Highlights of the Prior Week
Cubs Win! Equities Lose?
Macro
Domestic equities have declined for nine days in a row which is the longest such streak since 1980. 1980?! The streak looked to end at eight on Friday until the indexes turned down with about 30 minutes left in the trading day. For the week the Dow Jones Industrial Average fell 1.49%, the S&P 500 gave up 1.93%, the NASDAQ dropped 2.77% and the Russell 2000 was down 1.97%. The selling was not panicked but there seems to be no catalyst right now especially considering the Presidential Election is now just a day away. Without expressing a political preference, we will look forward to the election being over and only needing to hear about one of the two candidates going forward.
The October jobs report contained a mix of meh and strength but nothing truly bad. There were 161,000 jobs created and the headline unemployment rate ticked down to 4.9%. The broader U6 unemployment number fell to 9.5% which is a new low going back to 2008. The workforce contracted though with the participation rate falling to 62.8%. The real strength was in wages which grew by 0.4% for a 2.8% year over year comparison and revisions added 44,000 jobs to the last two months. Although there is still one more jobs report before the December FOMC meeting, the current data appears to solidify the intention to hike rates.
The Brexit saga took a new turn last week when Britain’s High Court ruled that Parliament will need to approve the commencement of Article 50 which is the starting point for actually separating from the European Union. The immediate reaction seemed to be more along the lines that this would cause a delay from the stated March, 2017 objective as opposed to abandoning the idea but some sort of watered down Brexit may be on the table.
South Korea has been embroiled in an odd scandal involving President Park Geun Hye and a friend of the president named Choi Soon-sil. It is alleged that Choi tried to unduly influence policy and politicians which led to Park needing to replace the prime minister and finance minister. The market reaction was not drastic but the KOSPI did fall about 1.5% on the news. South Korea has had a lot to deal with in terms of smartphone defects and shipping company failures.
Things may be heating up in Turkey. Time reported that Turkish police arrested 11 politicians from the Kurdish opposition on Friday and shortly thereafter a car bomb killed eight people in Diyarbakir which is the largest city in the Kurdish region of the country. There were also reports of social media platforms like Twitter being inaccessible. Time notes that this episode, following on from July’s attempted coup might jeopardize the country’s future as a democracy. The Turkish equity market fell about 2% on Friday and not quite 5% for the week.
West Texas Intermediate Crude fell dramatically last week with the latest development being hints from Saudi Arabia of possibly increasing output as the previously agreed to OPEC production cuts unravels. The Saudi’s later denied threatening to increase production which contributed to some snap back but still, for the week, WTI fell 9%. Gold was well bid last week, adding 2% and taking back the $1300 level.
ETF News
FactSet reported $20 billion in October fund flows. Several large, broad based equity funds had inflows ranging from $1-$2 billion and the two largest high yield index funds had outflows that combined were $1.2 billion. While these outflows may have been tied to the general backup in yields that has occurred over the last month, the relative performance of high yield versus the aggregate index and intermediate and longer treasuries has been strong.
Interesting Reads
Earlier this year there were two serious earthquakes in central Italy. The Guardian reports that Italy Faces More Earthquakes In Near Future, Scientists Warn;
Scientists now know that the region is prone to earthquakes because it is being stretched in a north-east/south-west direction at a rate of about 3mm a year. “That is roughly a tenth of the rate at which your fingernails grow,” said Walters. Some of this geological stretching is due to the underground tectonic plates on which Italy sits and which are moving apart. In addition, it is thought that Earth’s mantle under the crust is pushing upwards and this also leads to stretching.
Sports
The World Series was of course one for the ages, enjoyable for everyone save for about 400,000 people in Cleveland. The series and game 7 had just about everything which leads Rolling Stone to tell us How The Cubs Became America’s Team With Epic World Series Win;
The Cubs, with Bill Murray and Eddie Vedder singing “Take Me out to the Ballgame” where Harry Caray used to do it; Rizzo, Baez and Schwarber becoming the little brothers everybody could want; Bryant’s MVP season; manager Joe Maddon as a cross between a guru, a fun uncle and a baseball genius; Theo Epstein ending the droughts in both Boston and now Chicago; and just the way they did it. Yesterday, the Chicago Cubs were the team you knew were going to blow it. Today they’re the team that did the opposite of just that. And for that, they’ve become the epitome of what makes sports – specifically the sport they play, America’s pastime – so great.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, Rolling Stone, BBC
S&P Sector Analysis
As for the sectors of the S&P 500, seven outperformed the broad benchmark – Materials, Utilities, Industrials, Financials, Discretionary, Healthcare, and Real Estate. The remaining four – Staples, Energy, Telecom, and Technology – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.09% for the week ending 11/4/16, with Materials outperforming all, and Technology coming in last.
For October 31st, 2016 to November 4th, 2016
As measured by the S&P 500 sector indices, respective performances were: