AdvisorShares Weekly Market Review – Week Ending 3/16/2018
Highlights of the Prior Week
You know the saying about never being given more than you can handle? Markets might be getting tested on that point as the trend of increased political volatility continues to accelerate. Last week Rex Tillerson was fired via Twitter then news of HR McMaster’s ouster being imminent. This sort of turnover in the inner circle of the executive branch is as far as we know, unprecedented and it is also unanalyzable in terms of impact on markets. It won’t matter, unless it matters.
Markets did not panic by any means but they did drift lower for the week. The Dow Jones Industrial Average fell 1.3%, the S&P 500 declined 1.2%,the NASDAQ dropped 1.4% and the Russell 2000 was down 0.7%. Despite the modest declines, the CBOE Volatility Index was only modestly higher on the week, closing Friday at 15.80. The muted response despite upheaval in the White House is perhaps an indicator that the market is not worried about turnover but paints a stark contrast to how the VIX moved in early February during the panic. Some posited at the time that the short volatility trade (through exchange traded products or other means) can actually require the purchase of VIX contracts to maintain correct exposures which could have contributed to the more than 100% move up in VIX on February 5th; the tail may have briefly wagged the dog.
The reaction in the bond market may have shown more concern about dealings in Washington as the yield on the two year treasury note moved up to 2.29% while the ten year dropped slightly to 2.84%. The 55 basis point spread is not the narrowest we have seen of late but concerns about the FOMC overdoing its rate hikes is starting to gain currency in markets and this spread is a good place to get a read on that sentiment.
Bank of America (via Yahoo Finance) reported that a record $38.3 billion flowed into domestic equity funds last week. The huge inflow coincided with a huge drop in pessimism which BofA collected from the American Association of Individual Investors Sentiment Survey, which showed a decline of 7.1 points down to 21.3%.
The ten year anniversary of Bear Stearns going under was last week. It was an amazing period of history for markets as Bear was of course a venerable name on Wall Street and its failure created more awareness that any company can fail and of course even bigger names than Bear went on to fail or otherwise be rescued by the government. Barry Ritholtz quipped on Twitter that Bear Stearns was bought for less than what the Yankees paid to Alex Rodriguez.
Credit Suisse is facing a class action suit over its recently closed inverse VIX exchange traded product:
The lawsuit, filed in U.S. District Court in Manhattan, said Credit Suisse “manipulated” the notes by liquidating its holdings in various financial products to avoid a loss. It also said the company’s statements about the product to investors were incomplete.
It turns out, prime numbers are kind of a big deal.
The basic idea of the proof is that if there were only finitely many primes, and we had a list of all of those prime numbers, we could multiply them all together and add 1, creating a new number that isn’t divisible by any of the prime numbers on our list. That number would either itself be a prime number not on our list, or would have a prime divisor not on our list. Either way, we contradict the idea that there could be a finite list of primes, and so there have to be infinitely many.
It finally happened on the 136th try, a 16 seed beat a 1 seed in the men’s NCAA Basketball Tournament when the University of Maryland Baltimore County beat the University of Virginia. It was great fun to see a likely to be one of the most remembered games of all time. @RampCapitalLLC humorously tweeted that it was a 32 sigma event. The Comeback posted an article with @UMBCAthletics twitter feed. Its twitter game might be even stronger than its game on the court. Here’s a couple of examples:
Tell @SethDavisHoops, who sharpied in Virginia at tip, that we said “sup”
Hi Seth, remember when you declared the game over at tip? We are up 14 with 14 minutes left
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Zerohedge, Bespoke Investment Group, CME Group, Washington Post, The Players Tribune