AdvisorShares Weekly Market Review – Week Ending 3/30/2018
Highlights of the Prior Week
Did Anyone Get The License Plate?
Volatility finally came back this quarter starting in late January. The year started with a bang as the three major indexes had gains in the high single digits when they all peaked on January 26th. Then as the short volatility trade ended markets went on a roller coaster that persisted to the end of the quarter. When the dust settled the Dow Jones Industrial Average fell 3.29%, the S&P 500 dropped 2.66%, the NASDAQ was only down three basis points and the Russell 2000 shed 1.49%. At the lows the S&P 500 was down 10% and from the January peak through to March 29 the decline was 7.45%. The last time there was a negative quarter was Q3 2015 and 19 of the last 20 quarters have been up.
Tech was also seen a driver of volatility after leading the market higher in January. While you might think that tech had a relatively bad quarter that was not the case. Looking at the more heavily traded, broad tech sector funds they were actually higher on the quarter as were narrower tech-themed niche funds. While there were some very loud news stories and painful declines in select names, the gains in tech broadly might serve as a reminder that most investors would be better off not trying to trade fast, short-term moves.
In addition to the short volatility trade blowing up resulting in billion wiped out in exchange traded products, interest rates were also part of the story. Jerome Powell is now running the show at the FOMC and markets are pricing in a total of six hikes in 2018 and 2019. The 2-10 spread (the difference in yield between the two year US treasury and the ten year US treasury) is pushing against that many hikes having narrowed from 54 basis points at the start of the year to 47 basis points on Thursday. We would note that the spread went on a wild ride, getting as wide as 67 basis points in late February before coming back in over the last few weeks.
Volatility as measured by the VIX went on a wild ride, starting the year in single digits and closing just under 20. We saw this manifest in daily changes in the S&P 500. Wherein 2017 a 1% daily change was a rare occurrence, there have been 22 days with moves greater than 1% just since January 25th. While it may have been a rude awakening for some investors, as markets commentator Eddy Elfenbein has tweeted on numerous occasions, it was 2017 that was abnormal. A little volatility with a down quarter now and then, and less frequently a down year, goes with the territory of participating in markets.
Finally, let’s check in on Bitcoin, it was another huge story in the quarter. In early December I theorized that with volatility sucked out of the equity market, it found a new outlet in Bitcoin which of course was a ten bagger in 2017 but year to date is down 53%. The number of Google searches for Bitcoin has dropped more than 80% since late December, coinciding closely even if not perfectly with the price decline. Michael Sonnenshein from Grayscale believes Bitcoin can be thought of as uncorrelated alpha but in the post linked above, I offer that unanalyzable alpha might be more like it and for now that has not yet been invalidated nor has the idea that the move to 20,000 might have been an outlet for absent equity market volatility. As we have said numerous times before, any attempt to speculate should be small.
Forbes wonders if an important advantage that ETFs have over traditional mutual funds might be going away:
As the law stands now, ETFs pay scant capital gain dividends, even when the market is steaming up and lots of investors are going in and out of the fund. With an ETF you get pretty much the same tax treatment you’d get if you bought the component stocks and never sold any. That makes it a terrific buy for the taxable account of a buy-and-hold investor.
Are pictures taken with smartphones altering our memories?
But in many cases, scientists are finding that constant photo taking actually diminishes our ability to recall our experiences, diverts our attention, and takes us out of the moment. Constantly sharing photos may even be changing how we recall events in our own lives.
The Chicago Blackhawks signed a 36 year old accountant to be its emergency goalie, sure enough there was an emergency, he played 14 minutes and did great:
Foster was pressed into action when Chicago lost Anton Forsberg and Collin Delia to injuries, and the former college goalie stopped all seven shots he faced over the final 14 minutes of the Blackhawks’ 6-2 victory over the playoff-bound Winnipeg Jets on Thursday.
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, Forbes, ESPN