AdvisorShares Weekly Market Review – Week Ending 4/28/2017
Highlights of the Prior Week
The First 100 Days
Market participants will know the term bifurcated market and right now we have a bifurcated electorate. At the 100 day mark (actually as of 99 days) President Trump’s approval rating was 39% which is by far the lowest after 100 days for many decades. However, among Republican voters his approval is very high (we saw one survey at 80%). Marty Schenker, Bloomberg’s Senior Executive Editor, had a very instructive sentiment for how to view the President. He said that America voted in a different kind of President and so we have a different kind of presidency.
Trump laid out a very specific legislative agenda that so far has not come to pass in terms of health care and tax reform as the headliners. The timetable now for either one depends on who you ask. The fate of the wall seems to be in question. He has had a few negative encounters with other world leaders; detractors would say he doesn’t know what he is doing and supporters would say he is being tough and that is exactly what they wanted.
One component of the Trump’s campaign was his ability to be a tough negotiator especially with respect to NAFTA, NATO and labeling China as a currency manipulator. John Oliver from HBO took Trump to task because as Oliver put it, it only took Xi Jinping ten minutes during dinner to talk Trump out of labeling China as such. Similarly, Trump said NATO was no longer irrelevant after talking to Jens Stoltenberg and it appears the US won’t be pulling out of NAFTA after phone calls from Justin Trudeau and Enrique Pena Nieto, we will instead renegotiate. Supporters would say this is the master deal maker getting exactly what he wanted while detractors doubt his ability to do the job.
Back to Schenker who also said Trump has succeeded in setting a disruptive tone which is what his base wanted. Whatever the reality, markets have not been disrupted. Since election day all the broad, domestic benchmarks are up double digits. Year to date the Dow Jones Industrial Average is up 5.96%, the S&P 500 is up 6.49%, the NASDAQ had gained 12.33% (much of that coming in April) and the Russell 2000 has rallied 3.18%. Markets did flatten out some in March but turned back up in mid-April for 1-2% gains for the month. Political volatility up to this point has far exceeded stock market volatility.
The big data point during the week was GDP which disappointed at 0.7%. Like everything else, the number is being politicized but perhaps with good reason. He campaigned on a 4% GDP expectation and it is believed that without 4% his policies if enacted would cause the country’s indebtedness to soar. Just this past week, Treasury Secretary Steve Mnuchin was clear that 3% GDP growth is achievable. For now, that is difficult to see but again, sub-4% would be problematic for the President’s agenda.
You can now go have fun at a National Park near you this summer as the federal government averted a shutdown at just about the last minute. This might be cause for a little optimism that Congress could be able to find common ground on other legislative matters.
Closing out the books on the French election (unless Marine Le Pen wins on May 7th), the CAC 40 rallied 4.33% after the election and the DAX moved up 2.83% in sympathy. Last week we noted the spread between the French OAT and the German bund which had become something of a risk proxy under the cloud of a possible Frexit. Before the election that spread read at 0.69%, it came in immediately after the election and closed the week at 52 basis points.
The Fund of Information column in Barron’s focused on smart beta ETFs citing them as the “biggest disruption.” We’re not so sure about that characterization but the column goes on to address the risk, comparing to tech stocks in 2000 saying that the number of strategic, or smart beta, products launched in the past few years is worrisome, rivaling the flood of poorly conceived dot-coms launched in the late 1990s. Will most be more successful than Pets.com? This is very misguided. A different weighting of the same index constituents won’t result in a Pets.com-like zeroing out unless the benchmark zeroes out. This risk is lagging the benchmark. If the S&P 500 is up 10% in some random year, a broad-based large cap smart beta ETF won’t cut in half in that same random year.
Speaking of National Parks, we’re big fans of the WPA artwork that many parks use for posters, postcards and magnets. Mashable gives us Grim National Park Posters Show What Climate Change Could Do By 2050;
For a place like Yellowstone she quickly discovered that reduced snow melt would keep geysers, like Old Faithful, from erupting, which she depicts in the barren Yellowstone scene. Other impacts, like a parched Colorado River, would directly affect people who depend on the river as a water and food source.
The Pittsburgh Steelers drafted University of Pittsburgh running back and cancer survivor James Conner. If you don’t well up on this one you may want to check for a pulse. From SB Nation;
That’s inspiring as hell in any setting. It was a big deal in Pittsburgh, where the local ethos is all about phrases like “toughness” and “adversity” and, of course, “power football.” It’s been that way since the Steelers became a powerhouse in the ‘70s and the steel industry collapsed a few decades ago. Pittsburgh prides itself on sticking out bad times.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, SB Nation, Mashable
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark – Technology, Healthcare, Discretionary, Materials, and Financials. The remaining six – Industrials, Staples, Energy, Utilities, Telecom, and Real Estate – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.66% for the week ending 4/28/17, with Technology outperforming all, and Real Estate coming in last.
For April 24th, 2017 to April 28th, 2017
As measured by the S&P 500 sector indices, respective performances were: