Conway’s QuickTake: Week of February 3, 2020


Here’s what happened last week:

U.S. Equities
Major U.S. stock market indices fell for the second straight week as concerns over the economic impact of the coronavirus outbreak grew. Most large- and all-cap indices fell more than 2% each. In total, the World Health organization has reported more than 17,000 cases worldwide, leading the organization to declare the outbreak a global health emergency. Potential ramifications of the virus supported a strong risk-off mentality in markets, driving bond yields lower. The energy sector (-5.6%) lagged as oil prices fell again, another reverberation of the coronavirus given the shrinking tourism expectations. In other areas of U.S. equities, small-cap stocks (-2.9%) lagged large-cap stocks (-2.0%) and value (-2.3%) lagged growth (-1.8%) as reflected by their respective Russell indices.

Despite most major stock indices declining for the week, some of the largest U.S. companies reported positive quarterly earnings. Apple, Microsoft, and Amazon all beat their earnings expectations. The Federal Reserve voted to keep key interest rates in the 1.50% – 1.75% range, in line with market expectations.

Source: iStock 2020

International Equities
Developed international equities, as measured by the MSCI EAFE Index, also fell for the second consecutive week (-2.5%). Emerging market equities, measured by the MSCI EM Index, fared much worse (-5.1%). Like in the U.S., the coronavirus was largely responsible for market declines globally. Relatively speaking, Japan had the best weekly performance as measured by the MSCI Japan Index, falling only 1.6%. Chinese markets reopened sharply down after the Lunar New Year hiatus, which was expected.

In Europe, consumer prices fell 1% throughout January, while the unemployment rate has fallen to 7.4%, the lowest rate in 12 years. Like the Federal Reserve, the Bank of England also voted to keep their key interest rate unchanged, believing that investor sentiment and growth forecasts have improved. Supporting recent positive German economic news, the government raised the 2020 growth forecast to 1.1% supported by an improved trade outlook and strong demand.

Japan received approval to sell additional bonds, using proceeds to bolster financing for river facilities. The hope is this will help stimulate the overall economy and support small businesses and farmers. Fingers are crossed that the upcoming Tokyo Olympics will provide a welcoming lift the country desperately needs.

Credit Markets
With yields broadly declining, domestic fixed income performed well last week. The U.S. Treasury 10-year yield fell to 1.52%, its lowest level since early September 2019. The continued risk-off environment supported higher-quality segments of the market, including Treasuries and municipal bonds. In the municipal bond market, continued strong demand has pushed yields for the 10- and 30-year bonds to record lows.

Looking ahead…
Monday, February 3, 2020
•US ISM Manufacturing
•German Manufacturing PMI
Wednesday, January 29, 2020
•US ISM Non-Manufacturing
•GB Composite and Services PMI
•US ADP Nonfarm Employment Change
Friday, January 31, 2020
•US Unemployment Rate (Jan)
•US Nonfarm Payrolls (Jan)

Resource of the week:
This Leadership Lounge with Jack Tester episode involves a conversation with David Goggins, a motivational and inspirational speaker. After a difficult upbringing, David has become an ultra-athlete, Navy SEAL, and best-selling author who advocates discipline, endurance, and pure focus. For anyone who needs to be reinvigorated in their personal or professional life, this is worth a listen.

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