AdvisorShares Weekly Market Review – Week Ending 2/16/2018
Highlights of the Prior Week
Can The Bounce Continue?
The snapback in the domestic equity markets continued last week with gains for the widely followed benchmarks – all in the 4-5% neighborhood. Last week, we noted the historical tendency of fast to resolve quickly because the extent to which they are driven by emotion. The snapback is also an emotional event and while we don’t know yet if it really is over, the arc of this event is right in line with that historical tendency. We’ll say the same thing when the next fast decline occurs but will aggressively sound the alarm when a slow decline starts. Declines that take a long time and that occur without creating an emotional response are the ones to worry about – look at where the market was six months after the March 2000 peak and then where it was six months after the October 2007 peak.
The volatility of volatility was alive and well last week across the volatility complex. In addition to the CBOE Volatility Index, which tracks vol of the S&P 500 under the well known symbol VIX, VXN tracks the volatility of the NASDAQ 100 and RVX tracks the volatility of the Russell 2000. All three fell 30-35% last week after jumping 37-59% the week before. VIX and RVX have long been sleepy until the last couple of weeks but the VXN has traded more like volatility use to, before quantitative easing matured. We think increased volatility of volatility could be a net positive that perhaps indicates complacency has been shaken out of the market. Save for the last year or so, a little bit of nervousness has been good for equities.
The Ten Year US Treasury Note spent some time above 2.90% last week for the first time in about four years. Marketwatch pointed out that a multi-decade downtrend in yield may have been broken to the upside last week which could clear the way for persistently higher rates from here. Were this to happen, longer term bond funds and even intermediate maturities could be hit very hard. Guessing what interest rates will do is pretty difficult but it makes sense for advisors to assess the vulnerabilities their clients may have in their portfolios by way of exposure to high yielding stocks, closed end funds and certain specialty segments like preferred stocks.
Also in fixed income, high yield spreads had a rough week, widening by 32 basis points as of last week, according to Bespoke Investment Group. Bloomberg reported a $6 billion outflow from high yield ETFs citing fears of increased volatility and concerns about inflation. If the cliche about the bond market being smarter than the equity market is true, we wonder if this is a warning for equities or or just a delayed reaction to the equity selling that may now be resolved.
Horizons ETFs in Canada launched an emerging marijuana growers ETF, a smaller cap cousin to its popular life sciences fund. In doing research on the fund you may find references to small cap exposure but more realistically it is a microcap space and even more realistically it is still nanocap.
Mr. Rogers will be commemorated on a postage stamp. We may not have properly appreciated the man behind the show when he was alive.
Rogers hosted Mister Rogers’ Neighborhood for its full 30-year run until it ended in 2001. He died two years later at the age of 74, from stomach cancer. The show is known for delicately addressing topics like anger, sensitivity, fear and divorce.
There’s a lot of pressure on the ski technicians for the Norwegian Olympic team:
“If we screw up we’re on the front page of every newspaper in Norway,” he said. “We become idiots, overnight.” In most countries, few people know that wax techs are a thing. In Norway, home to the world’s most zealous cross-country skiing fans, Nystad is occasionally a national figure. Unfortunately, notoriety comes only when the country wants to jeer him as a bumbling fool.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Zerohedge, Bespoke Investment Group, CME Group, NPR, NY Times