Highlights of the Prior Week
If the US equity market appears to be getting decreasingly less volatile, you are right it is. According to Climateer Investing, over the course of stock market history there is a single day 3% move (in either direction) an average of once every 81 trading days. However there has not been a single day 3% move in 625 trading days which is the sixth longest such streak since 1949.
This notion is supported by the CBOE S&P 500 Volatility Index known more commonly by its VIX ticker symbol which has been deteriorating for most of 2014 and currently resides at a very low sub-12 reading.
This sort of complacency doesn't contribute to the bull case for equities, the market continues to confound skeptics and the typical duration of past bull markets. The S&P 500 finished higher by 1.21% last week despite GDP having a negative print in the first quarter. This was attributed to the polar vortex and a smaller inventory build that economists from Morgan Stanley say will not be repeated and so the bank upped its second quarter GDP forecast to 4.2%.
Retired hedge fund manager David Rocker wrote an article for Barron's titled Who Is Protecting Investors? and included the following example of how, in his opinion, nothing has changed on Wall Street;
On February 25, Adam Jonas, the Morgan Stanley analyst covering Tesla, issued a report in which he essentially doubled his price target for the stock to $320 per share, despite the fact that it had already quadrupled in the past year to $218 per share. In the next two days, momentum investors, who had long favored Tesla as a trading vehicle, ran the stock to $253. At that point, the company marketed $2 billion of convertible notes with interest rates of 0.25% for five years, convertible at $360-42% above the newly elevated price. Morgan Stanley was one of four book-running managers for the deal.
Foreign markets were even more subdued last week than the US market. Of the seven major foreign markets we follow, the biggest mover was the Hang Seng Index which was up 52 basis points.
Perhaps a more interesting story is how low the yields on sovereign debt from some foreign markets. In Germany, the five year yields 0.43% and the ten year yields 1.36%.Five year paper in Austria yields 1.43% and ten years in Belgium and Ireland yield 1.85% and 2.6% respectively. This compares to 1.53% for US five year treasuries and 2.48% for US ten year debt. Even Italy's ten year bonds are below 3%.
ETF News & Data
New fund launches upticked last week with six new ETFs. iShares had four new bond funds start trading; two were interest rate hedged products and two were corporate term corporate bond ETFs--those are the type of funds were every bond in the portfolio matures during the same calendar year and the fund then closes when the last bond has matured.
PowerShares launched a multi strategy alternative investments ETF and Newton, MA based Direxion Funds launched a double long ETF that tracks the S&P 500.
Last week we noted the $4 billion exodus from the SPDR S&P 500 (NYSEARCA:SPY). This past week $3.5 billion came back. The PowerShares QQQ (NASDAQ:QQQ) had $1.5 billion come in. The biggest outflow was the $1 billion from the iShares Russell 2000 ETF (NYSEARCA:IWM) which underperformed SPY.
The United States used to have an Emperor. His name was Joshua Norton and he ruled from San Francisco in the mid-19th century. Norton, turned a pretty good sized inheritance into a larger sized fortune but was wiped out in around 1855 in a deflationary period that came after the California Gold Rush.
Upon being wiped out he declared himself emperor and was generally placated in his delusion.
The Los Angeles Clippers saga took a large step toward resolution late last week when long time Microsoft (NASDAQ:MSFT) number two (then he was CEO and now former CEO) Steve Ballmer agreed to buy the Clippers from the Sterlings for a reported $2 billion. There are still some hurdles to clear but the parties have met on price. Anyone who's been paying attention to this story knows that price talk has been $1.5-$2 billion and that the previous record for a sale was $550 million for the Milwaukee Bucks.
The Clippers don't own the building where they play their home games, have had little to no playoff success over the decades but do have two very popular players in Chris Paul and Blake Griffin and team merchandise ranks 10th in the league.
The $2 billion purchase price for the Clippers may end up distorting the values of other teams and may lead to a wave of sales in all the leagues. While Ballmer (or whoever else might have paid $2 billion for the Clippers) is clearly overpaying, from his perspective the amount by which he is overpaying is likely insignificant. If you have a long flight you're going to pay $6 in the terminal for a $2 bottle of water because you want the water and the $4 is a nominal amount of money. Same for Ballmer whose fortune is estimated between $18-$21 billion but he will get more utility out of owning the Clippers than someone who overpays for a bottle of water at the airport.
Roger Nusbaum, AdvisorShares ETF StrategistSource: Google Finance, Yahoo Finance, ETF.com, Barron's, XTF.com, BloombergBusinessweek, Wall Street Journal, Yahoo Sports, Priceonomics.com, ESPN.com, Climateer Investing, gamedayr.com
Weekly ETF Flows
For May 26, 2014 to May 30, 2014Shares 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 - Utilities, Staples, Technology, and Healthcare. The remaining six - Financials, Materials, Industrials, Energy, Discretionary, and Telecom - each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 1.90% this week, with Utilities outperforming all, and Telecom coming in last.
For May 26, 2014 to May 30, 2014
Sector performances, as measured by the S&P 500 sector indices were:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.