Conway’s QuickTake: Week of August 10, 2020
Here’s What Happened Last Week:
U.S. Equities logged another positive week, with the S&P 500 Index rising 2.5%. This put the benchmark up roughly 5% so far this year. More economically sensitive sectors generally performed the best. This included healthy gains from industrials (4.8%), financials (3.3%), and energy (3.2%). More defensive sectors, such as healthcare (0.9%) and utilities (1.1%), were still positive but less so. The breakdown of sector performance helped value beat growth by a 0.6% margin as measured by the respective Russell 1000 Indexes. Small-cap stocks also had a strong recovery with the Russell 2000 Index up 6.0%. This brought the year-to-date decline for the index to -5.2%, well above its March lows.
Last week’s domestic economic data was mostly positive. Signals from the manufacturing sector showed that July factory orders rose more than expected and the ISM Manufacturing Index reached its highest level since early 2019. The services sector also surpassed expectations. The US labor market recovery showed some promise after jobless claims broke a streak of weekly increases. Additionally, ADP announced Wednesday that private-sector payrolls increased by 167,000 in July, lowering the unemployment rate from 11.1% to 10.2%. With some incremental progress on the recovery, this week’s headlines will likely be focused on the next round of stimulus from Washington and Trump’s executive orders this past Saturday. President Trump’s four executive orders include additional unemployment benefits, partial payroll tax deferment, student loan internet rate reductions and aid for renters and homeowners.
International Equities logged strong gains last week. Developed, International equities, as measured by the MSCI EAFE Index in US dollar terms, rose 2.0%. Japanese equities rallied over 3% after a steep decline in July. Emerging markets also rose, although to a lesser extent (MSCI EM Index increased 1.0%). Remerging trade conflict concerns later in the week likely held back broader gains.
Most European data points also pointed to the recovery picking up some steam. Eurozone business activity strengthened in July at the fastest rate in two years. German industrial production also continued to recover, rising nearly 9% in June. The ECB indicated its commitment to additional monetary policy given the level of slack and uncertainty currently in the economy. In Japan, select lawmakers are now proposing that the value-added tax (VAT) be eliminated given Japan’s deep recession. China’s economic data and confidence trended higher given their later stage in the recovery. Despite positive data, reemerging tension between the U.S. and China could reverse this trend and introduce additional tariffs or restrictive economic measures.
Credit Markets were little changed as yields were modestly lower last week. The curve on the 2 Year and 10 Year Treasury notes touched April lows, with the 10 Year yield down 1.3 basis points to around 0.535% on Thursday. Corporate spreads were slightly tighter amidst modest supply and growing demand with the average oversubscription rate over 4x. Muni inflows were again positive for the 13th week in a row as investors continued to seek out conservative yield. With the Fed expanding the eligibility of the Municipal Liquidity Facility last month, the MTA (Metropolitan Transportation Authority, the largest public transit authority in the U.S.) is considering utilizing the facility for approximately $450 million, depending on pricing. With a self-imposed Friday deadline looming, lawmakers continue to negotiate additional stimulus. GOP leaders have conceded a little more towards the middle ground proposing $200 billion in additional aid to states and local governments, while Democrats are looking for $1 Trillion. After a contentious meeting on Thursday, talks are in danger of collapse while Friday’s positive economic numbers may cause a further divide.
Wednesday, August 12, 2020
•US – Core CPI
•Euro area – Industrial Production
•UK – Industrial Production and GDP Growth
Thursday, August 13, 2020
•US – Jobless Claims
Friday, August 14, 2020
•US – Retail Sales, Industrial Production, University of Michigan Consumer Sentiment
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Piton Investment Management, Trading Economics
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.