Conway’s QuickTake: Week of July 6, 2020
Here’s What Happened Last Week:
U.S. Equities recorded solid gains despite the shorter week due to the Fourth of July holiday. Most indices continued to rise although new coronavirus cases have recently reached new daily highs in several states. Although cases are increasing at this exceedingly high level, positive news around vaccine developments are improving investor sentiment. Since technology stocks have led the way for equities in general for the year, the tech-heavy Nasdaq Composite Index ended the week just off its all-time high after rising by 4.6%. Similarly, the broader S&P 500 Index rose by 4.1% and is now only down 2.1% for the year. Amazingly the S&P also just closed out its best quarter since 1998 after rising more than 20%. Within sectors, real estate, materials, and communication services performed best, rising more than 5%. Financials lagged, only increased by 1.7% given the constrain of sustained, low interest rate levels. Large-cap stocks (+4.1%) marginally beat small-cap stocks (+3.9%) and growth outperformed value expanding the already sizable year-to-date disparity as reflected by their respective Russell indices.
Stronger than expected economic reports improved sentiment even though the coronavirus appears to be in a second wave throughout several states. Some states, namely California, Texas, and Florida, have temporarily paused their reopening plans given the spiking levels of new cases being reported. Despite this, there was some encouraging news of a joint vaccine, one of many, in development between Pfizer and BioNTech with hints of some early positive results and a quick timeline for approval. On Thursday, the Labor Department reported a gain 4.8 million nonfarm payrolls in June, that pushed the unemployment rate lower to 11.1% from 13.3%. The weekly unemployment claims were not as favorable since initial jobless claims only slightly declined week-over-week to 1.43 million through the week ending June 27th, not as much as predicted. Elsewhere, pending home sales shot up over 44% in May which intensified a dramatic increase in consumer confidence levels presented by the Conference Board.
International Equities largely reported positive results for the week. Emerging markets outpaced their developed markets counterparts, as the MSCI Emerging Markets Index rose by 3.7% compared to a 1.5% increase in the MSCI EAFE Index. One of the more notable international equity indices, the MSCI Japan Index, declined by 1.3% for the week in USD terms following weak economic data and a decline in investor sentiment even though the nation is not experiencing a surge in coronavirus cases like other countries. In a similar fashion, the strong positive news coming out of China pushed its blue-chip stock CSI 300 Index to its highest level in two and a half years. The MSCI China Index rose by 5.2%, a large weighting within emerging markets.
Europe is reporting optimistic news in many areas. First, the number of unemployed residents in Germany rose by a small amount to 2.9 million total, much less than was anticipated. Also, Germany’s retail sales rose 3.8% year over year, a shocking reversal of the forecasted 3.5% decline. The Eurozone’s June flash manufacturing PMI rose to 46.9 from 39.4 beating expectations while a similar flash PMI reading from the United Kingdom came in at 50.1, just slightly in expansion territory for the first time since the pandemic started. Bank of England Chief Economist Andy Haldane publicly said on a webinar that real-time economic data indicated the UK economy is “months into a recovery and rebounding faster than expected.” Not all news is rosy though as a survey stemming from Japan showed that large manufacturers’ sentiment level fell to -34 in June from -8 in May, its lowest level since 2009. Likewise, retail sales in May fell 12.3% year-over-year. China seems to be in full recovery mode as the nation’s official manufacturing PMI survey reported a three-month high reading of 50.9 in June, and car sales rose 11% year-over-year.
Credit Markets were mostly flat, as yields remained unchanged for the week. The 10-year U.S. Treasury yield rose to 0.67%, only a minor increase of a few basis points from the week prior. Recently released minutes from the latest Federal Open Market Committee meeting indicated that a yield curve control discussion took place. This means the FOMC had considered measures to ensure that long-term yields will remain above short-term yields, and the yield curve will generally be upward sloping. Most sectors reported flat to slightly positive results, as the Bloomberg Barclays U.S. Aggregate Bond Index rose by only 0.1%. Although most sectors’ returns were negligible, new deals continued to be offered in the primary market and were met by solid levels of demand.
Monday, July 6, 2020
•Euro area – Retail Sales (May)
•US – PMI measures (ISM and Markit), Total Vehicle Sales (June)
Tuesday, July 7, 2020
•Canada – Ivey PMI (June)
•Germany – Industrial production
•US – JOLTs Job Openings (May)
Wednesday, July 8, 2020
•China – Inflation Rate YoY (June)
Thursday, July 2, 2020
•Canada – Employment figures
Sources: Trading Economics, The WSJ, T. Rowe Price Global Markets Weekly Update, worldometer.com
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.