AdvisorShares Weekly Market Review – Week Ending 6/30/2017
Highlights of the Prior Week
For weeks, months even, there was a meaningful flattening trend in the US Treasury market which was at odds with the FOMC’s long stated intention to hike its rates three times in 2017 with two under its belt already. A market ripple came after jawboning comments from Janet Yellen, Mario Draghi and even Mark Carney. The yield on the Ten Year US Treasury Note jumped 16 basis points to 2.30%. To the extent a flattening curve leads to an inverted curve, the FOMC was in a bit of bind but for now, anyway, appear to have steepened the curve giving them more flexibility to hike later, assuming the recent steepening sticks.The euro jumped above 1.14 which is the highest it has been against the US dollar in 14 months. The steeper curve should be good for bank stocks and it was, with one of the larger bank stock ETFs rising 3.8% for the week versus a slight decline for the S&P 500.
One byproduct of a steepening curve should be that value stocks generally outperform growth stocks. Year to date growth has crushed value as the curve has been flattening. Using one of the larger S&P 500 growth ETFs as a proxy compared to the value version from the same provider, the disparity in 2017 is a gain of 12% to 3% for value. Nine hundred basis points in six months is significant. Last week, as merely a microcosm, had value ahead of growth, using the same two proxies, by 181 basis points.
Recapping some numbers for the indexes for the week; Dow Jones Industrial Average down twenty basis points, the S&P 500 down 0.61%, the NASDAQ dropped 1.99% while the Russell 2000 was flat. For the second quarter the Dow up 3.31%, the S&P 500 up 2.56%, the NASDAQ gained 3.87% and the Russell 2000 added 2.12%. Year to date the numbers are strong starting with the Dow which had gained 8.02%, the S&P 500 up 8.24%, the NASDAQ is the leader at 14.07% which captures the much talked about leadership provided by a handful of mega cap tech stocks and the Russell was the laggard managing only 4.29%.
Clients who supported Hillary Clinton may have asked about selling stocks ahead of a Trump presidency thinking the worst about what was about to happen. We are not offering a political opinion here of any sort but at the time of the election there were none of the typical warnings that have come before previous large declines and as we sit here now, there has not been a large decline since the election. The bull market is showing some signs of age in terms of narrowing leadership and a few other things but the S&P 500 closed Friday about 1.5% from its all-time high. Regardless of anyone’s political opinions, nothing has happened legislatively and there is ample precedence for markets doing well in the face of gridlock.
West Texas Intermediate Crude had a very strong week with Yahoo Finance reporting a 6.48% gain up to $46.33. News reports cited things like inventory data and a drop in the rig count to account for the rally but sometimes with volatile commodities, fast moves just go with the territory and the attribution for the fast moves is simply to fulfill the emotional need to have things be explainable (fallacy of explanation). WTI is volatile and these 3-10 day fast moves tend to whip people up, convince them that the price is going down to $20 (or up to $70) and then it reverses as quick as that for no real reason.
Barron’s devoted a lot of column space to cryptocurrencies over the weekend including a look Beyond Bitcoin: How Blockchain Is Changing Banking:
THE SUCCESS OF BITCOIN AND ETHEREUM has convinced others to launch their own “initial coin offerings,” some of which have raised tens of millions of dollars on little more than promises. The new coinmakers often say they’ll create a product tied to the coin and give coinholders preferential treatment. But there’s no guarantee a product will ever appear, and it’s starting to resemble a mania—Massachusetts Institute of Technology Professor Christian Catalini warns that we’re headed for a “dot-coin bubble.”
If nothing else cryptocurrencies will be a curiosity to advisory clients some of whom may want to dabble. While we won’t weigh in on the merits, we continue to assert that advisors should have an answer and an opinion when asked.
Very close to the four year anniversary of the burnover that took the Granite Mountain Hotshots, another massive wildfire put a chokehold on Prescott, AZ with the Goodwin Fire: The Origins Of A Disaster:
Flames grew to as high as 50 feet, and soon the fire was creating its own weather. Smoke whirled and rose high enough that ice crystals formed at the upper-most reaches, said Gerry Perry, public information officer for the Goodwin Fire. Those crystals would fall to earth, creating an outflow of wind in every direction. “That’s one of the biggest dangers in fighting a fire,” Perry said. “You’re out in the thick of it and suddenly the winds make a 180-degree turn. You could be trapped.”
The Tour de France has started and already, defending champion Chris Froome Survives Tour de France Crash Scare:
Froome wasn’t the only GC contender left to pick himself up off the tarmac, with AG2R’s Romain Bardet and BMC Racing’s Richie Porte also forced to follow suit and chase back to the bunch. Geraint Thomas, Froome’s teammate and the race leader, was also involved in the fall but quickly remounted and avoided a long chase with Froome. Thomas retained his five-second GC lead over Stefan Küng (BMC Racing), although stage winner Marcel Kittel (Quick-Step Floors) moved to within six seconds of the yellow jersey.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, AZCentral