Highlights of the Prior Week
Last week was truly epic, a word we have never used in this update to describe the events impacting capital markets but that is the best description; epic.
First, the basics. Domestic equity markets mostly retraced the previous week's losses. The Dow Jones Industrial Average was up 3.02%, the S&P 500 gained 3.43%, the NASDAQ added 2.39% and the Russell 2000 had the best week of all with a 3.79% lift. Most of the foreign equity markets we follow also participated in the rally with the exception of the Hang Seng which fell 57 basis points. Shanghai rallied 5.8%, the Nikkei gained 1.44% and the ASX 200 in Australia added 1.99%. Europe was also strong as the FTSE 100 went up 3.88%, the DAX gained 2% and the CAC 40 in France added 3.13% after gaining 7% the previous week.
The US Ten Year Treasury Note added seven basis points to 2.17% but the deflation trade in Europe persisted as the German bund yield continued to fall closing out the week at 0.59%. The French OAT yield fell to 0.89%, Spain now yields 1.70% and Italy's yield fell back below 2% to 1.95%.
The Swiss National Bank, the central bank of Switzerland made news when it announced it will implement a negative interest rate policy in January when it starts charging for overnight deposits. The move isn't so much about trying to spur growth, although it most recent GDP print of 0.6% was not too inspiring, as it is about trying to prevent the franc from gaining too much against the euro which of course makes goods exported to countries using the euro more expensive. Swiss equities took the news in stride gaining 1.17%. Ten year sovereign debt yields a paltry 0.26%.
To say West Texas Intermediate Crude had a wild ride last week would be a gross understatement. It needed a 6.12% rally on Friday to close down 74 basis points for the week. Related to oil, Russia had an arguably wilder week. The Russian currency, the ruble, has been losing ground against the dollar all year, giving up about half its value. The selling has accelerated in the wake of the crash in oil prices so overnight Tuesday the Russian central bank raised rates from 10.5% to 17% to try to stem the selling which promptly sent the USDRUB from 66 up to 76 (it went from needing 66 rubles to buy a dollar up to 76 rubles to buy a dollar). At the start of the year it only took 33 rubles to buy one dollar. By the end of the week though the ruble was back up to 58.
We noted the better than 3% gain for domestic equities which came primarily from a Fed induced, two day rally on Wednesday and Thursday that lifted the S&P 500 4.5% (it had been down for the first two days of the week). Fed Chair Janet Yellen said that the FOMC would be patient and steered expectations to a mid-2015 rate hike which was perceived as being dovish by markets.
If that wasn't enough the US has started the process of normalizing relations with Cuba. It will be a long process but the implications for tourism, Cuban goods coming to the US, life on the ground in Cuba improving and modernizing (only 5% of Cubans have access to the internet) are, well, epic and sports fans have already started to wonder about the benefit to Major League Baseball.
ETF News & Data
There were five new ETFs last week including two actively managed equity funds and two funds that target narrow slices of the biotechnology industry from new provider LifeSci Index Partners.
Between the top tens in outflows and inflows there were a total of seven billion swings in fund AUM led by a $3.1 billion outflow from the SPDR S&P 500 as well as $1.2 billion that came out of iShares' S&P 500 Index fund. Also noteworthy was the combined $1 billion in AUM coming out of funds tracking Japan given that the Nikkei has rallied more than 20% in the last two months. Unfortunately US based investors have not fared as well in Japan because of the huge decline of the yen versus the dollar in that time. An additional $800 million came out of funds tracking European equities. The inflow list included three Select Sector SPDRs and two of the large, indexed bond funds.
At the sector level the largest inflows went to financials, healthcare and believe it or not; energy. Materials had the largest inflows.
Outside Magazine took an in depth look at a fitness camp in San Diego county called Kokoro which is based on the hellweek that would-be Navy Seals must complete. The barrier to entry is being able to hike 20 miles wearing a heavy pack in six hours or less. The story is all the more incredible because of how difficult it was for the author who is an elite triathlete.
For a little lighter reading, Bloomberg takes a look back to When Santa Claus Showed Up On US Currency.
Like everything else in life, the financial bottom line matters in college athletics. The University of Alabama at Birmingham is discontinuing its football program. The Washington Post covered it in detail but it boils down to;
The difference between our future athletic department with and without football is an additional $49 million investment on top of the $100 million UAB will already invest in athletics in the next five years.
And as an extra sports item one of the big news stories this week of course was the start of normalized relations with Cuba and as Bloomberg points out Baseball May Be Cuba Deal's Big Winner.
AdvisorShares ETF Strategist
Source: Google Finance, Yahoo Finance, Wall Street Journal, Bloomberg, Barrons, ETF.com, XTF.com, Yahoo Sports, Convergex, BBC, ESPN, CNN, Outside Magazine.
Weekly ETF Flows
For December 15, 2014 to December 19, 2014
S&P Sector Analysis
As for the sectors of the S&P 500, four outperformed the broad benchmark - Energy, Materials, Industrials and Telecom. The remaining six - Healthcare, Technology, Financials, Utilites, Staples and Discretionary - each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 8.05% this week, with Energy outperforming all, and Discretionary coming in last.
For December 15, 2014 to December 19, 2014
As measured by the S&P 500 sector indices, respective performances were:
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.