AdvisorShares Weekly Market Review – Week Ending 4/17/2015
Highlights of the Prior Week
A Bloomberg Outage Caused The Market To Fall? Really?
Domestic equity markets were cruising along to a flat week until Friday when the markets generally fell by more than 1%. Contributing to the decline may have been the reported uptick in year over year CPI to 1.8%, some focused on the news that China will try to curb speculation in its equity markets, the decline in European equities didn’t help and we heard at least two pundits attribute the selloff at least in part to a system outage of Bloomberg Trading Terminals. A lack of bond quotes caused equities to decline? People often need things to be easily explained. The market went down because of such and such. This is called the fallacy of explanation; sometimes there is no reason, the market just goes down.
For the week the Dow Jones Industrial Average and NASDAQ each fell 1.28%, the S&P 500 fell 99 basis points and the Russell 2000 gave back 1.01%. US markets are now well into earnings season and our friends at Bespoke Investment Group report that of the roughly 100 companies that have reported so far, 63.7% have beaten earnings expectations while only 42.1% have exceeded revenue estimates which is on pace to be the weakest top line performance since the heart of the financial crisis.
Foreign equity markets mostly took a breather last week from some heroic year to date moves. The DAX in Germany fell 5.54%, the FTSE 100 lost 1.35% and in France the CAC gave up 1.92%. Asia was more mixed as the Shanghai Index gained 6.29%, the Hang Seng added 1.4% but the Nikkei fell by 1.27% and the ASX 200 was down 1.61%. It should be noted that the news of curbing speculation came out after the Chinese markets closed. Chinese ETFs trading in the US gave insight into how Chinese markets might react with many funds seeing declines on Friday in the 4-5% range.
Global bond markets were a mixed bag last week. The Ten Year US Treasury Note yield fell to 1.85%. The German bund yield cut almost in half to yield eight basis points and now there is a waiting game to see when it goes negative. The French OAT fell 6 basis points to yield 0.37% but yields in Spain and Italy went up to 1.45% and 1.48% respectively. The Swiss ten year moved quite a bit further into negative territory at -0.15%. Last week we mentioned that the front end of the yield curve in Spain went negative and now Portugal appears to be headed in the same direction as its six month and two year paper now yield less than 10 basis points.
The Magical Mystery Tour that is the West Texas Intermediate Crude market continued last week with a 7.9% gain, its fifth week of gains in a row. Gold was a little tamer, gaining 1% on the week. Gold has taken a beating of perception over the last few years for doing poorly but to the extent gold is meant to diversify an equity portfolio it shouldn’t trade in line with equities and it hasn’t. The last week of equities down 1%/gold up 1% is obviously just a microcosm but it is indicative of the last few years which has seen equities go up a lot and gold go down a lot. The dollar was generally weaker last week. The euro gained 1.8% against USD, while the British pound added more than 2%. Dollar/yen was more subdued with a 69 basis point dip.
ETF News & Data
Last week was quiet in terms of fund issuance and flows. There were three disparate funds launched covering China, the UK and a factor based domestic equity fund. The list of creations was a who’s who of hot themes including foreign equity funds (currency hedged and unhedged). The outflow leaderboard had several funds related to consumer discretionary including a retailer fund and home builder fund. Overall, there was $5.6 billion flowing to foreign equity funds and $400 million flowing out of domestic equity funds.
The Barron’s ETF Focus column took a look at whether ETFs might be having a bigger influence on the movement of stock prices than previously believed. At issue is whether the increase in the trading of index baskets which has the effect of “herding stocks together” is increasing the correlation and contributing to the general struggle that stock pickers have had with outperforming the market.
We stumbled across a concise explanation of the Minsky Moment from the BBC who asked Did Hyman Minsky Find The Secret Behind Financial Crashes?
Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.
As a bonus is 30 Hacks That Prove WD-40 Is God’s Gift To The World. Among other things it can make shoveling snow easier, winterize boots and clean stains.
Do you like the NFL? What about the Star Wars movies? An artist in Mexico has combined the two designing Star Wars themed helmets based on the helmet design of all 32 NFL teams. With the upcoming Star Wars: The Force Awakens due to hit theaters in December this would seem to be a potential crossover bonanza for Riddell, the company that makes most NFL helmets. NFL.com posted all 32 of them and ESPN offered commentary on a select few of them. Two of our favorites were the Ryloth Interceptors (Atlanta Falcons) and Coruscant Vaders (Oakland Raiders).
Weekly ETF Flows
For April 13, 2015 to April 17, 2015
S&P Sector Analysis
As for the sectors of the S&P 500, three outperformed the broad benchmark Energy, Materials, and Financials. The remaining seven – Healthcare, Telecom, Staples, Utilities, Technology, Discretionary, and Industrials – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.34% this week, with Energy outperforming all, and Industrials coming in last.
For April 13, 2015 to April 17, 2015