Conway’s QuickTake: Week of April 6, 2020
Here’s What Happened Last Week:
U.S. Equities ended the week lower and finished the worst quarter in over a decade, with the S&P 500 Index off roughly 20% over Q1. Within the S&P, more cyclical sectors proved most vulnerable. Energy was a standout, shedding about half its value compared to the end of 2019, with the pain only exacerbated by an oil price war. Other notable year-to-date laggards include financials (-36%) and industrials (-31%). Both sectors are facing severe headwinds, whether it be lower rates for financials or lower manufacturing activity and capex for industrials. On a more positive note, more demand-defensive sectors such as consumer staples (-11%) and healthcare (-15%) generally fared better. The IT sector (-16%) also performed relatively well given increased demand for a variety of products that enable remote work. Elsewhere in markets, large-caps outpaced small-caps while growth continued to lead value by a sizeable margin.
Recently released jobs data continues to demonstrate the coronavirus’ profound impact on the employment market. The last weekly initial jobless claims set a new all-time record of over 6.6 million claims. Nonfarm payrolls also came in many multiples below consensus. Both of these events put an end to an historic streak of job growth and raised the unemployment rate to 4.4%, up from prior 50-year lows. In terms of the coronavirus, areas of the country, like the northeast, are likely getting closer to their peak point of infections. This presents the possibility that the biggest strain on the healthcare sector could be behind us – at least for this wave. Outside of the northeast, the lockdown continues to expand bringing more of the domestic economy offline for the time being.
International Equities also closed one of the worst quarters in recent record. Most non-U.S. indices underperformed domestic counterparts as U.S. dollar strength proved to be an additional headwind to international markets. While emerging markets outperformed developed, non-U.S. counterparts last week, both the MSCI EM Index and developed, MSCI EAFE Index are both down roughly 25% so far this year.
In Europe, deaths from the coronavirus accelerated in a variety of harder hit countries including Italy, France, Spain, Germany and the U.K. While the pace of mortality is seeing new heights, the number of new cases and admissions to ICUs is showing signs of slowing. Similar to in the U.S., we’re only starting to understand the full economic implications on the coronavirus in Europe. Early signs suggest that there will be a dramatic rise in unemployment and decline in GDP. Asia is also digesting the full economic ramifications of the coronavirus, although a number of key nations appear to be further along in their containment efforts. Importantly, China’s PMIs rebounded in March as the country is among the first to come back online after being the origin of the virus.
Credit Markets were mixed as yields fell but spreads widened. The benchmark U.S. Treasury 10-year yield fell back to its lowest level in over a month of just under 60 basis points (0.60%). The municipal market continued to struggle, extending its underperformance relative to treasuries. This reflects technical headwinds including liquidity strains, although these challenges are starting to show signs of normalization. In the corporate credit market, investment grade insurance was heavy as firms sought to shore up capital reserves to weather the current shutdown. High yield also saw some renewed issuance after a three-week period of little-to-no activity.
Tuesday, April 7, 2020
•Canada – Ivey PMI (March)
•US – IBD / TIPP Economic Optimism (April)
Wednesday, April 8, 2020
•US – Federal Open Market Committee Minutes
Thursday, April 9, 2020
•Germany – Balance of Trade (February)
•Great Britain – Balance of Trade (February), Construction Output, Industrial Production
•US – Monthly PPI (March), Michigan Consumer Expectations
•China – Inflation figures
Friday, April 10, 2020
•US –March inflation numbers
Resource of the Week:
Recent steep declines and extreme volatility within equity markets likely have many of us scratching our heads as to how to take advantage of this distressed market environment. The recent episode of Invest Like the Best features a conversation with Gavin Baker who is the CIO of Atreides Management. The conversation focuses on how the investing landscape has evolved and its potential future iterations. As Winston Churchill said, “never waste a good crisis.”
Sources: Trading Economics, Bloomberg, 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.directly. 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.