AdvisorShares Weekly Market Review – Week Ending 4/8/2016
Highlights of the Prior Week
Heads (Of State) Are Gonna Roll?
Last Monday we mentioned the so called Panama Papers in passing with a stay tuned point of view and sure enough the story has and continues to unfold. The biggest news for now appears to be the resignation of Iceland’s Prime Minister Sigmundur David Gunnlaugsson after it was discovered/alleged that he may have had some shady dealings. For his part however, Gunnlaugsson claimed he was just stepping aside for now, and not because of the Panama Papers. A bigger domino would be if David Cameron’s inclusion in the scandal via an investment he inherited from his father were to lead to his ouster.
It was kind of a quiet week on the economic front and so a quiet week for domestic equities which drifted lower going into the start of the Q1 earnings season in which profits are estimated to decline 7.9%. The Dow Jones Industrial Average fell 1.20%, the S&P 500 dropped the same 1.20%, the NASDAQ gave up 1.31% while the Russell 2000 slid 1.83%. The ferocious rally that started in mid-February appears to have stalled out for now. In our previous update we noted the possible break in the connection between domestic equities and crude oil and that divergence continued last week as West Texas Intermediate Crude rallied 8.96%, more than 6% on Friday alone.
All of the foreign equity markets we follow in this report were lower last week except for the FTSE 100 which rallied 95 basis points despite declines in industrial production and manufacturing. The DAX fell 1.76% and the CAC 40 dipped 57 basis points. In Asia, the Nikkei 225 fell 2.12%, the Shanghai Composite gave up 0.79%, the Hang Seng lost 62 basis points and the ASX 200 was off 1.24%.
In news that won’t surprise anyone; bond yields are still very low. The Ten Year US Treasury Note now yields 1.72%, the German bund now pays nine basis points, yes nine, the French OAT is much higher at 0.44%, the Swiss ten year note has moved further into negative territory at -0.36% while the JGB charges 0.075% (meaning the yield is negative).
Continuing the thought on Japan is the curious action of the yen. As soon as the Bank of Japan set out to devalue its currency the yen immediately rocketed higher as the dollar has lost 9% in the last two months. Barron’s Up & Down Wall Street column was devoted to trying to sort this out, offering several possible explanations from several experts but with no real conclusions. Throwing our hat in the ring, we explored the notion of heavy handed central banks here before and the extent to which things often do not go as planned. The FOMC policy of the last eight years as well as the various asset purchases have delivered far less than what was expected in terms of growth and economic activity but yet heavy handed central bank policy won’t be going away anytime soon.
ETF News & Data
ETF.com reported that $7.4 billion flowed into ETFs last week with $6.4 billion going toward equity funds despite the decline in the markets. Funds tracking the S&P 500 garnered close to $2 billion of that inflow. There were also sizeable flows into REITs, healthcare, tech and TIPS.
There were five new funds launched last week. They were a mix of inverse and dividend oriented funds from Direxion and WisdomTree.
Rolling Stone takes a long look at Kurt Cobain’s Downward Spiral: The Last Days Of Nirvana’s Leader;
It wasn’t, however, until eight days after Cobain returned to Seattle from Rome to recuperate from a failed suicide attempt in March that those close to him realized that it was time to resort to drastic measures. Cobain had gone “cuckoo,” says Gold Mountain Entertainment’s Janet Billig, who manages Courtney Love’s band Hole. Along with several domestic disputes, Cobain’s relationship with Nirvana was rocky. In fact, Love told MTV that Cobain said to her in the weeks after Rome: “I hate it — I can’t play with them anymore.” She added that he only wanted to work with Michael Stipe of R.E.M.
With baseball having started, ESPN reports Better, Faster,Younger: Why Baseball’s Young Stars Are Its Best In 20 Years. There’s math involved;
To measure just how drastically youth has taken over MLB, The Mag, with the help of Ben Alamar, ESPN’s director of sports analytics, studied the past three decades of elite seasons by players — which we defined as 1 standard deviation or more above average in wins above replacement. Alamar found that, beginning in the early 1990s, the proportion of elite seasons by position players ages 25 and under declined sharply, bottoming out at 5.9 percent in 2002. Then it started to rise, and it has jumped sharply in the past two years, hitting a whopping 34.4 percent in 2015. (The data is similar, though not as dramatic, for pitchers.) In short, young players are producing more great seasons than they have in a generation.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, The Guardian, Bespoke Investment Group, RollingStone, ESPN
For April 4th, 2016 to April 8th, 2016
As for the sectors of the S&P 500, four outperformed the broad benchmark – Technology, Staples, Discretionary, and Healthcare. The remaining six – Utilities, Financials, Materials, Industrials, Telecom, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 4.00% this week, with Technology outperforming all, and Energy coming in last.
For April 4th, 2016 to April 8th, 2016
As measured by the S&P 500 sector indices, respective performances were: