AdvisorShares Weekly Market Review – Week Ending 2/10/2017
Highlights of the Prior Week
Political Volatility? Equities Still Don’t Care
Regardless of anyone’s conservative or liberal beliefs, there has been a lot political volatility since the inauguration but domestic equities continue to chug along with close to record low volatility as evidenced by the low VIX reading and the lack of 1% daily moves in this calendar year. There are technical indicators related to investor bullishness and market breadth that look terrible but for now the market shows no signs of rolling over.
Anecdotally we have had several inquiries about whether now is the time to jump out for fear of a large decline. We would note the historical tendency for fast declines to snap back quickly, like the Brexit reaction, and the historical tendency for bear markets to roll over very slowly over a period of several months. Guessing is never the answer. The time to get out, if you are even one to take defensive action, is whenever the strategy you unemotionally chose as being the best one for you tells you to get out.
For the week, the Dow Jones Industrial Average gained 0.99%, the S&P 500 added 0.82%, the NASDAQ rallied 1.16% and the Russell 2000 moved ahead by 0.77%.
The burgeoning student debt problem gained widespread awareness during the Occupy Wall Street days. Barry Ritholtz put some numbers to the issue: total student loans owned by the Federal Government as of December is at $1.05T, up 10.5% from 2015. It’s up 24% over the past two years. In some circles this is viewed as being as a bubble that is as serious as the housing bubble. We would disagree with that premise. Not that this isn’t a serious problem that is likely to matter at some point but student debt is not tied to an asset that can drop precipitously in value like a house. The risk is of less consumption if people are forced into bankruptcy or have to endure some sort of garnishment. This in turn would be a drag on economic activity. Serious, but not the same.
Barron’s had some interesting comments on gold miner earnings ahead of one of the larger player’s report due out this week; …gold-miner earnings are essentially irrelevant, says Morgan Stanley Investment Management portfolio manager Andrew Slimmon, because they only tell you where gold has been and how much a company produced. And while a miner can control its own production, the price of gold is under the sway of the good old U.S. dollar. And that could be a problem. We’re not sure how it fits but it is always a good time to invoke the Mark Twain quote that a gold mine is “a hole in the ground with a liar standing next to it.” For the week, gold was up just under 1% to $1234, continuing the uptrend that started in January. Interestingly the US dollar as measured by DXY took back the 100 level last week up about 1% but still a ways from the previously problematic 103 level.
In recent updates, we have looked at the slow rolling over of the yield on the Ten-Year US Treasury Note. It wasn’t that slow last week, falling nine basis points to 2.40%. There are several different ways to interpret this including as a negative harbinger for the economy. After showing signs of life and encouragement back in the third quarter, estimates for Q1 GDP now reside around 2.2%, similar to the level that plagued markets for much of the post crisis-world. The low twos is still relatively attractive though, Japan reported Q4 GDP of 1.0% annualized.
West Texas Intermediate Crude was down a sliver on the week to $53.85.
ETF provider Alpha Architect made news with an industry first as it has changed the exemptive relief for its four funds. Its suite of funds will now be passive (smart beta, actually) and no longer considered actively managed. It is not a change in strategy, simply a belief that the funds’ chosen screening method is more appropriately considered passive (smart beta).
Canada has a robust National Park system including Banff National Park where, NPR reports, After More Than A Century, Bison Return To Canada’s Oldest National Park:
Hunters pushed the species nearly to extinction, but the animals “were historically dominant grazers that helped shape the ecosystems of what is now Banff National Park,” the park says. “The restoration of bison to Banff will return a keystone species to the landscape, foster cultural reconnection, inspire discovery, and provide stewardship and learning opportunities.”
There was a lot of anticipation over the interaction between the NFL Commissioner and the New England Patriots in the wake of the deflategate controversy. Fox25 reports that Roger Goodell ‘Bothered’ By Robert Kraft’s Comments And Matt Patricia’s Shirt:
It appears the Patriots post-Super Bowl celebrations have gotten under the skin of NFL commissioner Roger Goodell. That’s just the icing on the cake for Patriots fans, who relished their opportunity to shower Goodell with boo’s during the trophy ceremony. According to CBS Sports’ Jason La Canfora, Roger Goodell was very upset to see his face sporting a clown nose on a Barstool Sports t-shirt worn by Patriots defensive coordinator Matt Patricia. He wore the shirt when the team team landed at Logan Airport following their Super Bowl win.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, Fox25, Ritholtz.com, CNBC.com
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark – Industrials, Discretionary, Technology, Staples, and Real Estate. The remaining six – Utilities, Healthcare, Telecom, Financials, Materials, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.07% for the week ending 2/10/17, with Industrials outperforming all, and Energy coming in last.
For February 3rd, 2017 to February 10th, 2017
As measured by the S&P 500 sector indices, respective performances were: