AdvisorShares Weekly Market Review – Week Ending 5/26/2017
Highlights of the Prior Week
Watching Tech’s Weighting in the SPX
Domestic equity markets churned higher last week as economic data was net net positive with the biggest report being GDP revised up considerably from 0.7% to 1.2% and while 1.2% isn’t great, it is a whole lot better than 0.7%, maybe it was a Goldilocks number? This coming week, of course, is the May NFP number with estimates calling for 175,000 new jobs and for the headline unemployment rate to remain at 4.4%.
For the week, the Dow Jones Industrial Average gained 1.31%, the S&P 500 added 1.41%, the NASDAQ was up 2.08% and the Russell 2000 brought up the rear at 1.10%. Those gains took most of the benchmarks to all-time highs while taking the VIX back below 10, which could be taken as signs of market optimism that prices can continue higher. The yield on the Ten Year U.S. Treasury has remained at 2.25% for the last couple of weeks with continued expectations for an FOMC rate hike in June, which leaves the flattening trend in place. We would take this indicator as saying that the bond market does not share the equity market’s enthusiasm.
Barron’s had some interesting information on tech’s current weighting in the S&P 500 as follows: “Today, tech stocks make up 23.1% of the S&P 500, above the historical average of 15.4%, and fast catching up to the 26.5% combined weight for the six smallest sectors. While 23% still looks innocuous compared with a 34% weighting at the tech-bubble peak, Bespoke Investment Group reminds us that tech’s weight didn’t exceed 23% until September 1999, and has spent only a few months above 23%.” The historical average cited in the passage goes back pretty far to be somewhat deceiving but we are big believers of looking at sector weightings as sending messages about the market. In 2007 financials grew far beyond their normal weighting, tech obviously in 2000 and energy 35 years ago. Extreme sector weightings are something to be managed.
West Texas Intermediate Crude fell almost 2% for the week but included in there was a $3.50 drop on Thursday as OPEC did what everyone expected, which was to remain committed to production cuts that would hopefully (for OPEC’s sake) create price stability in the neighborhood of $50 if not higher. While the price has spent more time above $50 than not this year a new concern has crept in. At $50, some of the domestic shale producers can now operate profitably which weakens OPEC’s cuts and creating the perception that OPEC needs to cut more to achieve its objective.
Gold measured in U.S. dollars inched ahead last week and is currently above both its 50 day and 200 day moving averages. Earlier in May it spiked down about $30 below its 50 day but rallied strongly off that level before flattening out over the last two weeks. The U.S. Dollar Index was mildly positive last week but is still trading with a 97 handle and well below its 50 and 200 DMAs.
Bitcoin had been surging higher of late (before tanking over the weekend) but an exchange traded fund tracking Bitcoin has been mired in a regulatory swamp over concerns that the underlying market might be too unstable. ETF.com lays out a scenario where a Bitcoin ETF could make it to the market. This is bound to be something that advisory clients want to know about and may push to invest in, should it ever become accessible through their brokerage accounts. In that light, it is worth learning about even if just to be able to tell a client why it might be unsuitable for them.
This is, um…interesting; Komodo Dragon Blood May Hold The Secret To Killing Superbugs:
It’s a windy morning in the middle of Dirty August, and dispatch has just informed the jumpers at the West Yellowstone Smokejumper Base that there’s a wildfire out in the Grand Tetons in need of their particular brand of attention. There’s no time to shower, and nowhere to go but straight toward the smoke. The jumpers strap on their ankle braces and stuff candy bars in the pockets of their Kevlar jumpsuits. The ready room vibrates with the contained intensity of people who know they are about to spend the next two weeks doing several very difficult things: parachuting out of a plane at 3,000 feet, battling a half-acre wildfire, trekking through the woods with 100-plus pounds of gear on their backs.
FiveThirtyEight reports that Tennessee Has Sneakily Compiled The Next Great Sports Drought:
Among states with major-league franchises, that’s the most cracks anybody has taken at a title without winning at least one. Although Tennessee has been a pro-sports state for only 20 years, its teams have played long enough that we’d expect them to have nearly two championships under their belts by now — or they would, that is, if every team in each league had an equal chance of winning the title each year. (Obviously they don’t, but bear with us for the purposes of this exercise.)
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Bleacher Report, FiveThirtyEight