AdvisorShares Weekly Market Review – Week Ending 3/23/2018
Highlights of the Prior Week
Markets Crumble Under The Weight of Tariff Threats
Domestic equity markets got kicked in the teeth last week. The Dow Jones Industrial Average fell -5.07, the S&P 500 slid 5.35%, the NASDAQ was down 5.48% and the Russell 2000 gave up 4.21%. Markets are worried about tariffs (potentially very bad for everything), the Cambridge Analytica story and its impact on the social media stocks that have led the market up (only bad for markets not main street), a more hawkish Fed given the historical tendency for the Fed to get it wrong in conjunction for there being no text book to tell them how to properly unwind QE and the revolving door in the White House. Barry Ritholtz pointed out that at this point in his presidency Bush 43 had one person depart, Obama had had 3 people leave and Trump is up to 17. Whether you think that is good or bad, it is true that it has never happened before and the market tends to fear the unfamiliar.
As a qualitative observation this drop doesn’t feel as panicky as the one in early February but interestingly both declines in SPX terms stopped at that index’ 200 day moving average at least that was the case at the close on Friday.
One threat to markets averted was a possible government shutdown. Congress did its part but then for who knows what reason the President threatened to veto the bill. More and more we are seeing a pattern where the starting point for an issue borders on the outlandish like the tariffs which after starting out broad in nature seem to be aimed almost solely at China, even Argentina got an exemption for now. The veto threat is another example of course as too has been the handling of the North Korea situation. While we don’t fully understand it, we choose not to rush to judgment.
The dollar was generally weak as the tariff story escalated but it was not crushed. The weakest performance we found was a 1.2% drop against the yen. The dollar index as measured by DXY is back below 90. A weak currency after announcing trade restrictions makes sense on its face but does contradict incoming Chair of the National Economic Council Larry Kudlow’s long term mantra Kind Dollar. To our knowledge he coined the phrase but he may have signed on to support policies that could lead to Serf Dollar.
Despite a rotten couple of days for stocks the Dropbox (NASDAQ: DBX) IPO was very well received on Friday. It was priced above the expected range at $21 and jumped 35% in secondary trading. Strong IPO performance is typically viewed more broadly as a sign of confidence and while we don’t think one stock can be counted on to influence a broad market trend, it was a positive takeaway for the week.
There was also optimism evident in the durable goods report which printed a gain of 3.1% which may have prevented treasury yields from dropping more meaningfully. The Two Year Note closed Friday at 2.25% and the Ten Year Note which closed at 2.83% leading the spread to widen two basis points versus the previous week.
iShares launched a suite of actively managed, AI, sector, equity funds although the suite does not (yet?) cover all eleven sectors. They appear to be very similar to the cap weighted sector funds offered by iShares but are less expensive. The financial sector versions have seven of their respective top ten holdings in common while the technology funds have eight of the top tens in common.
Still trying to sort through what happened with social media and Cambridge Analytica? VOX has some thoughts;
A large and growing body of research confirms what probably ought to be obvious: Spending a lot of time alone, disengaged from other human beings, staring at your phone, and clicking on little buttons on a platform obsessively engineered by some of the smartest people on the planet to keep you staring and clicking is not good for you.
If you were counting on your Ken Griffey Jr Upper Deck rookie card to payoff your mortgage and want to know what happened;
Fact is, back in the 1980s and even into the 1990s, most of us were hybrid collectors. Sure, we got into the hobby because we loved the game and loved the cards, but we also thought there’d be some gold at the end of our cardboard rainbow if we just held on to our stash long enough. It’s evident now that most of our childhood cards are, if not worthless, at least unlikely to put our kids through college. A fancy drink at Starbucks, maybe, but tuition to the local tech school?
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Zerohedge, Bespoke Investment Group, CME Group, Yahoo, VOX, Wax Pack Gods