Conway’s QuickTake: Week of January 20, 2020


Here’s what happened last week:

U.S. Equities
Most U.S. large-cap benchmarks hit new record levels for the second consecutive week, as investors welcomed further updates in the ongoing U.S.-China trade negotiations. The S&P 500 Index rose 2.0% over the week with all but one sector advancing. Within the S&P, the utilities (3.8%) and information technology (3.0%) sectors were the top performers. The utilities sector was driven by increased consumer demand for power and clean energy resources while IT saw Alphabet reach the $1 trillion market-cap level. Energy (-1.1%) was the worst performing sector following a decline in the price of oil as geopolitical tensions further eased. As measured by the respective Russell indexes, large-caps lagged small-caps and growth stocks outperformed value stocks.

A few key political and economic updates arose last week. Most noteworthy was the official signing by the White House into the Phase One trade deal between the U.S. and China. Unfortunately, this was met with news that Chinese import tariffs would remain through the November elections. Additionally, the 4th quarter earnings season began with Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) reporting mixed results, while Morgan Stanley (MS) stock rose sharply after the firm’s earnings reports surpassed analysts’ estimates. Finally, weekly jobless claims fell to the lowest level in over a month, and the housing starts have reached their highest level since 2006.

Source: iStock 2019

International Equities
Developed international equities, as measured by the MSCI EAFE Index, increased last week (0.8%), while emerging market equities outperformed their developed counterparts (MSCI EM Index rose 1.1%). Emerging markets also posted the seventh consecutive week of positive returns. Chinese equity markets surprisingly declined around 1% for the week in local currency.

Non-U.S. economic data was mixed. Recent poor economic data and dovish speeches by the Bank of England (BoE) is heavily hinting towards a quarter-point interest rate cut on January 30th. The UK gross domestic product grew by 0.1% through the end of last year because of weakening services and falling production. Elsewhere in Asia, the Bank of Japan (BoJ) downgraded the economic assessment for three different regions due to weakening exports. This topic and others will be discussed at the next central bank meeting on January 20th and 21st. In China, things looked better as industrial production rose almost 7% year-over-year and December exports increased by 7.6% year-over-year, the first time since July of last year.

Credit Markets
Yields, as measured by the U.S. 10-Year Treasury, ended the week slightly higher at 1.83% attributable to the minor increase in housing starts. Convertible bonds were largely responsible for the increase in the Bloomberg Barclays U.S. Aggregate Index (0.1%). Several sectors increased for the week including preferred stock, municipals, and investment grade corporate bonds based on strong earnings releases and economic data. Other sectors such as high-yield corporate bonds detracted as investors mainly focused on company specific deals. The municipal bond market strength has been supported by their strong demand. According to Alliance Bernstein, municipal bonds have outperformed U.S. Treasuries thus far this year by 0.57% after yields fell an additional 10 bps last week.

Looking ahead…
Tuesday, January 21, 2020
•UK ILO Unemployment
Thursday, January 23, 2020
•ECB Main Refinancing Rate
•Japan Core CPI
Friday, January 24, 2020
•Eurozone PMI
•UK Manufacturing PMI

Resource of the week:
Many people have dreams of building a company from the ground up into a successful multi-million-dollar firm. However far fewer people achieve this feat, let alone twice in their career. Bill Creelman, the CEO and founder of the naturally flavored soft-drink company Spindrift Beverage Co., has done just that. Prior to this founding, he also started a cocktail mixers company named Stirrings, and subsequently sold it to alcoholics’ beverage behemoth Diageo. If you’d like to listen to Bill’s amazing career journey, then this podcast is worth a listen.

Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, AllianceBernstein: This Week in MuniLand