Conway’s QuickTake: Week of February 17, 2020
Here’s what happened last week:
Domestic equities again logged a strong week, with the representative S&P 500 Index rising 1.6%. The IT sector (+2.3%) was among the best performing areas of the market for the week and has increased an impressive 11.2% year-to-date. This comes after returns of more than 50% over 2019. The real estate sector (+4.9%) was another strong performer last week, benefiting from positive results from cell phone tower companies structured as REITs. Consumer staples (0.8%) lagged as some of the sector’s larger constituents struggled to adjust their business models to evolving buyer preferences. Growth outpaced value while small-caps bested larger market-caps as measured by the respective Russell benchmarks.
The Fed indicated that it was ‘closely monitoring’ the spread and impact of the coronavirus, suggesting that additional stimulus is possible. In fact, consensus is already starting to price in at least one rate cut in the coming months, with 82% of investors polled by CME Group data believing that there will be at least one cut in 2020. 46% of the same population polled believed that two or more cuts are likely. Outside of the coronavirus, U.S. tensions with China again appear to be rising. First, the Department of Justice (‘DoJ’) indicted four Chinese military members for an alleged role in the Equifax data breach. Next, the DoJ announced an investigation into Chinese telecom giant, Huawei for supposedly stealing domestic intellectual property.
International equity markets were mixed and lagged U.S. counterparts. The developed, international MSCI EAFE Index was roughly flat (-0.1%) while the MSCI Emerging Markets Index fared better – rising 1.5%
The week started off with encouraging signs that the spread of the coronavirus was slowing but took a dramatic turn when China announced a sharp rise in the number of reported cases on Thursday. While an additional 15,000 active cases is alarming, it’s likely more of a diagnostic re-classification versus an acceleration of the spreading of the virus. The World Health Organization further quelled fears after it said that new cases outside of virus’ origin were falling and the mortality rate in the same regions was sub-0.5%. Though the spread of the disease appears somewhat contained, its impact to global supply chains is more uncertain. In the Eurozone, economic growth slowed in the fourth quarter of last year. This was largely expected with contractions within France and Italy. While growth remains slow in the broad region, the German economy has recently demonstrated some positive signs.
Intermediate yields had little movement while longer-term, 30-year Treasury yields reached a record low of just above 2%. Demand remained robust for the municipal market as evidenced by support for new issuance from Texas and heavy trading of Puerto Rican general obligation bonds after a resettlement last week. The high yield sector also received a healthy boost after Sprint bonds traded higher when a federal judge ruled in favor of T-Mobile’s takeover of the company.
Wednesday, February 19, 2020
•US Core PPI YoY
•UK CPI YoY
Thursday, February 20, 2020
•Philadelphia Fed Survey
Friday, February 21, 2020
Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update