capital and conduct transactions. We don’t know the answer but that could be a relevant question.
Anyone hoping for a Bitcoin ETF is going to have to wait as the SEC punted for now, telling several wouldbe Bitcoin ETF providers to withdraw their filings. The general assumption had been that once futures started trading there would be ETPs available shortly thereafter. Not so, at least for now. In a related news story, there are two ETFs due to launch this week that will track the blockchain space but Bloomberg reported that the SEC told both providers that the word blockchain cannot be part of the name of the fund. Don’t check your calendar, it’s not April Fools.
The descendants of John D. Rockefeller are ironically very involved in the fight against climate change:
All of which is how ExxonMobil found itself in federal court this past November arguing that the Rockefellers were funding a conspiracy against it. Judge Valerie Caproni of the Southern District of New York was hearing the latest arguments in a legal battle that had begun more than two years prior, when members of the Rockefeller clan, in their latest attempt to pressure the erstwhile family business to deal with climate change, funded journalists who uncovered documents showing Exxon had known about the dangers of burning fossil fuels for decades while publicly denying it was much of a problem at all. The Rockefeller-backed reports had inspired multiple state attorneys general to investigate whether Exxon might be liable like tobacco companies that lied about the cancer risks of smoking had been
Legendary college football announcer Keith Jackson passed away at age 89. Legendary may not be a big enough word. From ESPN:
Jackson began calling college football games for ABC Sports when it acquired the broadcast rights for NCAA football in 1966. He also worked NFL and NBA games, 11 World Series and LCS, 10 Winter and Summer Olympics, and auto racing. In addition, he traveled to 31 countries for “Wide World of Sports.” Among his broadcasting accomplishments, Jackson was the first play-by-play voice of Monday Night Football when the program debuted in 1970. He called Bucky Dent’s home run against the Red Sox in 1978 as well as Reggie Jackson’s three-homer game in the 1977 World Series.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Zerohedge, Bespoke Investment Group, CME Group, ESPN.com