AdvisorShares Weekly Market Review – Week Ending 9/8/2017
Highlights of the Prior Week
Rock You Like a Hurricane
Markets were lower across the board last week with the Dow Jones Industrial Average falling 0.84%, the S&P 500 giving up 0.59%, the NASDAQ slid 1.13% and the Russell 2000 dipped 0.97%.
Congress managed to get together to kick the can down the road on the debt ceiling buying three more months by lifting the limit. Oddly, President Trump appeared to side with the democrats on this issue to the frustration of quite a few in the GOP. Trump campaigned on politics not as usual and while his success in this regard is debatable, the debt ceiling would seem to fit the bill of not at usual. This news was not enough to lift equity prices perhaps for the simple reason that every politician with a microphone told us there was no way there would be a shut down and they were right.
With the back-to-back hurricanes and we might as well throw in the wildfires out west and the 8.2 magnitude earthquake in Mexico, the $90 billion catastrophe-bond market has drawn a lot of attention. The simplified explanation is that in the face of a catastrophe, these bonds which are issued by insurance companies have the principal forgiven, meaning investors are wiped out, in the face of a catastrophe like a hurricane. Here’s a story of a hedge fund that specializes in cat bonds. We are not aware of any ETFs that own catastrophe bonds but this provides a great example of the importance for advisors and individual investors to look through to fund holdings to know what they own and while you may not be directly vulnerable to cat-bonds being wiped out all portfolios are vulnerable to something and that needs to be understood.
The yield on the ten year US Treasury Note took another big step lower last week down to 2.06%. Barron’s blamed the drop on just about everything including North Korea, the lack of inflation, the hurricanes (we presume the weather events not the University of Miami Football team) and so on. There is an an inertia for lower yields with escalating concerns over potential external events (geopolitical and weather) and expectations for tepid economic results. The FOMC is off the table for an outright rate hike even if it does begin to shrink its balance sheet.
The euro continued to show strength against the US dollar, closing above $1.20 for the first time in almost three years. Trading-wise this has of course been the trend, also helping the euro is the very real possibility that the ECB will start to wind down its quantitative easing sooner or perhaps more deliberately than the Federal Reserve. We talked a few months ago about the dollar as measured by DXY running into meaningful resistance at 105 with no equally meaningful support anywhere close by. DXY closed Friday with a 91-handle and still no corresponding support nearby that equates to the 105 resistance. The dollar could reverse course at anytime for any reason at all (or no reason) but for now the environment for foreign equity exposure looks positive.
ETF.com reports there being three ETFs tracking insurance stocks. For the first three days of the week they showed declines of 4-6% for the three funds but all three snapped back on Friday with gains of 2-3% as Hurricane Irma was downgraded to a category 4. Before dismissing the exposure to insurance stocks out of hand, all three insurance ETFs have dramatically outperformed the financial sector and the S&P 500 over the last five years but have lagged over the last year.
Econewsmedia with the importance of Culling the Last Wild Herd of Bison in Yellowstone National Park:
Herds of beautiful, massive bison move amongst the plains of their protector, Yellowstone National Park. These gentle giants are the last-known wild bison population in the entire world. This means that their DNA has been untainted by breeding with cattle and domesticated bison. The Yellowstone bison stem from an original population of 25 that survived in Yellowstone during the mass bison killings of the 1800s and early 1900s.
Patriots fans probably thought last Thursday’s game was going to be a laugher when Chiefs’ rookie running back Kareem Hunt coughed it up on the first series. Hunt rebounded to have the most prolific debut in league history:
Hunt finished with 17 carries for 148 yards with a touchdown, plus five catches for 98 yards with two more scores. He smashed the record for yards from scrimmage in an NFL debut, recording 29 more than Anquan Boldin did in his breakout 2003 performance, and tied for the fourth-most rushing yards in a debut all time—with the three performances above him happening in 1979 and 1980.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, econewsmedia.com, theringer.com