Conway’s QuickTake: Week of January 27, 2020

Here’s what happened last week:

U.S. Equities
U.S. stock markets lost ground late in the week, resulting in a 1.0% weekly loss for the S&P 500 Index. A risk-off mentality spread across markets as concerns mounted over the spreading Wuhan coronavirus. As a result, bond yields fell and more defensive areas of the market, such as utilities (2.4%) and consumer staples (-0.4%) outperformed on a relative basis. The real estate sector (1.0%) also had strong results stemming from the resulting decline in interest rates. The energy sector (-4.2%) and associated oil prices fell in-line with falling tourism and travel expectations. Stocks with close association to China – such as gaming conglomerates – also suffered. Outside of the S&P 500 benchmark, small-caps (Russell 2000 Index) lagged large-caps (Russell 1000 Index) and value (Russell 1000 Value) lagged growth (Russell 1000 Growth).

Overall, news of the first domestic cases of the coronavirus clouded a strong start to the year backed by positive economic data. Tariff concerns have also reemerged, although this time between the U.S. and the European auto industry. Existing home sales rose more than expected in December. Construction activity also has performed well thanks to the tailwinds of limited home supply.

Source: iStock 2020

International Equities
Developed international equities, as measured by the MSCI EAFE Index, also fell last week (-0.6%). Emerging market equities (as measured by the MSCI EM Index) fared even worse, falling 2.4%. Market weakness was tied to global health concerns. China, the epicenter of the coronavirus, was hit the hardest with the MSCI China Index falling 4.8%. Notably, the Shanghai Composite Index had its biggest one-day drop (2.8%) in more than eight months.

Economic data was strong in Europe. While Brexit uncertainty remains, Germany and France’s economies flashed some positive signs. German overall output rose for the second consecutive month, with new orders increasing for the first time since last June. Germany’s service sector also expanded more than expected, offsetting a small decline in manufacturing. In France, output and new orders both rose for the 10th month in a row.

Japanese data continued its disappointing trend. Exports fell at a greater rate than expected – falling 6.3% relative to last December. Despite positive trade developments between the U.S. and China, ramifications of prior strife are expected to be felt by Japan in the coming months. In China, the lockdown of several major cities and associated fear of travel are likely to have short-term slowing effects. Offline retail, restaurant and travel are likely to be hit the hardest. While the short-term impact could be significant, it’s unlikely to have meaningful long-term effects.

Credit Markets
Domestic yields ended the week lower as investors moved into safety assets. The U.S. Treasury 10-year yield fell to 1.68%, its lowest level in about three months. Falling yields were mostly supportive to less credit sensitive asset classes (governments, municipals, investment grade, etc.), while high yield debt fared the worst (Bloomberg Barclays High Yield Index fell 0.4%) as spreads widened. High yield energy bonds have been particularly weak stemming from declining commodity prices.

Looking ahead…
Monday, January 27, 2020
•US Manufacturing PMI
•US Services PMI
•Germany Ifo Business Climate Index
Wednesday, January 29, 2020
•Eurozone M3 Money Supply
Thursday, January 30, 2020
•US Core PCE
•Euro Area Unemployment
•China Manufacturing PMI
Friday, January 31, 2020
•University of Michigan Consumer Sentiment
•Euro Area HICP Inflation

Resource of the week:
This Invest Like the Best episode involves a conversation with Rebecca Kaden, a partner at the esteemed venture capital firm, Union Square Ventures (‘USV’). USV has a unique focus on a core thesis which has gone through three evolutions since their inception. This episode gives interesting insight into this thesis and USV’s focus.

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