AdvisorShares Weekly Market Review – Week Ending 3/31/2017
Highlights of the Prior Week
Brexit Is On The Clock
Teresa May began the process of separating from the EU by invoking Article 50 which puts a two year process into play. Not only are there economic issues at stake but there are also matters of security and law enforcement that need to be ironed out to everyone’s satisfaction. It is still a difficult matter at home for the Brits because while the referendum clearly won last summer there is a large portion of the population that does not think Brexiting is a good idea and there is some not easily quantifiable number of people who voted in favor but who have since had Bremorse. Additionally Scotland is going to proceed with another referendum to separate from Great Britain. This came up almost a year and half ago and failed. The FTSE 100 appears to be comfortable with the uncertainty created by this event, it has rallied 18% since the vote (and 2.79% this year) which is several hundred basis points ahead of the S&P 500. The UK gilt yield may be telling a different story. At the time of the vote it paid 1.31%. It subsequently panicked down to 0.51%, recovered but has been trending lower to its current 1.12% since December.
We all know the cliche that markets like to climb a wall of worry but it is not clear that the equity market is all that worried right now. The President has had some setbacks and his overall approval numbers are low but the University of Michigan survey reveals that confidence that Trump is the right person for the economy are shockingly high, just under 30%, relative to the study’s history. A point we have made here many times is that sticking to an investment strategy is far more important than guessing whether Trump turns out to be good, bad or indifferent for anything. This was true under his predecessor and will be true under his successor.
With all of that as a build up, domestic equity markets were strongly higher in the first quarter even if they flattened out in March. The Dow Jones Industrial Average added 4.55%, the S&P 500 gained 5.53% and the NASDAQ led the group with a 9.82% lift. If there was any disappointment it was from the 2.12% bump for the Russell 2000.
The final revision to fourth quarter GDP printed at 2.1% which was slightly better than the 2.0% that was expected. That might not seem so great but expectations for Q1 2017 are much lower. Nomura is looking for 1.1%. Even the Atlanta Fed which always seems to run very hot early in a quarter and then cutting estimates as the release gets closer is now at 1.0%. While President Trump’s agenda has stumbled some coming out of the blocks, it is widely known that his plans assume 4% GDP in order to avoid the debt load from exploding. The FOMC appears to be committed to two more rate hikes this year and while GDP growth is not one of its mandates we have to wonder whether something will change in their policy expectations.
The foreign equity markets turned in a mixed performance. The DAX gained 7.25%, the CAC 40 added 5.19%, the Nikkei 225 was the only one of the markets we regularly follow to drop as it gave up 1.02%, the Shanghai Composite moved ahead 3.83% while the Hang Seng jumped 9.71%. Even the KOSPI was strong despite ongoing problems with its neighbor to the north and the ongoing political drama at home that finds impeached President Park having just been put in jail.
West Texas Intermediate Crude had an interesting quarter. For the first two months it spent almost all of its time between $52 and $54. March was a different story as it took a bit of a dive including a 9% drop in one week on supply concerns before rallying back to close the quarter back above $50 but still down $4 on the year. Gold priced in US dollars had a bumpy ride to a $100 gain to close at $1251. Interestingly, despite that strength, gold is still $10 below its 200 day moving average.
Finally, it was also a wild ride for the yield on the Ten Year US Treasury Note which closed at 2.39% after starting 2017 at 2.44%. We say wild ride for the second failure since December to break above 2.60% and the extent to which the yield curve is flattening. The FOMC raised rates as everyone knows at its March meeting and as mentioned above has given strong indications of more to come in 2017 yet the longer end is rallying in terms of price.
Thenextweb tells us what we already know, that Autoplay Video Is A Plague That Can’t Be Stopped;
The thing is… nobody asked for autoplay video. It’s a dark user pattern and it’s not something people ever desired or wanted – it only exists in pursuit of one goal: advertising dollars, or even more simply: stealing your attention back.
The NFL is headed to the Nevada desert as Las Vegas Lures Oakland Raiders With A Record Breaking Taxpayer Subsidy. Slate questions some of the economics and assumptions made in putting the deal together.
A tax on hotel rooms at first seems to be an affair for the tourism industry. Hotel owners testified in its favor. And so we have a battle between two interconnected ideas:
- Taxes go up, tourism goes down.
- Stadium goes up, tourism goes up.
But these days, about half the room tax goes to support state schools and county transportation. So if the new tax on hotel rooms directed to the stadium does drive room prices down, the money comes out of schools and buses. In fiscal year 2015, a quarter of the tax paid for Nevada education, another 14 percent for the Clark County School District, and 9 percent for Clark County Transportation.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Slate
As for the sectors of the S&P 500, seven outperformed the broad benchmark – Energy, Discretionary, Materials, Technology, Industrials, Real Estate, and Financials. The remaining four – Healthcare, Staples, Telecom, and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.39% for the week ending 3/31/17, with Energy outperforming all, and Utilities coming in last.
For March 27th, 2017 to March 31st, 2017
As measured by the S&P 500 sector indices, respective performances were: