Conway’s QuickTake: Week of December 16, 2019

Here’s what happened last week:

U.S. Equities
U.S. large-cap indexes inched towards fresh all-time highs with the S&P 500 Index rising 0.8%. News of a preliminary ‘Phase I’ trade deal was by far the biggest boost to sentiment. Within the S&P, the IT sector (+2.0%) outperformed. This was due to semiconductor stocks which should disproportionately benefit from the initial trade resolution. The energy sector also performed well (+0.9%) as renewed economic optimism pushed oil to a three-month high. Yield-sensitive sectors lagged, most prominently real estate (-2.4%), responding to a slight uptick in rates. Large-caps stocks (Russell 1000) bested small-caps (Russell 2000) and growth (Russell 1000 Growth) bested value (Russell 1000 Value).

After more than two years of negotiation and a rollercoaster of headlines, the U.S. and China have reached preliminary stages of a trade deal. In addition to avoiding increased tariffs on $160 billion of consumer-oriented Chinese goods slated to go into effect this past Sunday, the agreement lowered the existing tariff rate for about $120 billion of Chinese goods from 15% to 7.5%. In exchange, China will be required to enact structural reforms related to intellectual property, technology transfer, agriculture, financial services and currency management. Outside of trade, domestic economic data was discouraging. Retail sales excluding autos was roughly flat, well below consensus. Weekly jobless claims also rose much more than expected.

Source: iStock 2019

International Equities
Emerging market equites were by far the strongest beneficiaries of the ‘Phase I’ deal as the MSCI Emerging Markets Index rose 3.6% over the week. Specifically, Chinese equities performed well. Developed, international markets had a positive week with the MSCI EAFE Index rising 1.7%.

Outside of trade, many of last week’s headlines surrounded the U.K. election results. The ruling conservative party won the election in a landslide, suggesting British citizens are still in favor of Brexit. This also puts to rest any last-minute hope that the U.K. could find some way to remain in the E.U. Moving forward, negotiations will focus on structuring new trade agreements, although tensions between the two parties remain high. In newly elected ECB President Christine Lagarde’s first policy meeting, she kept monetary policy unchanged based on a subdued inflation outlook. Growth is expected to remain modest in the coming years, as the ECB projects 1.1% GDP growth in 2020, and 1.4% in 2021.

Credit Markets
Trade negotiation progress pushed bond yields slightly higher for the week. Otherwise, the bond market is entering a slower period ahead of the holiday season and there will likely be limited new deals until the start of 2020.

Looking ahead…
Monday, December 16, 2019
•US Market Manufacturing PMI
•Euro Area Manufacturing PMI
•UK Manufacturing PMI
Tuesday, December 17, 2019
•US Industrial Production
Wednesday, December 18, 2019
Thursday, December 19, 2019
•Bank of England Bank Rate decision

Resource of the Week:
If anyone has a front row seat into the world of venture capital, it’s Ben Horowitz from the VC firm Andreessen Horowitz. In addition to his days as a venture capitalist, Ben spent the earlier portion of his career as a business owner and operator in the technology realm. These experiences have amounted into a unique perspective on successful (and not-so-successful) business culture. This episode of Masters in Business is worth a listen for more of his thoughts on what makes an enduring business culture and insights from his colored career.

Sources:, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, The Verge, Reuters