AdvisorShares Weekly Market Review – Week Ending 8/22/2014
Highlights of the Prior Week
The build up to Janet Yellen’s speech at the Kansas City Fed Symposium at the Jackson Lake Lodge in Grand Teton National Park on Friday was immense as market participants expected to finally have some questions answered. When will the Fed raise rates being chief among them. So naturally there was no new information to be had. Equities reaction? An eight point trading range on the day for the S&P 500 while the ten year US Treasury Note netted a sub-one basis point move to close out the week.
What did Chair Yellen say to merit such a shoulder shrug?
I expect, however, that our understanding of labor market developments and their potential implications for inflation will remain far from perfect. As a consequence, monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.
So the Fed is learning right along with the rest of us.
As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve’s dual mandate. Indeed, in its 2012 statement on longer-run goals and monetary policy strategy, the FOMC explicitly recognized that factors determining maximum employment “may change over time and may not be directly measurable,” and that assessments of the level of maximum employment “are necessarily uncertain and subject to revision.”
This has pundits expecting rates to start going up at varying points in 2015.
The Up and Down Wall Street Column included a paraphrasing of quote from Raghuram Rajan, the governor of the Reserve Bank of India who warned of excesses at the Jackson Hole Symposium back in 2005 (and of course was right) and is worried again, in saying that “central bank largess rather than economic growth has buoyed asset prices.” This is similar to what John Mauldin said in his newsletter a couple of weeks ago;
The measure is the surplus of money that is not absorbed by the real economy. The term is named after the great English economist Alfred Marshall. When the money supply is growing faster than nominal GDP, then excess liquidity tends to flow to financial assets. However, if the money supply is growing more slowly than nominal GDP, then the real economy absorbs more available liquidity. That’s one reason why stocks go up so much when the economy is weak but the money supply is rising.
The point here is not to engage in the folly market predictions but simply to acknowledge that context is everything as the old saying goes.
For the week the Dow Jones Industrial Average was up 2.0%, the S&P 500 was up 1.7% and the NASDAQ was up 1.64%. For those keeping track, the Russell 2000 also participated with a 1.67% gain. As mentioned above the yield on the Ten Year US Treasury Note had a quiet week inching up three basis points in yield to 2.40%. As you might expect the CBOE Volatility Index (VIX) headed lower in the face of higher equities closing below 11.5. With the week being more of a risk-on week gold fell 1.62%.
The seven major foreign equity markets we track regularly here were all up last week. Germany was the leader with a 2.71% lift while Hong Kong and Shanghai were the laggards with identical 63 basis point gains. The UK, France, Japan and Australia were all up in the vicinity of 1.5%. The US dollar was generally stronger last week as the euro and British pound lost 1.11% and 0.88% respectively and the dollar gained 1.5% against the yen.
Among equity sectors, leadership came from technology, industrials, consumer services and financials while telecom and materials brought up the rear.
The new week has started with some small merger and acquisition news; one in the biotechnology space and Burger King is in talks to buy the king of Canadian donuts Tim Hortons.
ETF News & Data
Two weeks ago we noted a $13 billion exodus, which is a huge number, from the SDPR S&P 500. Last week we mentioned that $3 billion came back and this week we saw another $3 billion come back to the fund. Other funds on the inflows leader board included broad based equity funds; foreign and domestic, as well as two different funds targeting domestic industrial stocks.
The only new fund to launch last week was an equity fund focused on foreign companies that have track records for growing dividends.
Relix.com pondered whether going to Grateful Dead concerts was good for your health. The article targeted sensory reactions to hearing the music, seeing other people enjoying the music and even traveling to the concert. These types of reactions reduce stress which of course has many health benefits. The point is not about going to concerts but about finding things that reduce your stress. For some the answer is music, for others exercise or any other number of infinite possibilities.
As a bonus interesting read is the most isolated house on earth which is on an island off of Iceland. Supposedly it belongs to 80’s singer Bjork but it is actually a hunting lodge. The pictures are stunning.
All across this great land many will celebrate the return of college starting this week with games starting on Wednesday when Abilene Christian takes on Georgia State on ESPNU and then a full slate of games on Saturday.
True diehards though will know that there already was a game on Saturday when the Sam Houston State Bearkats, yes Bearkats with a ‘k,’ lost to Eastern Washington University on the red turf, also known as the inferno, at EWU.
The Arena Football League wrapped up its season Saturday night with Arena Bowl XXVII. The summer of Cleveland (Lebron, Johnny Manziel and now Kevin Love) continued as the Cleveland Gladiators won their way to the championship game but lost to the Arizona Rattlers 72-32.
Roger Nusbaum, AdvisorShares ETF StrategistSource: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, ETF.com, XTF.com, Ritholtz.com, goeags.com, relix.com, whereonearth.net
Weekly ETF Flows
For August 18, 2014 to August 22, 2014
Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, four outperformed the broad benchmark – Industrials, Technology, Financials and Discretionary. The remaining six – Healthcare, Utilities, Materials, Staples, Energy and Telecom – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.75% this week, with Industrials outperforming all, and Telecom coming in last.
For August 18, 2014 to August 22, 2014
Sector performances, as measured by the S&P 500 sector indices were: