Conway’s QuickTake: Week of July 20, 2020


Here’s what happened last week:

U.S. Equities
U.S. Equities rose for the week as the S&P 500 Index increased by 1.3%. This was the index’s third consecutive week of gains, which even briefly hovered around a positive return for the year. Ironically, there was also a noticeable shift from growth stocks into cheaper value stocks, as the Nasdaq Composite Index fell by more than 1%. Despite daily records for new coronavirus cases being reported across the southern and western U.S., markets were optimistic after Dr. Anthony Fauci stated he was hopeful the country would have a vaccine by year end. Industrials and materials led after rising more than 5% each last week. Technology lagged other sectors after both Netflix (NFLX) and Microsoft (MSFT) stock fell by 10% and 5% respectively on earnings-related concerns. Small-cap stocks bested large-caps while value outperformed growth. It remains to be seen if this could be the start of a market regime shift from the decade-long dominance of the growth style into value.

Moderna (MRNA) and AstraZeneca (AZN) both announced their new vaccines in development were showing very positive signs thus far, which seemed to spark a market rise. Both vaccine candidates, in addition to others, are receiving funding from the government’s “Operation Warp Speed” program in efforts to have a readily available vaccine as soon as possible, possibly even in 2020. Around 30 companies reported their second-quarter earnings figures, which were highlighted by banks’ steep profit declines, albeit slightly better than forecasted. JP Morgan (JPM), Citigroup (C), and Wells Fargo (WFC) all set aside funds to account for increased bad loans that may surface on their books because of the current outbreak. Most of the weekly economic data reports were positive as June retail sales beat expectations, weekly initial jobless claims fell week-over-week, and continuing jobless claims also declined more than expected.

Source: iStock 2020

International Equities
International Equities were mixed depending on the region. Most developed international markets have adequately contained any current coronavirus outbreaks, and subsequently appreciated for the week. This is reflected in the MSCI EAFE Index which rose 2.2% in USD terms. It was a different story for emerging markets; most new coronavirus case surges are happening in emerging economies, of which the MSCI Emerging Markets Index fell by 1.2%. The notable exception of the group was China, which fell by almost 5% as renewed U.S. trade tensions emerged and some profit taking after Chinese markets recovered.

The European Central Bank (ECB) decided to leave its monetary policy unchanged as it maintained a “wait and see” approach in efforts to evaluate any further possible economic recovery measures. A similar measure was taken by the Bank of Japan as it decided to keep its target interest rate levels untouched. The central bank also warned its economy will likely contract as much as 5% in its fiscal year through March 2021, after more than 4,000 businesses filed for bankruptcy through the end of June. Japan’s tourism is nearly extinct as it fell 99.9% year-over-year in June. Only 2,600 travelers visited the country – well short of the almost 3 million people who visited in June 2019. China reported its GDP grew by 11.5% quarter-over-quarter after a 10% drop in the first quarter. It has become the first major economy to report positive annual growth statistics following the pandemic, even though some economic indicators may still decline.

Credit Markets
Credit Markets were slightly positive for the week, as the benchmark 10-year U.S. treasury yield remained unchanged ending the week at 0.63% mostly because inflation has sustained below the Fed’s target 2% level. Even being this depressed, investors are expecting marginally increased inflation levels going forward. In fact, a barometer to forecast this known as the break-even inflation rate, jumped to 1.46% from 1.05% on May 1st. In the corporate market, both investment-grade and high-yield segments appreciated in the vicinity of 1% after banks’ earnings were dreary but better than expected. Investors continued to show strong demand in the municipal bonds as the market continued to normalize after hitting lows in March.

Looking ahead…
Monday, July 20, 2020
•Japan – June Inflation Rate (YoY)
Wednesday, July 22, 2020
•US – Existing Home Sales
•Canada – June Inflation Rate figures
Thursday, July 23, 2020
•US – Jobless claims
•Germany – Consumer Confidence
•France – Business Confidence
•Euro area – Consumer confidence

Sources: Trading Economics, The WSJ, T. Rowe Price Global Markets Weekly Update, This Week in Muniland (Alliance Bernstein)

Data in this report is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. It is provided for your information and guidance and is not intended as specific advice and doesn’t not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.