Conway’s QuickTake: Week of January 13, 2020
Here’s what happened last week:
U.S. large-cap benchmarks hit record levels as concerns of conflict escalation in the Middle East diminished. The S&P 500 Index rose 1.0% over the week with growth-oriented sectors leading. Within the S&P, the communication services (2.2%) and information technology (2.2%) sectors were the top performers. The IT sector was bolstered by continued strength from Apple following better than expected iPhone sales in China. Energy (-1.1%) was the worst performing sector following a decline in the price of oil as geopolitical tensions eased. As measured by the respective Russell indexes, small-caps lagged large-caps and growth stocks outperformed value stocks.
There was a host of improved economic data points in the U.S. last week. The IHS Markit service sector data rose more than expected in December and reached a five-month high. ADP’s private-sector jobs data also surprised to the upside and had its largest monthly gain since last April. Finally, the Institute for Supply Management Index reading was supportive overall. One soft-spot last week was Friday’s jobs report. While an addition of 145,000 nonfarm jobs was only slightly below consensus, average hourly earnings barely budged and had their worst monthly gain since September.
Developed international equities (as measured by the MSCI EAFE Index) were close to flat last week (-0.1%), while emerging market equities fared better (MSCI EM Index rose 0.9%). Strength in Chinese equities has helped drive EM markets higher recently, as they recorded their sixth consecutive positive week.
Non-U.S. economic data was also incrementally positive. Eurozone business activity increased more than expected in December, aided by a robust services sector. Eurozone inflation increased to 1.3% due to strong holiday season spending. This marked an improvement but was still below 2% targets. Nonetheless, the increase somewhat alleviated needs for additional rate cuts for the time being. Data was also improved in Asia; Japan is expected to revise up its 2020 GDP growth forecast following its latest stimulus package. China also appeared to benefit from seasonal strength associated with the Lunar New Year. Chinese inflation fell to 4.5%, partially due to lower pork prices.
Yields (as measured by the U.S. 10-Year Treasury) ended the week modestly higher as investments flowed into higher-risk assets such as stocks. Higher yields contributed to slightly negative performance (-0.1%) from the broad Bloomberg Barclays U.S. Aggregate Index. Despite these higher yields, high-yield and municipal markets were still positive over the week. High-yield bonds benefited from tighter spreads in-line with equity markets. The municipal market continued to be supported by strong demand. According to Alliance Bernstein, municipal flows totaled $2.9 billion last week, he 53rd consecutive week of positive inflows.
Monday, January 13, 2020
•UK Industrial Production and GDP figures
Tuesday, January 14, 2020
•US Core CPI
Wednesday, January 15, 2020
•Euro area Industrial Production
•UK CPI YoY
Thursday, January 16, 2020
•ECB meeting notes
•US Core Retail Sales
•Philadelphia Fed Manufacturing Index
•China GDP (YoY)
Friday, January 17, 2020
•US Building Permits
Resource of the week:
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Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, AllianceBernstein: This Week in MuniLand