Conway’s QuickTake: Week of January 6, 2020
Here’s what happened last week:
The S&P 500 Index ended the week down 10 basis points (0.1%). Markets kicked off the week and year with trade optimism, but markets changed course after the U.S. attack on an Iranian military leader Qassem Soleimani, which resulted in his death. Within the S&P benchmark, the industrials (1.2%) and energy (0.8%) sectors fared the best. The energy sector outperformed in-line with the price of oil following heightened volatility in the Middle East. The materials (-2.4%) and consumer staples (-1.4%) sectors were the bottom performers. Outside of the S&P, the Russell 1000 Growth (0.2%) outperformed the Russell 1000 Value (-0.4%) while the smaller-cap Russell 2000 Index (-0.4%) trailed the larger-cap Russell 1000 Index (-0.1%).
The year kicked off with an optimistic tone following President Trump’s announcement that he would be signing the ‘Phase I’ trade deal with China on January 15th and would subsequently be heading to China to work on a ‘Phase II’ deal. After the U.S. airstrike that targeted Soleimani, however, stocks declined and oil and gold prices spiked. Adding to bad news, economic data underwhelmed expectations as manufacturing activity hit a 10-year low in December and remained in contraction territory.
Developed international equities (as measured by the MSCI EAFE Index) were roughly in-line with large-cap domestic stocks, while emerging market equities continued their winning streak as the MSCI EM Index rose 0.5%. Trading was light across most markets due to the recent holiday.
Europe’s economy kicked off the year on a negative tone. First, European purchasing managers’ survey demonstrated a deepening manufacturing downtown, especially in Germany. U.K. manufacturing data also worsened amidst prolonged Brexit uncertainty. Outside of Europe, Japan continues to grapple with its deteriorating demographics. For the first time ever, more than 20% of Japan’s population is at least 70 years old. Births also continued to fall, contributing to renewed efforts to encourage immigration and workers to stay in the workforce longer. In China, the People’s Bank of China (PBoC) lowered the amount of cash that lenders must hold in reserves, an effort to combat slowing growth.
Yields (as measured by the U.S. 10-Year Treasury) ended the week at the lowest level in three weeks (1.79%) as investors flocked to safety amidst rising geopolitical tensions. Lower yields contributed to positive returns across less credit-sensitive fixed income markets. The municipal market also received a healthy boost from the reinvestment of January coupon payments. Overall municipal returns in 2019 were the highest since 2014 with longer maturity, lower credit quality bonds performing the best amidst a falling yield and credit spread backdrop. While yields have come down, municipal markets continue to demonstrate a strong supply/demand imbalance suggesting support for the asset class in 2020.
Monday, January 6, 2020
•US Services PMI
Tuesday, January 7, 2020
•ISM Non-Manufacturing index
•Euro area CPI YoY
Wednesday, January 8, 2020
•Eurozone Economic Confidence
•China CPI YoY
Thursday, January 9, 2020
•Euro area unemployment
•German industrial production
Friday, January 10, 2020
Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, AllianceBernstein: This Week in Muniland