Conway’s QuickTake: Week of December 2, 2019


Here’s what happened last week:

U.S. Equities:

Despite hitting fresh highs earlier in the week, equity markets ended the week only modestly higher after trade concerns reemerged. Within the S&P 500 Index, the consumer discretionary sector (+1.8%) outperformed, aided by strong results from Amazon.com and signs of a strong early holiday season. The energy sector (-1.5%) continued to lag and remains up only 5.5% so far this year versus the S&P 500’s 27.6% year-to-date gain. As measured by the respective Russell Indexes, growth outperformed value and small-caps exceeded large-caps.

Despite concerns over the U.S.’s support for the Hong Kong protests, there are some early tangible signs of progress in relation to U.S./China trade negotiations. Specifically, China announced plans to develop new methods for protecting intellectual property. The plan would involve better defining IP theft and associated penalties. On the other hand, President Trump said that he had “no deadline” to conclude a trade deal with China, which lead to market weakness. Otherwise, it was a light week for economic data. There were some encouraging signs for the housing market as new home sales fell in October but came in ahead of estimates, resulting in the best two-month gain in 12 years. Third quarter GDP also was revised upwards from 1.9% to 2.1%.

Source: iStock 2019

International Equities
Developed, non-U.S. markets outperformed emerging market equites. The MSCI EAFE Index logged a 0.5% gain while the MSCI Emerging Markets Index fell 0.8%. Emerging markets were dragged down late in the week by Chinese equities, which were affected by President Trump’s backing of a bill that supported pro-democracy, Hong Kong protestors.

After an extended period of disappointing data, German consumer sentiment rose unexpectedly in December. Improved sentiment has the potential to boost household spending and help offset some of the weakness in German manufacturing and exports. Outside of Europe, the IMF again cut their 2019 GDP growth forecast for Japan to 0.8% from 0.9%. The reduction reflects ramifications from the trade war in addition to Japan’s other economic woes such as ballooning sovereign debt and bleak demographic trends. While Europe’s growth slowdown is showing signs of bottoming, China’s might still have room to fall. Chinese industrial profits fell for the third straight month and are off nearly 10% versus a year ago.

Credit Markets
Bond yields were next to unchanged last week. Continued improvement in sentiment helped push credit spreads tighter resulting in the high yield sector outperforming. The municipal market also had positive performance based on limited supply and improved fundamentals. Tighter spreads broadly contributed to small, positive performance across most portions of the market last week.

Looking ahead…
Tuesday, December 3, 2019
•Great Britain Construction PMI (Nov)
•Bank of England Treasury Committee Hearings
Wednesday, December 4, 2019
•GB Composite PMI and Services PMI (Nov)
•US Nonfarm Employment Change (Nov),
-Non-Manufacturing PMI (Nov),
-Crude Oil Inventories
Friday, December 6, 2019
•US Nonfarm Payrolls and Unemployment Change (Nov)

Resource of the Week:
It’s always refreshing to hear a unique perspective on investing, and this article delivers just that. Gavin Baker currently runs Atreides Management and was previously a star fund manager focusing on consumer and tech at Fidelity. The wide scoping conversation touches numerous investing themes that could pay dividends for years to come but most deeply touches on the video game sector.

Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update