Highlights of the Prior Week
The Saudis Price A Large Bond Deal
Macro
Domestic equity markets mostly stayed between the lines last week in terms of very little index-level price movement. The market was willing to reward strong earnings including mega cap software, financials and video streaming and punish the weak like in the car parts business. There also large price swings Friday triggered by media industry merger talk.
But through all that the Dow Jones Industrial Average gained just four basis points for the week, the S&P 500 did slightly better, adding 0.38%, the Russell 2000 gained 0.47% and the NASDAQ was the big winner thanks to the above mentioned earnings with a 0.81% rally.
The new week is starting with a big merger bang including a mega cap merger in the communications industry, a deal involving discount brokerage Scottrade being bought by a larger rival as well as another financial merger and a proposed tie up in the industrial sector. Mergers of course go on the positive side of the ledger for market sentiment as they represent optimism about future prospects. While signs abound that the stock market cycle is long in the tooth, heavy merger activity provides ammunition for the bulls.
We found a little bit of humor in last week’s CPI data as the headline rose 0.3% which might be a sign that Fed policy could finally be starting to help but the core CPI, which excludes food and energy was only up 0.1% which extinguishes, for now, that glimmer of hope. The humor, if there really was any, was that the report captures the struggle of this entire cycle where the FOMC, Fed and even the treasury department have had very heavy hands in markets, thrown all manner of desperate but relatively ineffective measures at the problem, this CPI report captured the dilemma very succinctly.
The very existence of the core measures of CPI and PPI regularly comes under fire. Clearly excluding food and energy will not capture the story on the ground for working and retired Americans but as a tool, used in conjunction with overall data, the core measures can help economists isolate trends in inflation in a truer manner.
Foreign equity markets were uniformly higher last week with no big changes to the respective underlying stories. Japan still can’t figure out how to spur growth, Europe isn’t much better off and the UK may very well be in for some serious fundamental problems in 2017. We might be able to leave this paragraph right here through the end of the year.
Rounding up the number overseas, the DAX was up 1.23%, the CAC 40 gained 1.43% and the FTSE 100 inched ahead by 10 basis points. In Asia the KOSPI moved ahead 0.43%, the Shanghai Composite tacked on 0.89%, the Hang Seng celebrated a short week with 0.52% and the Nikkei advanced 1.95%.
Yields generally moved lower last week but just modestly so. The US Ten Year Treasury Note closed at 1.74%, the German bund yield moved to 0.0%, the French OAT is down to 0.28%, the Swiss ten year moved further into negative territory at -0.49% while the UK gilt was the only one to move higher, up to 1.09%.
There was interesting news in bondland last week as the Kingdom of Saudi Arabia came to the market with investment grade sovereign debt at spreads ranging from 135-210 basis points above similar dated US paper. It issued $17.5 billion worth of debt against demand reported by Barron’s at $70 billion. The Saudi equity market had long been off limits until a year ago when the first ETF hit the US market and there are also plans for Saudi Aramco, the Kingdom’s energy assets, to list shares to be available globally in 2018. This all comes of course after a massive decline in the price for crude and a new source of supply from fracking shale formation.
ETF News
Ivy Investments threw it hat in the exchange traded mutual fund ring last week with three equity funds. These three funds join Eaton Vance’s three funds, the proper name for the fund wrapper is NextShares, with the new format. So far there has been essentially no interest in the products. NextShares do not trade through the day and have less transparency which could make them a tough sell when compared to ETFs.
Interesting Reads
The New York Times reports Suspicions Confirmed: Couple Faked Photographs in Everest Climb;
The action against the climbers highlights the importance of Everest for an impoverished Nepal, which is reeling after a devastating earthquake last year. Veteran climbers and experts said they had never known Nepal to take such drastic action for a faked climb of the peak, and some said they believed that the authorities wanted to send a message.
Sports
With the Cleveland Indians set to have home field advantage in the World Series starting tomorrow there was a growing movement to have Ricky Vaughn from the movie Major League throw out the first pitch and Actor Charlie Sheen, AKA Wild Thing, Offers First Pitch At World Series. The Indians said it wouldn’t happen but ESPN also talks about how the current team has embraced the movie’s legacy;
Slugger Mike Napoli and second baseman Jason Kipnis constructed a shrine in an empty clubhouse stall between their lockers, just like the one in the movie. In the film, character Pedro Cerrano practices voodoo and prays to an idol named “Jobu” to help him hit curveballs. Like Cerrano, Napoli and Kipnis have their own “Jobu” and have left gifts, including small bottles of rum and cigars, to keep them out of hitting slumps.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, New York Times
For October 17th, 2016 to October 21st, 2016
S&P Sector Analysis
As for the sectors of the S&P 500, seven outperformed the broad benchmark –Technology, Utilities, Telecom, Industrials, Financials, Real Estate, and Staples. The remaining four – Materials, Healthcare, Discretionary, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 5.38% for the week ending 10/21/16, with Technology outperforming all, and Energy coming in last.
For October 17th, 2016 to October 21st, 2016
As measured by the S&P 500 sector indices, respective performances were: