Conway’s QuickTake: Week of June 1, 2020
Here’s What Happened Last Week:
U.S. Equities had another solid week of positive returns, bringing the year-to-date loss for the S&P 500 Index to just 5%. This represents a huge recovery from the more than 30% year-to-date decline reached in mid- to late-March. While many economic measures remain disappointing, investors appear optimistic that the economy will continue to gradually reopen across the country. A “risk-on” tilt also contributed to the outperformance of value over growth (as measured by the respective Russell 1000 indices). Within the S&P 500 Index, more cyclical sectors – such as financials (+6.6%) and industrials (+6.1%) – were the top weekly performers. Laggards included the communication services (+0.6%) and energy (+0.9%) sectors. The communication services sector priced in potentially higher regulation of social media platforms while the energy sector continued to suffer on reports of higher than anticipated inventories.
Recent economic data came in slightly better than expected in several areas, providing a boost to investor sentiment. For instance, April’s durable goods orders outside of transportation fell 7.4% – about half as much as anticipated. Similarly, another 2.1 million Americans filed for unemployment, giving investors hope as the number continued to trend lower. The housing market also received a boost, as sales of new homes rose at a healthy pace as real estate market activity rebounded. On the negative end, rising tensions between the U.S. and China gave some investors concern.
International Equities performed well, generally exceeding U.S. counterparts. The develop international MSCI EAFE Index was a standout performer, rising more than 5% over the week. Japanese equities moved higher on optimism around reopening and extensive government stimulus. Emerging market equities also fared well but were somewhat weighed down by heightened geopolitical tensions as China furthered its grip over Hong Kong.
In Europe, the European Commission unveiled a new EUR 750 billion recovery plan. The plan would be funded by the market and distributed in the form of grants and loans. Despite various stimulus measures, ECB President Christine Lagarde warned of a significant contraction in the European economy in 2020 between 8% and 12%. The ECB appears willing to further step up action if warranted. In Japan, investors expressed enthusiasm for the lifting of the state of emergency for the remaining regions on lockdown. The Japanese government also announced a second round of stimulus, bringing total supplementary additions to the budget to a staggering 40% of annual GDP. In China, the mainland’s efforts to further extend control over Hong Kong captured headlines. China’s efforts to exert additional control over the territory has been met with strong local resistance.
Credit Markets were mostly positive, benefitting from tighter spreads as absolute yields were little changed. The municipal market continued its recent rally and outperformed treasuries, benefitting from strong inflows. In fact, municipal bond funds experienced their largest weekly inflows last week since February. The corporate investment grade market also performed well, as steady new deal activity was met with healthy demand. The high yield segment realized the highest performance amongst the group, as spreads tightened amidst strong inflows. In particular, fallen angles, or issuers that have recently lost their investment grade status, performed well, benefitting from strong interest.
Monday, June 1, 2020
•US – ISM Manufacturing Index
Tuesday, June 2, 2020
•China – Composite PMI
Wednesday, June 3, 2020
•US – ISM Non-Manufacturing Index
•Euro area – Unemployment figures
Thursday, June 4, 2020
•Euro area – Retail Sales, Interest rate decision
Resource of the Week:
Bundling probably is not something that most people give a ton of thought, yet the underlying economics and driving forces are fascinating. In this episode of Invest Like the Best, Shishir Mehrotra discusses the preconceived notions of the bundle and how it is one of the more powerful ideas in business. It also often represents good value for the consumer. If you are curious about how bundling of products and services can contribute to a fascinating conversation, give this podcast a listen.
Sources: Trading Economics, The WSJ, T. Rowe Price Global Markets Weekly Update
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.