AdvisorShares Weekly Market Review – Week Ending 5/20/2016
Highlights of the Prior Week
So The Fed Is Going To Hike?
For the previous few weeks the Fed governors, excluding Bill Dudley, seemed to be backing away from the possibility of rat hike in June. Come this past week and the release of the FOMC minutes and whammy, a hike is clearly (ahem) back on the table and while there was a noticeable reaction in the bond market, equities seemed to take it in stride.
The Dow Jones Industrial Average was the only major index to fall with a modest 21 basis point dip. The S&P 500 gained 27 basis points, the NASDAQ added 1.10% thanks in part to a 5% pop in the semiconductor group, and the Russell 2000 gained 0.73%.
While most market participants would rather see the market rally even a little bit, the gains didn’t do anything to take the indexes out of what seems like a narrowing trading range of the last few months and the S&P 500 opens the week still 80 points below the high set one year ago. Where Fed induced uncertainty has coexisted with a narrow trading range, perhaps clarity of policy can be a catalyst for a break out of that trading range. CPI printed at a relatively healthy 0.4% which might lend some additional support to a rate hike.
The week was marred by the crash of Egyptair flight 804 from Paris to Cairo into the Mediterranean. As of this writing the cause is unknown but of course in this sort of situation it is natural to wonder about terrorism. We won’t endeavor to speculate but would pass along an interesting idea put forth by former Homeland Security Advisor Frances Townsend who said on CNBC that relying TSA checkpoints is too late, terrorists are stopped by intelligence. We don’t expect this revelation to lead to faster lines at the airport.
Foreign equity markets were similarly mixed and similarly flat. The DAX gained 0.47%, the FTSE 100 added 29 basis points and the CAC 40 tacked on 0.64%. In Asia the Nikkei 225 was the big winner for the week with a 1.99% advance followed by a 0.69% gain for the Hang Seng and a 0.57% lift for the ASX 200. Only the Shanghai Composite fell, giving up just eight basis points.
The yield on the Ten Year US Treasury Note jumped 15 basis points to 1.84% with most of the gain coinciding with the release of the FOMC minutes. The German bund moved up to 0.16%, the French OAT moved up three basis points to 0.50%, the UK gilt also higher, up to 1.45% while Switzerland is charging 0.27% and the JGB came in at -0.11%.
One dynamic of the ECB’s asset purchase program that we along with many others touched on has been that it might be difficult to buy €60 billion (quickly increased to €80 billion) of debt per month due to a lack of supply. This has now become an issue with Portuguese and Irish debt as the central bank has come up against limits of how much it can purchase.
West Texas Intermediate Crude continued its slow creep higher up toward $50. Current price levels are still low enough to be problematic for smaller and more leveraged producers but might be high enough to relieve any sense of panic for shareholders of the major integrated oil companies. Seeking Alpha reported that Iran is coming back to the market this month and while this is known by the market it will be interesting to see if prices retreat as a result.
ETF.com reports several new funds being launched last week including an actively managed liquid alternative fund from First Trust and a couple of dividend oriented equity ETFs with one of those dividend fund focusing solely on Latin American companies.
The internet has been having fun for the last week or so over whether or not photographic evidence of a time traveler exists. From the Daily Mail; Mike Tyson Fight From 1995 Shows A Time Traveller Using A Smart Phone:
“What we have here is a time traveler coming back to watch their favorite fighter and sitting in the front row seats,” he writes. “Back in 1995 they did have phones, but they didn’t yet have cameras on them.”
This has already been debunked, sort of, but is fun nonetheless.
While many people have a sense of the salaries in the big four sports, the economics of Major League Soccer might be a big of a surprise as ESPN delves into with Orlando City’s Kaka Again Tops List Of Biggest Salaries in MLS. Brazilian star Kaka and reigning MVP Sebastian Giovinco each make more than $7 million which is more than the payroll of 14 (out of 20) MLS teams. The minimum salary though is quite minimal:
“I think it’s just hard to say that it’s fair when you can be making $60,000 and a guy on your team is making $8 million,” one player said. “You don’t see gaps like that in other leagues.”
While Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, ESPN, Daily Mail
For May 16th, 2016 to May 20th, 2016
As for the sectors of the S&P 500, five outperformed the broad benchmark – Energy, Technology, Financials, Materials, and Healthcare. The remaining five – Industrials, Discretionary, Staples, Telecom, and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.96% this week, with Energy outperforming all, and Utilities coming in last.
For May 16th, 2016 to May 20th, 2016
As measured by the S&P 500 sector indices, respective performances were: