Conway’s QuickTake: Week of April 27, 2020
Here’s What Happened Last Week:
U.S. Equities declined moderately over the week according to most major domestic indices. The S&P 500 Index fell by -1.3% while the Wilshire 5000, a broader depiction of domestic equities, fell -1.1% supported by a small weekly gain in small-cap stocks. Investors started to react to some disappointing first-quarter earnings reports and oil prices’ plunge into negative territory. On Monday April 20th, the May futures contract for crude oil closed at -$37.63, implying that buyers of these long futures were literally being paid to receive and store each barrel of oil. There are many theories why this plunge to negative prices occurred, but without a doubt the most prevalent concern behind it all is the decline in energy demand and what it means for the broader global economy. On Tuesday oil futures rebounded back into positive territory but left a shocking imprint in the history books. Within sectors of the S&P 500, all declined aside from energy (+1.9%) and communication services (+0.6%). The hardest hit areas were real estate (-4.4%) and utilities (-3.8%). As measured by their respective Russell indices, growth exceeded value while small-cap exceeded large-cap stocks.
A new stimulus bill worth $484 billion was put into law moving between government branches throughout the week. It aims to provide additional relief loans to small businesses impacted during this pandemic, and to provide funding for further coronavirus testing and hospitals that need financial help. During last week, an additional 4.4 million Americans filed initial jobless claims during the week ended on April 18th bringing the five-week total to more than 26 million people. However, it also was the third week of claims totals which had declined from the week prior, a positive sign. Not all news is positive though as the National Association of Realtors reported that existing home sales fell to their lowest level in a year in March, before the broad economic shutdown was in full effect. This also means existing home sales may even worsen when April’s numbers are released.
International Equities mostly declined due to similar concerns – individual country efforts to utilize government policies for stimulus packages, the historical crash in oil prices, and the disappointing news of a coronavirus vaccine drug trial failure in China. The latter story is based on preliminary reports that Gilead Sciences’ potential drug vaccine, remdesivir, had failed in early clinical trials that were conducted in China. Ironically, this came about a week after markets rallied following rumors that the same drug was achieving early success in similar trials conducted in the U.S. Within non-U.S. markets, the MSCI EAFE Index declined by -2.0%, which on a relative basis beat the MSCI Emerging Markets Index falling -2.4%.
The European Union agreed that some type of an additional fiscal stimulus is necessary to provide further relief, but they did not agree on the size of the package and in what fashion funds will be distributed. This drama unfolded as the IHS Markit Eurozone PMI composite fell to 13.5 from 29.7, its lowest level ever. For reference, a reading below 50 indicates an economic contraction.
Credit Markets fell in some sectors and rose in others. High quality investment grade corporates took a hit when oil futures turned negative but closed the week slightly positive. The Bloomberg Barclays U.S. Aggregate Index rose +0.24% and the 10-year Treasury bond yield fell slightly to close at 0.6%. Opposite this, municipal bonds declined based on credit concerns generated on the back of Senate Majority Leader Mitch McConnell’s statement. He said that Republicans would be unwilling to bail out underfunded state pensions and instead opt for those states to file bankruptcy. Naturally, this rattled some investors of municipal bonds, an asset class normally considered a safe investment haven in fixed income outside of Treasuries.
Tuesday, April 28, 2020
•France – Consumer Confidence (Apr)
•Spain – Unemployment (Q1)
•US S&P/Case Shiller Home Price figures (Feb)
Wednesday, April 29, 2020
•Euro Are – Business Confidence (Apr)
•US – GDP Growth Rate, Fed Interest Rate Decision
Thursday, April 30, 2020
•Japan – Consumer Confidence (Apr)
•France– GDP Growth Rate
•Spain – GDP Growth Rate
•Euro Area – GDP Growth Rate
•US – Personal Income and Personal Spending figures
Friday, May 1, 2020
•US – Markit Manufacturing PMI Final (Apr), ISM Manufacturing PMI (Apr)
Resource of the Week:
Helping people through difficult situations requires critical thinking with rational thought behind it. This episode focuses on exactly that – how to make important decisions given either complicated or complex background information. This conversation between Brian Portnoy, Jonathan Novy, and Annie Duke discusses these factors. It is often easy for decision makers to misinterpret a situation based on misinformation and it is important to understand the facts to make the best decisions.
Sources: Trading Economics, The WSJ, T. Rowe Price Global Markets Weekly Update
Data in this report is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. It is provided for your information and guidance and is not intended as specific advice and doesn’t not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.