Conway’s QuickTake: December 23, 2019

Here’s what happened last week:

U.S. Equities
The S&P 500 Index logged an impressive 1.7% gain last week amidst recent positive trade developments and broader optimism. U.S. indices outside of large-cap equities are also reaching new highs. This includes U.S. mid-cap indexes and the tech-heavy Nasdaq Index. Notably, small-cap benchmarks remain a few percentage points below higher levels reached last year. Within the S&P 500 Index, the real estate (2.7%), utilities (2.7%), and communication services sectors (2.5%) had the largest gains last week. The industrials sector (0.3%) lagged from weakness in FedEx shares following a disappointing profits announcement. As we approach year-end, it’s worth noting that the S&P 500 Index is on pace to be up more than 30% while most other U.S. equity indexes have logged gains in the high-20s.

There was some concern last week over the lack of detail around China’s commitments in the “Phase I” trade deal. However, we learned more Monday morning; starting January 1st of 2020, China will cut import tariffs for frozen pork, pharmaceuticals, and other high-tech components. These concessions are another sign of constructive progress towards greater trade relations for both countries moving forward and a hopeful resolution of the trade war. U.S. economic data had some positive signals as personal incomes rose 0.5% in November, coming in well ahead of expectations. The housing market also had a healthy boost with construction permits surging to the highest level in over 12 years.

Source: iStock 2019

International Equities
Emerging market equites were again a standout performer last week, with the MSCI EM Index rising 2.0%. Recent strength has brought the year-to-date MSCI EM Index gain to just under 18%. The developed, international MSCI EAFE Index also rose, although to a lesser extent (0.6%). The MSCI EAFE Index is also up an impressive 22.2% so far in 2019.

Concerns around a no-deal Brexit are again rising after Boris Johnson’s recent strong victory. Johnson appears committed to ensuring a Brexit happens and that further deadline extensions are avoided. This contributed to weakness in the U.K. pound. Outside of the U.K., Flash Eurozone PMI continued to fall and is just barely above the level separating expansion from contraction (50). Europe Manufacturing PMI also fell and remains in contractionary territory.

Credit Markets
Bond yields once again ended the week higher with the U.S. Treasury 10-year yield approaching 2%. This is the highest level reached in over a month. Rising yields contributed to modestly negative performance from most bond markets. That said, overall demand for credit, particularly in the municipal market has remained robust and flows have been positive. High yield has also been the recipient of sizeable inflows reflective of a growing risk-on sentiment.

Looking ahead…
Thursday, December 26, 2019
•US Inititial Jobless Claims
•Japan Jobless Rate

Sources:, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update