AdvisorShares Weekly Market Review – Week Ending 5/19/2017
Highlights of the Prior Week
Political Volatility Catches Up To Markets (Kind Of)
In last week’s Market Update, we wondered whether domestic equity markets might be in denial over the political volatility currently grabbing the nation’s attention. The VIX had been sputtering and equity trading had been directionless. This continued through Tuesday of this past week then came Wednesday when all the markets fell 1-2% over some plot twist on an episode of The Apprentice, DC Style (no claim of originality for that joke). Wednesday was only the second day of the year where declines exceeded 1%. Thursday and Friday saw strong bounces.
The VIX wasn’t impressed, it rallied higher with the decline in the indexes as might be expected but finished the week just above 12. For the week, the Dow Jones Industrial Average fell 0.45%, the S&P 500 was down 0.39%, the NASDAQ gave up 0.64% and the Russell 200 shed 1.15%
If the U.S. has been underreacting to political shenanigans, Brazil overreacted to its latest Presidential scandal, a possible bribery case involving Michel Temer made public on Thursday. The benchmark Bovespa fell 14% and the currency, the real, fell 7%. The huge decline is a little surprising in that the previous two Brazilian President faced many allegations related to corruption. Markets fear the unfamiliar but where Brazil is concerned, there is nothing unfamiliar about this type story.
The treasury market was less able to shrug off the week’s events. The yield on the Ten Year U.S. Treasury note closed the week at 2.22%, close to low on the week after falling 11 basis points amid Wednesday’s turmoil. The CME’s FedWatch Tool on Friday showed only a 78% chance of a rate hike in June versus a 99% probability earlier in the month. A lot was made during the week of the 2-10 year Treasury spread narrowing below 100 basis points. The flattening curve is a concern for the longevity of the economic cycle on the idea that if lending is adversely impacted there is less growth potential which is how recessions start. Without trying to predict anything, we note the condition as well as the weak GDP number and acknowledge that many other economic data points are quite healthy these days.
The year to date decline of the U.S. Dollar Index (DXY) took a steeper turn last week down to 97. It was just a few months ago at 103 that we talked about that level being the historical upper end of the range. Bullishness for further gains was plentiful but sometimes past resistance wins. The DXY is a long way from any downside support as significant as 103 has been to the upside. The DXY was at 80 in 2014. There are positives and negatives to a dollar trending lower including foreign equity holdings providing the currency appreciation tail wind for investors.
West Texas Intermediate Crude rallied almost 4% on the week and gold predicated in U.S. dollars added 2% with both helped in part by the dollar’s weakness.
In last week’s Update we looked at creative destruction in the retail industry caused by the larger online retailers. This week’s Barron’s Fund Of Information column looks at the creative destruction for traditional mutual funds caused by ETFs:
“We’re seeing more funds being killed off and a declining net creation of open-end funds,” says Russ Kinnel, director of manager research at Morningstar. “It is striking for this late in the bull market, and it shows the kind of strain the industry is under.” Over the past several years, the rate of mutual fund mergers and liquidations has steadily picked up. During the first four months of 2017, the industry retired 139 distinct U.S. open-ended mutual funds (based on oldest share class) via mergers (32) or liquidations (107), according to Morningstar. Meanwhile, fund companies rolled out fewer new funds, just 110 so far this year. This comes after 442 departures in 2016—the most we have seen since 2009, when 618 funds merged or liquidated. No doubt, the rise of exchange-traded funds has put even more pressure on fund families to merge redundant funds and liquidate their laggards.
This is, um…interesting; Komodo Dragon Blood May Hold The Secret To Killing Superbugs:
The blood of the endangered Komodo dragon is known for its toxicity, but the world’s largest lizard also appears impervious to disease and infection. A team of researchers who spent the past four years analyzing Komodo blood discovered it’s loaded with compounds that could be used as antibiotics. They say they’re hoping to turn those compounds into drugs that may be worth billions of dollars and save millions of lives.
ESPN shares #NBArank: #NBArank: The Top 10 NBA Uniforms Of All Time but one glaring omission was the Atlanta Hawks green and blue from the Pete Maravich era in the early 1970’s (look them up). From the article:
Nowadays, practically every team in every sports dresses up in stars and stripes for various patriotic promotions. But has any star-spangled uniform ever looked as good as the one worn by the Dr. J-era Nets? Nope.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, ESPN