Conway’s QuickTake: Week of August 24, 2020


Here’s What Happened Last Week:

U.S. Equities
The S&P 500 Index closed at new highs last week, marking the fastest recovery from a bear market in history. According to Barron’s, it took just 126 trading days for the S&P 500 Index to reclaim its prior February peak. For context, the historical average is closer to 1,500 days. Growth outpaced value by a sizeable margin, supported by gains from technology and communication services giants. Declines in energy and financials were a headwind to the value benchmarks. Mega-cap outperformance also contributed to the underperformance of small- and mid-caps. Smaller market cap securities also continue to lag year-to-date.

July increases in both housing starts and permits supported the housing market’s resiliency. The National Association of Home Builders’ measure of builder confidence also reached its highest point on record, while existing home sales in July rose much more than expected and hit their best level since December 2006. Weekly unemployment claims rose unexpectedly to 1.1 million, although the number of unemployed filing continuing claims fell more than expected and hit its lowest number (14.8 million) since early April. The effort to contain the pandemic showed some encouraging signs after the national daily new cases continued to fall in many of the harder hit areas in the South and the Sun Belt. There were also signs that Americans were becoming more comfortable dining out and spending more.

Source: iStock 2020

International Equities
International developed stocks trailed domestic counterparts after European shares fell on worsening global trade tensions. Japanese stocks also suffered losses in USD terms, as the yen continued to strengthen against the dollar.

Emerging market equities were roughly flat for the week, helped by President Trump’s postponement of a 6-month trade review with China. Despite the delay, tensions between the U.S. and China are again on the rise as both nations seek to enhance their competitive global position and protect trade/technological secrets.

Early Eurozone PMIs suggest its recovery might have lost some momentum in August, particularly impacted by slower growth in the service sector. The composite output index, which combines manufacturing and services, fell to 51.6 from 54.9 in July. Note that PMI readings of 50 mark the difference between an expansion and a contraction in output. New coronavirus cases surged in select European countries including Croatia, Slovenia, Malta, Austria, Hungary, France, and Greece. Italy and Spain also struggled to combat the spread of the virus. In response, many of these countries are tightening rules on the use of masks and limiting certain businesses such as nightclubs and hotels. China’s fight against the virus appeared more encouraging. Their National Health Commission reported zero recorded cases of local transmission. Also, Chinese travel experienced a sharp recovery. Wuhan, the epicenter of the country’s coronavirus outbreak last year, recorded 352,000 tourists in a recent weekend at designated scenic locations, according to Chinese state-run media.

Credit Markets
This week saw gains in US Treasury bond prices across the curve, led by the long-end. The yield on 10-year Treasuries opened the week around 0.689%, reaching 0.627% last Friday. Primary new corporate issuance has reached record breaking volume year-to-date. Supply issued year-to-date, month-to-date surpassed previous records and week-to-date issuance surpassed expectations. Municipals underperformed Treasuries this week, moving yields and ratios higher as a wave of new supply hit, taking advantage of record low yields. Municipal bond funds continued to see inflows. $1.8 billion was added for the week, which is the 15th consecutive week of inflows.

Sustainable Spotlight: ESG fund flows surge despite downturn
• Baby boomers or those born between 1946 and 1964 – are expected to pass nearly $48 trillion in assets to their heirs and charities over the next 25 years, according to Cerulli Associates.
• Boomers today are likely beginning to increasingly incorporate children into preparatory conversations related to such plans. We see this paradigm as one of the driving forces behind such dramatic upticks in ESG inflows.
• As State Street Global Advisors explains, the topic of values-based investing has begun to serve “as a bridge between baby Boomers–who are desperately trying to hold onto their youthful dreams of making the world a better place–and their children who want to ensure that their actions, including their investments, are aligned with their values.” As we expect this trend of investors aligning across generations to rise, we therefore expect ESG investing to increasingly enter the mainstream.
• Read about more sustainable investing details from Seeds Investor: https://www.seedsinvestor.com/
• In other sustainable news:
-ESG Investing – From Tipping Point to Turning Point – State Street (July 2020) https://www.ssga.com/library-content/pdfs/etf/spdr-esg-investing-tippingpoint-to-turning-point.pdf
-Move over Millennials: ESG Investing is a Multigenerational Conversation – S&P Global (May 2020) https://www.spglobal.com/en/research-insights/articles/move-overmillennials-esg-investing-is-a-multigenerational-conversation

Looking ahead…
Tuesday, August 25, 2020
•US Consumer Confidence
•German Ifo Business Climate
Thursday, August 27, 2020
•US Jobless Claims
Friday, August 28, 2020
•US Personal Income
•US Personal Spending

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

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.