Conway’s QuickTake: Week of August 17, 2020


Here’s What Happened Last Week:

U.S. Equities
U.S. Equities were mostly positive for the week as the S&P 500 Index briefly moved to within 0.2% of its all-time high set in February. Stocks continued to rise despite the absence of a new stimulus agreement from Congress. A short-lived catalyst for stocks was an announcement that Russia developed an approved vaccine. However, it was quickly revealed that it lacked extensive trials testing thus far. For the second consecutive week value stocks outperformed growth stocks fueling beliefs that a style shift is underway. Most sectors increased, led by industrials (+3.2%) and energy (+2.8%), as the former benefitted from strong gains by FedEx (FDX) and United Parcel Service (UPS) stocks. Both companies’ earnings reports convincingly beat analysts’ estimates despite announcing they will increase shipping costs this holiday season. Utilities (-1.8%) and real estate (-1.8%) both declined as their dividend payments no longer look as attractive when compared to long-term Treasury-bond yields.

One week after President Trump signed executive orders into law, investors were hopeful these actions would inspire Congress to reach an agreement on a new stimulus bill. Instead, after a few days of little progress both the Senate and House of Representatives took a break from further discussions until at least September 8th. On a positive note, the number of reported weekly initial jobless claims fell below one million for the first time since mid-March. Also, monthly retail sales rose 1.2% in July although less than forecasted (1.8%). Last month was the third consecutive month that retail sales increased, but some worry it may be short lived since the $600-per-week unemployment payment benefits expired at the end of July. The consumer price index rose 0.6% through July, the largest single-month increase since 1991, and heightened existing concerns centered around inflation risk.

Source: iStock 2020

International Equities
International Equities recorded mostly gains in USD terms last week aside from China which fell 0.4%. This came before the next step in the U.S.-China trade negotiations that was scheduled for August 15th but was subsequently postponed. Developed international equities, as measured by the MSCI EAFE Index, rose 2.5%. Japanese equities rose again around 4.3% after polls indicate strong declines expected for fiscal year profits through March 2021. Emerging markets represented by the MSCI EM Index rose by 0.4%, much less than their developed counterparts.

European nations are experiencing sharp increases in new coronavirus cases, stoking concerns of a potential second wave. At the same time, released data showed the U.K. permanently eliminated 730,000 jobs since March which could worsen if cases continue to rise and employers are forced to make modifications again. As mentioned above, Japanese firms expect their profits to fall 36% through March 2021. Outliers include Japanese auto behemoths Toyota and Honda that both forecast 64% net profit declines for the fiscal year. China released its July economic data last week, which indicated its inflation level rose for the second straight month led by higher food prices. Separately Chinese retail sales and industrial output levels were less than economists forecasted.

Sustainable Spotlight: ESG fund flows surge despite downturn
In the second quarter, U.S. sustainable fund flows continued at a record pace, reaching $10.4 billion. Total net flows for the first half of 2020 hit $20.9 billion, already nearly matching the full-year 2019 total of $21.4 billion. As the demand for investing in companies that “do the right thing” clearly continues to rise among investors, large multinational companies have gotten the message, increasingly incorporating ESG practices into their businesses. Cigarette behemoth Phillip Morris, for example, recently published a comprehensive update on ESG issues that spans 192 pages–a full 54 pages longer than the company’s annual financial report. Meanwhile, as the Department of Labor continues its attempts to curtail ESG investing in retirement accounts, ESG proponents point out that regulators continue to misunderstand ESG’s primary function as an added risk metric tool to better understand a company’s future performance. Read about these and more sustainable investing details from Seeds Investor: https://www.seedsinvestor.com/. In other sustainable news:

Sustainable Fund Flows in Q2 2020 Morningstar. July 30, 2020.
ESG is Risk Management WSJ. June 29, 2020.
How ESG Investing Captured Trillions…and ESG Video CNBC. June 25, 2020.
Is ESG Ready to Take Center Stage in Portfolios Forbes. June 15, 2020.

Credit Markets
Credit Markets on average had a negative week, as most bonds declined across the board. This decline was largely attributable to the increase and steepening of the yield curve. The 10-year Treasury rate ended at 0.71%, an increase of 0.15% from the week prior. In fact, the spread between the 5-year and 30-year rates increased to 112 basis points, its steepest level in more than a month. Corporate bonds fell despite a strong week of new issuance, as approximately $42 billion was issued versus expectations around $30 billion. Thus far the year’s total corporate bond issuance is about to surpass 2017’s record year of $1.33 trillion, and it’s only August. Municipal bonds have undergone extensive measures of refinancing over the past two months as states and government municipalities took advantage of the record low yields. The category also benefitted from its 14th straight week of inflows, adding $2.3 billion in total.

Looking ahead…
Tuesday, August 18, 2020
•Japan – Balance of Trade (July)
Wednesday, August 19, 2020
•Britain – Inflation rate YoY
•Canada – Inflation rate YoY
•China – Loan Prime Rate
Thursday, August 20, 2020
•US – Initial Jobless Claims, Philadelphia Fed Manufacturing Index
•Japan – Inflation Rate
•Britain – Consumer Confidence

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Piton Investment Management

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.