AdvisorShares Weekly Market Review – Week Ending 9/19/2014
Highlights of the Prior Week
Scotland’s no-vote on independence from the United Kingdom will be far less important than had Scotland voted in favor of independence but during the campaigning the UK committed to give Scotland more autonomy which is expected to take a while to sort out due to a lack of unanimous support in parliament but will be far less disruptive to capital market than had Scotland voted in favor of the referendum.
The most important meeting in the history of the galaxy for the Federal Open Market Committee came and went with almost no reaction in the capital markets. The S&P 500 had a 72 basis point range over the course of 74 minutes after the Fed announcement but closed the day with a 13 basis point gain. The Ten Year US Treasury Note closed Wednesday with a three basis point rise in yield.
The actual news out of the Fed was that they left in the phrase “considerable time” in the statement which refers to how long it will be before they begin to raise the rates that they control but Chair Yellen went to great lengths to explain that considerable time is not a calendar measurement but they are data dependent. The issue of time versus data came up as a response to FOMC dissenters.
Also noteworthy was the phrase “significant underutilization of labor resources” which acknowledges more people are finding work of some sort while still realizing that many American are underemployed versus where they were before the financial crisis and that the declining trend in the labor force participation rate is not solely attributable to boomer retirement.
Alibaba launched the largest IPO in history with a massive $230 billion market cap creating a truly celebratory environment on the NYSE floor and cheerleading from the media covering the event. There was talk of what the company might do with its newly created currency, comparisons to long standing companies both in the tech industry and from other industries. How big and great is this? Only 11 components of the S&P 500 Index have market caps larger than $200 billion and neither IBM nor AT&T makes that list.
Sadly for investors, market history has not been kind to this sort of glee. While we are not in the business of trying to predict market tops or market bottoms, the sort of ebullience engendered by the IPO goes into the bear case column.
Recapping markets, the Dow 30 was up 1.74%, the NASDAQ was up 0.27%, the S&P 500 was up 1.25% but the Russell 2000 was fell 1.17% and dipped below its 200 Day Moving Average. The divergence between large cap and small cap equities has been an ongoing theme this year and has historically not been a bullish indicator.
The FTSE 100 was up 45 basis points for the week with all of the gain coming after the no-vote on the Scottish referendum. The CAC 40 was up 65 basis points, the German DAX was up 1.53% and over in Asia the Nikkei tacked on a huge 4.54% on yen weakness (a weak yen helps Japanese exporters), the Hang Seng fell 1.18%, the Shanghai Composite was down 14 basis points and the ASX 200 fell 1.65% perhaps due to a generally poor showing for commodities.
In currencies euro/USD fell 0.95% (euro fell against the dollar), dollar/yen was up 1.65% (dollar up against the yen) and the British pound had a volatile ride to a 20 basis point gain against the dollar. Gold was down 1.11% but West Texas Intermediate Crude was up 1.28%.
The US Ten Year Treasury Note closed out the week at 2.58% while the yield on the German bund fell slightly to 1.04%, the French OAT yield also fell slightly, down to 1.39%. And Spain and Italy closed the week yielding 2.20% and 2.37% respectively still far below the US.
Seth Klarman offered some context for the low yields in Europe when he noted that “Dutch and French 10-year government bond yields are at 500 and 250 year lows, respectively; Spain, 225 years.”
ETF News & Data
There were eight new ETFs last week. Guggenheim issued four new BulletShares bond funds, simply extending the suite of maturities it offers, SPDR launched three country funds and US Commodity Funds threw its hat in the equity ring with an ETF that targets companies who have split their shares.
Fund flows were dominated by a combined $7.8 billion moving into S&P 500 Index ETFs. Most of that flow occurred on Wednesday, the same day as the FOMC press conference.
This week we have a couple of articles that are markets/economics related. While we usually avoid those topics in this section of the update, these raise important points.
The first is from Bloomberg and talks about the extent to which Generation X is still plagued by student debt. Income “spent” on student debt obviously prevents more stimulative consumption as well as impeding progress toward retirement savings.
While credit cards also played a role, student loans are a big contributor to that debt load: Four in 10 upwardly income-mobile college grads hold education debt, with a median balance of $25,000, according to the Pew report.
CNN took a look at the wealth gap as it relates to accumulated retirement savings. The wealth gap is a serious issue on multiple levels. When a generation has collectively less wealth than its parents then demand for goods and services should fall (how much debt will Gen X and the Millennials take on?) and reduced demand means less growth. If Generation X cannot pay for its retirement then it is likely that society at large will foot the bill creating another drag on economic activity.
Households in the lowest income bracket — those earning less than $39,000 a year — had a median savings balance of just $13,000. Meanwhile, those in the top income bracket — those earning $138,000 or more a year — had a median of $452,000 saved.
On a less serious note is this photo essay from National Geographic that focuses on the wildfire season out west.
This year’s fire season is on track to break records, according to news reports. The record for Oregon and Washington State occurred in 2012, when 1.2 million acres burned. So far this year, about a million acres have been scorched in those two states, and fire season isn’t over.
You likely saw some of the Roger Goodell press conference at the end of the day on Friday (CNBC showed it in its entirety). Sports media torched the entire thing and while the NFL is going to update its policy and investigate itself he failed to impress.
There was also a flurry of Tweets from current and former players that jumped on the media’s skeptical bandwagon and questioned his credibility.
Did you know/remember that the NFL is afforded non-profit tax status? Well it is but there is a movement underway to strip it of its non-profit status in Congress due to its recent increased visibility of domestic violence among its players. Even though the impact is not likely to be that big financially it is a fairly immediate cause and effect result. Big advertisers are also starting to weigh in and of course it would be a big financial hit if they pull out.
As Steve Young noted last Monday night, the NFL has always benefitted from inelastic demand and it will be interesting to see whether the way this season has started will jeopardize that luxury.
Roger Nusbaum, AdvisorShares ETF Strategist
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, ETF.com, XTF.com, National Geographic, CNN, Slate
Weekly ETF Flows
For September 15, 2014 to September 19, 2014
Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, seven outperformed the broad benchmark – Telecom, Healthcare, Materials, Financials, Utilities, Staples and Industrials. The remaining three – Energy, Discretionary and Technology – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.89% this week, with Telecom outperforming all, and Technology coming in last.
For September 15, 2014 to September 19, 2014
Sector performances, as measured by the S&P 500 sector indices were: