AdvisorShares Weekly Market Review – Week Ending 9/23/2016
Highlights of the Prior Week
What Did The BoJ Actually Do?
The Bank of Japan appears to have issued a confusing policy announcement on Wednesday. Bespoke Investment Group took the news as saying the BOJ would attempt to manage the yield curve to be flatter while Barron’s reported that the BOJ would attempt to manage the yield curve to be steeper. A flat yield curve generally makes lending less profitable and so is thought to impede access to capital which would seem to be the opposite of a stimulative policy. This sent the dollar lower against the yen which would also seem to be the opposite of what the BOJ would like to see. However, later in the week Goldman Sachs noted that it believes the latest BOJ announcement paves the way for so called helicopter money if/when needed which it says would eventually lead to that weaker yen that the central bank is hoping for. The Nikkei 225 managed to gain 1.91%, the JGB slid further into negative territory at -0.4% and the yen was stronger against the dollar.
The FOMC of course did not raise rates on Wednesday which was in line with expectations. The press conference after the announcement came close to spoon feeding a December hike but Chair Yellen shockingly (if shockingly can ever be used to describe one of these pressers) made two references to the committee’s not wanting to ignite a recession by making a policy error. Buried in the details were expectations to slowly get rates past two percent in the next couple of years but as Bloomberg’s coverage pointed out, there are no expectation for GDP growth to get past 2% which could mean very little inflation which would make those kinds of rate increases the exact type of policy error she is hoping to avoid. None of this has gone according to plan as we are eight or nine years past the crisis (depending on when you start counting) and even the word muddling might be too strong in describing the economy.
One other item from the Fed’s get together was the rare event of three dissenters from the majority decision. This is not unprecedented but perhaps offers insight into the struggle going on behind closed doors. The news of the week sent the yield of the US Ten Year Treasury Note down to 1.61%.
US equity markets were stronger across the board despite selling off some on Friday with most of the boost coming after the FOMC news. The Dow Jones Industrial Average added 0.78%, the S&P 500 gained 1.19%, the NASDAQ was up 1.16% and the Russell 2000 was good for 2.45%.
It might be worth mentioning how low the CBOE Volatility Index has gotten in recent days at a reading close to 12. The previous low for the year had been closer to 14 with some spikes along the way including a run a couple of weeks ago above 18. While there are several ways to interpret the message that a low VIX is sending, it should not surprise anyone if volatility increases from here and does so for more than a week next time.
The foreign markets we regularly cover here were all higher last week. The DAX was up 3.41%, the CAC 40 gained 3.63% and the FTSE 100 added 2.97%. In Asia the Shanghai Composite had a 1.03% lift, the Hang Seng rallied 1.5%, and the KOSPI in South Korea was also strong, jumping 2.74%.
Gold rallied almost 2% on the week with all of the gain coming Wednesday in the immediate aftermath of the Fed decision. West Texas Intermediate Crude had a wild ride to a flat week. It rose slowly into Friday morning and then fell off a cliff to a 4% drop to close the week despite chatter that the Saudis might be willing to cut production in conjunction with other OPEC members. That chatter was later shot down which is the direction that the commodity’s price then went.
There were 17 new ETFs launched last week which is the most in the history of the current format of this update. Included in the slate of new funds were seven industry funds from First Trust and a commodity fund from Elkhorn that is run by Dorsey Wright & Associates and which will be actively managed.
Barron’s had an interesting profile on hedge fund manager Richard Merage. What made it interesting was that about half of the article was devoted to his family’s recent history. Merage’s father and uncle invented the Hot Pocket in their mother’s kitchen. It of course became a huge business and Merage (the hedge fund manager) started his professional life working at the company. It was genuinely interesting including;
…the family sold Chef America to Nestlé for $2.6 billion…
…and apparently Merage then moved onto the hedge fund business.
The Baltimore Sun had some fun publishing a letter from the Orioles’ visitor’s dugout phone to soon to be retired Boston Red Sox player David Ortiz. The backstory is that in 2013, Ortiz destroyed the phone with a bat after being tossed for arguing balls and strikes with the umpire.
I didn’t put together what happened next until I was physically put together again the next day, like some kind of Alexander Graham Bell Humpty Dumpty. To recap: You choked up on the grip and swung your bat, swung it hard, and took off much of my face, my beautiful, plastic face. Still I could see the monster that lay within. You, an All-Star — allegedly — swung again, missing me, a stationary object. Your last swing was backhanded and ugly, and it ripped clean off whatever was left of my once-beautiful visage. I don’t remember feeling pain because I was in shock instead. Also, because I’m a phone.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, Baltimore Sun, EconomicCalendar.com.
S&P Sector Analysis
As for the sectors of the S&P 500, five outperformed the broad benchmark –Utilities, Telecom, Industrials, Discretionary, and Healthcare. The remaining five –Materials, Staples, Financials, Technology, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.27% for the week ending 9/23/16, with Utilities outperforming all, and Energy coming in last.
For September 19th, 2016 to September 23rd, 2016
As measured by the S&P 500 sector indices, respective performances were: