It’s been a rough few days for the Yinzer Analyst; first the Steelers are demolished by the Ravens, then Cleveland takes down New Orleans and after finally turning my back on the Buffalo Bills, they somehow manage to take the lead in the AFC East. When will the hurting stop? But before the Yinzer Analyst drowns himself in a sea of Iron City, there’s always time for another weekly recap. Yagottabekidden?
But if you thought it was bad in the AFC North, you weren’t watching the action in the markets last week. Friday was the perfect way to cap off the first down week for the S&P 500 since July, with the market being sold early and often on Friday until buying action after 3:00 p.m. helped moderate some of the damage. Let’s start off by looking at the sector spread for the week.
As you can see in the chart, the early momentum leaders for 2014 were beaten like the red-headed stepchildren of a rented mule. We’ve covered the energy sector at some length, but this week’s biggest loser was also 2014’s biggest winner, REIT’s. Amid some profit taking and a general equity sell-off, REIT’s lost over 5% on the week while other high fliers such as utilities and equity precious metals met a similar fate, down 3.17% and 4.75% (using GDX) respectively. Why did these two take it on the chin? One factor to consider is a steepening yield curve as the prospect for higher rates in the immediate future becomes more of a reality for many investors. REIT’s and utilities, thanks to their debt heavy capital structures, are much more sensitive to shifts in interest rates and could be feeling just a hint of a margin squeeze in the immediate future. And as we talked about last week, inflation expectations have been falling steadily for several weeks, taking some of the wind out of golden sails.
And as to the utilities, the Yinzer Analyst is having second thoughts on his mistaken “head and shoulders” pattern for the XLU. Yes, it’s behavioral finance 101 but maybe the market just hadn’t proved us right yet.
With the technology sector the only one to keep a level head for the week, the distribution of the broader market indices is fairly easy to explain. More tech (less real estate, oye)= better weekly returns.
The steepening yield curve has also taken its toll on bond ETF’s as only those with the shortest duration have escaped much of the carnage over the last few weeks. But those looking for a place to hide in short-term bond ETF’s should take note that the shifting yield curve dragged even those “cash alternatives” into negative territory for the week.
What about taking your money abroad and hiding out overseas? At first glance it looks pretty dismal but peel back the negative performance for the week and we still think position more equity overseas can be a sound strategy.
As you can see in the chart, MCHI had a pretty bad week but as you can see in the chart, both MCHI and the mainland A-share market charts show consolidation which might go on for a period of weeks.
Meanwhile, momentum could possibly be reversing in Europe as both EZU continues to hold support above its recent lows while even the broader MSCI EAFE shows signs of gathering strength against the S&P 500 as the dollar looks like it wants to give up some ground. This could be the trend to watch for the 4th quarter, but for now the Yinzer Analyst is going to open the Iron City and pray to the football gods not to let Cincinnati run away with the division.