AdvisorShares Weekly Market Review – Week Ending 4/20/2018
Highlights of the Prior Week
Markets Don’t Close 4/20 On A High
Domestic equity markets started strong last week but struggled into Friday’s close managing to hold some gains. The Dow Jones Industrial Average was up 0.40%, the S&P 500 gained 0.50% and the NASDAQ added 0.60%.
Barron’s devoted a lot of pixels to the latest goings on with the slope of the yield curve. Earlier in the week the 2-10 treasury spread got close to 40 basis points before widening out to 49 basis points at the end of the week. This is something we have been closely following here for months. It is important to understand at a basic level why yield curve dynamics are so important. When the curve is positively sloped, which is the normal relationship, then access to capital is easier from the standpoint that lending money is a profitable endeavor for the banks. Accessing capital is crucial for growth, plant expansion, capacity expansion and so on. When the yield curve inverts, borrowing money as a means of accessing capital becomes harder to do thus it can be contractionary for the economy.
There can be investment implications for a flattening or steepening curve that we have also discussed here before including the tendency for a flatter curve to be better for growth versus value although the typical advisor may not need to game that sort of nuance for client accounts. Barron’s expressed a potential this time is different idea related to the weakening dollar, that a flatter curve combined with the trend for dollar weakness might make things worse leading to “financial pain and recessionary volatility…”
Obviously any outcome is possible but we are less concerned by a flat curve than an inverted curve. With history as a guide, the curve isn’t inverted until it is inverted. We wouldn’t rely solely on the slope of the yield curve but it has proven to be very important in past cycles.
West Texas Intermediate Crude has come on like gangbusters over the last two months rising from $58 up to $68. The energy sector of the equity market have been slow to catch on but over the last three weeks the larger energy sector funds are up better than 10%. The energy sector’s volatility is very difficult to manage because of how volatile the underlying commodity is, but having no exposure is a big bet, especially if as it appears, the rest of the market is rolling over and energy is just starting a long run of outperformance.
A mass closure that seemed to be months in the making, Barclays finally shuttered its suite of commodity ETNs. Barron’s provided a a through recap but the short version of the story is that the terms of the notes were unfavorable to the bank, they were flawed from the bank’s perspective. Many of the old ETNs have been replaced by new ETNs with terms that provide more flexibility to the bank.
One reason for Barclays’ decision to close dozens of its ETNs is that many of them lacked a feature that most ETNs launched after the crisis possess—the call-back feature.
Ever wonder where 420 came from? The San Francisco Chronicle has the story dating back to San Rafael High in 1971.
The code was a way for the boys, who nicknamed themselves the Waldos after a wall where they sat cracking jokes between classes, to talk about cannabis without adults knowing what they were up to. They whispered, “420 Louis” to each other in the halls, and met at the statue of Louis Pasteur in front of the school. Their quest for the pot patch ended without success, but the code took on a life of its own and — thanks to the teens, their friends and even the Grateful Dead — spread around the globe in the decades after.
The Boston Marathon ran last Monday and the runner up in the women’s division was a nurse from Arizona competing in only her second marathon. Hopefully this isn’t another Rosie Ruiz situation.
At first glance, Sellers seemed to have a low profile on social media (although there does appear to be a country music singer by the same name), and Google searches of her name turned up little to nothing. She was not identified in many photos moved by wire services on Monday, and several breaking stories mentioned her just once — to note that she finished second.
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, Slate