AdvisorShares Weekly Market Review – Week Ending 3/3/2017
Highlights of the Prior Week
Bull Market Turns 8 This Week!
President Trump’s speech on Tuesday was interesting and generally well received. While no President can please everyone, this speech was generally light on bluster and inflammatory comments, sounding more presidential than at some other, recent public appearances. While there was still spin and other liberties with the truth, markets reacted favorably to the speech lifting more than one percent for the four major domestic benchmarks including new big figures for the Dow and S&P on Wednesday. Regardless of ideology or anything else, Americans should want its president to succeed. Markets could stop going up at any time for any reason but we would say that a disciplined approach to defensive action is far better than going by the seat of your pants or otherwise guessing and the unexpected double digit gains since the election supports the thesis.
The other big political item from last week (well, maybe there was more than one other) was the cloud over Attorney General Jeff Sessions. We won’t devote much to it here only to say it seemed to matter for Main Street, even if not Wall Street which was higher although did tail off some toward the end of the week. Last week the Dow Jones Industrial Average gained 0.86%, the S&P 500 tacked on 65 basis points, the NASDAQ moved ahead 0.41% while the Russell 2000 dropped six basis points.
In last week’s update we considered the mixed messages of the market, some positive and some of course negative. As a quick follow up to that discussion the first day performance of Snap (NYSE: SNAP) on Thursday where it rallied 44% (and up another 10% Friday) would be a positive in terms of willingness to speculate and confidence that markets will continue higher. We are not trying to make a prediction either way but do believe it is important to be cognizant of prevailing pros and cons.
The big data point last week was Q4 GDP which was a little light at 1.9% (there is still one more look coming) which if it sticks would leave growth at 1.6% for all of 2016 which CNBC says is the worst year since 2011 and down 100 basis points versus 2015. Despite that news, FOMC members including Janet Yellen seem to have made it very clear that there will be a rate hike in March which would leave room on the calendar for three relatively easy steps this year as opposed to potentially cramming three hikes into six months. A rate hike this month also helps build in room to cut should something drastic happen. The FOMC repeatedly said it had other tools beyond rate cuts but it would be preferable for the US to not have to go through a policy experiment.
The yield on the Ten Year US Treasury Note jumped to 2.49% last week with most of the gain coming Wednesday, the day after the speech. The Two Year Treasury jumped levels not seen in many years at 1.32%. The Two Year is said to be most sensitive to Fed policy to this makes sense but the jump here is worth paying attention to.
Much was made during the week of Fidelity’s big drop in stock and ETF commissions from $7.95 to $4.95. This was in reaction to another firm’s cut and prompted at least one other firm to cut its commission. For years now, most online brokerage firms (amazing how the word “discount” is no longer used) have offered some large number of ETFs for trade comission-free which is great for advisory clients and do-it-yourselfers to reduce their expenses and now $4.95 makes that even easier still. To the extent most investors only make a few trades a year, perhaps the benefit is most realized when implementing a new portfolio, selling out the old and buying the new like when a client changes managers. Twenty five years ago this might have cost a couple of thousand dollars and now maybe $100. The other big benefit is it allows smaller accounts to have more precise exposures without being economically inefficient. At $15 per trade maybe a third bond fund for a $100,000 account isn’t such a great idea; different story at $4.95.
In news that may or may not be related, Fidelity offered buyouts to employees who are at least 55 years old with ten years of service to the company.
With an issue that is near and dear to us, the Wall Street Journal reports Firehouses Raise Alarm Over Lack Of Young Recruits. While we find the topic interesting, so too is the number of comments the article has drawn;
The China Village Volunteer Fire Department has 21 volunteers, but only six can fight fires. Most of the rest, said Fire Chief Tim Theriault, are simply too old. “They come and they help and hang around, but I can’t send them into a fire,” Mr. Theriault said. “It’s a young man’s sport.” The firehouse in China, Maine, a wooded town northeast of Augusta, is one of many departments whose staffing needs are caught in a demographic trap, with not enough young volunteers climbing onto firetrucks to replace the elders.
You may have missed it but there has been upheaval in the two indoor professional football league. The Arena Football League (AFL), the one that goes back to the 1980’s, has been gutted and now has just five teams in it. Many teams have folded including the LA Kiss whose ownership included Gene Simmons and Paul Stanley from the band Kiss, The team apparently ceased operations without telling its players right away. The Orlando Predators, San Jose Sabercats and Portland Steel also have folded. The Arizona Rattlers and the Iowa Barnstormers have moved to the Indoor Football League (IFL) which started its season in February with ten teams. The IFL in its current form started in 2009 but it is complicated, more than IFL 20 teams have folded since 2009 including two teams from Alaska.
As for the sectors of the S&P 500, three outperformed the broad benchmark – Financials, Energy, and Healthcare. The remaining eight –Industrials, Technology, Materials, Discretionary, Utilities, Staples, Real Estate, and Telecom – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.14% for the week ending 3/3/17, with Financials outperforming all, and Telecom coming in last.
For February 28th, 2017 to March 3rd, 2017
As measured by the S&P 500 sector indices, respective performances were: