AdvisorShares Weekly Market Review – Week Ending 3/6/2015
Highlights of the Prior Week
NASDAQ 5000, And It Lasted For Almost 24 Hours!
Like many of the recent jobs reports there were things to like and things to dislike. There were 295,000 new jobs created which was well ahead of expectations which was a “like.” Also in the “like” column was the headline unemployment rate dropping to 5.5% and the broader U6 unemployment rate dropping to 11.0%. The labor force participation rate printed at 62.8% which is roughly where it has been for many months and while it would be nice to see it increase, this number is probably a neutral.
The news triggered a jump in interest rates and a modest selloff in stocks in Friday trading as some view the report as validating the Fed’s intention to raise rates mid-year.
However the jobs report raised the question of a potential dilemma faced by the Fed that emerged from the a big “dislike” from the jobs report which is wage growth which was 0.1% in February after coming in at 0.5% for January but only 0.2% for the trailing 12 months. Low wage growth implies that the jobs being created are relatively low paying and while this is not new it questions the economy’s ability to tolerate a rate hike. The lack of wage growth in this recovery is unusual compared to past recoveries as is the relatively low GDP growth of this recovery.
When the US first began its zero percent interest rate policy and asset purchase program there were concerns about a ruinous outcome but what we may be seeing is just an odd and distorted outcome.
The NASDAQ Composite hit 5000 on Monday for the first time since a handful of closes above that level 15 years ago. There was much fanfare as well as plenty of commentary about why the 2015 vintage is different than it was in 2000. However it would reasonable to wonder if it is any different based on market action. After closing above that level Monday it went back below it early Tuesday and continued to back away all week.
All of the indexes finished lower last week with the Dow Jones Industrial Average dropping 1.53%, the S&P 500 losing 1.57%, the NASDAQ slid by 0.73% and the Russell 2000 gave up 1.30%. For a little bit of fun trivia, today is the sixth anniversary of the financial crisis market-bottom.
Foreign equity markets were mixed last week. On the upside the German Dax was up 1.31%, the Nikkei 225 gained 92 basis points, Switzerland added 78 basis points and the CAC 40 in France was up 33 basis points. On the downside, the Hang Seng dropped 2.7%, in Shanghai equities gave up 2.09%, Australia fell by 50 basis points and the FTSE 100 gave up 47 basis points.
The yield on the US Ten Year Treasury Note increased by 24 basis points last week to 2.24% after going up 13 basis points the week before with half of that gain coming on the heels of Friday’s jobs report. While yields in the US moved swiftly higher last week, the European bond markets we regularly follow here had a week with no discernable pattern. The German bund yield went up six basis points to yield 0.39% and five year German paper still has a negative yield. Yields in France also went up as the OAT now yields 0.69%. The Swiss ten year swung back into the negative territory at -0.02%. Spain upticked to 1.30% and Italy held steady at 1.33% and now 91 basis points less than its US counterpart.
Barron’s suggested that the European Central Bank’s commencement of its asset purchase program today could mean that yields in negative territory stay there for an extended period because of the ECB’s buying demand.
There was also a milestone it in the currency market as EURUSD went below 1.10 for the first time since 2003, actually closing well below that level with a 108 handle. The British pound also fell against the dollar last week while the USD marched higher against the yen.
ETF News & Data
There were five new funds launched last week; a currency hedged equity small cap fund from WisdomTree, a suite of interest rate hedged bond funds from Deutsche Bank as part of their X-trackers product line and an actively managed short term, muni bond fund from iShares.
Standouts on the inflow list last week included consumer discretionary funds which attracted $2 billion and currency hedged international equity funds with $1.9 billion. Aside from the $2.7 billion flowing out of the SPDR S&P 500, the outflow list was dominated by bond funds from various sectors and utilities sector funds like due to the sharp rise in rates.
ESPN had a very interesting profile of The Man In The Van who is actually a top pitching prospect for the Toronto Blue Jays, Daniel Norris. For spring training he is essentially van-camping at the Walmart parking lot near the Blue Jay’s training camp facility because that is the best way for him to stay balanced and happy while competing for the fifth starter’s spot in the rotation. But there is much more to the story, the off season activity which includes a job, the pictures he posts on Twitter and everything else that is part of his almost-bohemian lifestyle. The Blue Jays organization has no problem with it for reasons that will be abundantly clear from reading the article.
His advisers deposit $800 a month into his checking account — or about half as much as he would earn working full time for minimum wage. It’s enough to live in a van, but just barely. “I’m actually more comfortable being kind of poor,” he says, because not having money maintains his lifestyle and limits the temptation to conform.
You may remember a pretty good college basketball player at Ole Miss from a couple of years named Marshall Henderson who had plenty of game but even more behavior problems. He misbehaved his way out of a shot in the NBA, for now anyway, but Yahoo Sports reports that he has landed in Iraq where his agent says he makes $10,000 per month plus his expenses for living in a hotel. Henderson reports that he feels safe there but that he doesn’t leave the hotel very often.
On a more upbeat note we were glad to see NBA sideline reporter Craig Sager return to action at TNT after winning his battle against leukemia.
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, Business Insider, ETF.com, XTF.com, Convergex,ESPN, Wildfire Magazine
For March 2, 2015 to March 6, 2015
As for the sectors of the S&P 500, five outperformed the broad benchmark – Telecom, Energy, Financials, Materials and Discretionary. The remaining five – Industrials, Technology, Staples, Healthcare and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 10.59% this week, with Telecom outperforming all, and Utilities coming in last.
For March 2, 2015 to March 6, 2015
As measured by the S&P 500 sector indices, respective performances were: