Conway’s QuickTake: Week of February 10, 2020

Here’s what happened last week:

U.S. Equities
Domestic equities regained or surpassed recent highs, fueled by optimism about global growth and lessened fears surrounding the economic impact of the coronavirus. The S&P 500 Index recorded its best weekly gain since last June, rising 3.2%. Within the S&P, more highly valued, often growth-oriented sectors had the best results. This included the IT sector (4.6%) which benefited from strong showings from Microsoft and Twitter. Rising yields hurt bond-proxies leading to the utility sector (-0.5%) lagging for the week. Large-caps outpaced small-caps and growth surpassed value.

Trade discussions with China continued to be productive with China planning to cut tariffs on select U.S. imports on February 14th, in-line with the parameters of the ‘Phase I’ trade deal. The strength of the domestic labor market also helped improve sentiment; ADP reported that the private sector added 291,000 jobs in January. This represents the largest monthly gain in about five years and was about double consensus estimates. The public sector also had a solid jobs reading in January, adding 225,000 positions – also above estimates. Limited slack in the labor market helped push both wages and the labor participation rate higher.

Source: iSock 2020

International Equities
International Equities also had an impressive week, with both developed and emerging non-U.S. equities logging gains. The MSCI Emerging Markets Index rose 2.8% while the developed, non-U.S. MSCI EAFE Index increased 1.9%. Within emerging markets, Chinese equities showed strong performance with the MSCI China Index increasing 4.5%.

In Europe, ECB President Christine Lagarde reiterated that easy monetary policy was necessary to support fragile growth momentum. Slower economic momentum was evidenced by falling industrial production in Germany and France in December. The Bank of Japan (BoJ) also reiterated its support for easy monetary policy and doing whatever it takes to ensure price stability. While China is still combating the spread of the coronavirus, it is starting to show signs that the virus is partially contained and that there is progress towards a vaccine. The number of new cases has started to decline while the number of recoveries has been increasing. In addition, the People’s Bank of China (PBoC) added fresh stimulus to its economy in the form of 30 financial measures aimed at offsetting some of the short-term impact of the virus and ensuring amble liquidity.

Credit Markets
Bond markets were largely mixed as yields rose moderately over the week. Notably, yields remain towards the lower end of recent ranges with the U.S. Treasury 10-year yield still sub-1.6%. Higher rates and reduced demand for ‘safer’ debt resulted in slightly negative returns for treasuries and high-quality municipals. Despite modest negative returns, strong demand for municipals continued with steady inflows. Puerto Rico general obligation (‘G.O’) bonds also had positive fundamental developments supporting the high-yield municipal space.

Looking ahead…
Tuesday, February 11, 2020
•UK Industrial Production
Wednesday, February 12, 2020
•Euro area Industrial Production
Thursday, February 13, 2020
Friday, February 14, 2020
•Euro GDP QoQ
•Germany GDP QoQ
•US Industrial Production

Resource of the week:
After a 40-year career on Wall Street, including heading the Investment Management Division at Goldman Sachs and serving as Chairman and CEO of AllianceBernstein, Peter Kraus decided that the active asset management industry needed a makeover. In particular, Peter believed the alignment of interests was off and there was limited trust that investment firms’ truly had the client’s best interests in mind. In this episode of Capital Allocators, Peter discusses how his new firm, Aperture Investors, seeks to fix these problems and bring a strong defense from active management against the rise of passive investing.

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