Conway’s QuickTake: Week of June 22, 2020
Here’s What Happened Last Week:
U.S. Equities recorded a slight weekly gain, a small reversal of last week’s steep decline. The S&P 500 Index fared well, rising by 1.9%, and the Nasdaq Composite Index rose 3.7%, nearing the index’s all-time high. Eight of the S&P’s eleven sectors advanced with information technology (+2.8%) and health care (+3.2%) both performing well last week. Laggards included energy (-0.8%), real estate (-0.6%), and the most pronounced defensive sector, utilities (-2.4%). These reactions unfolded as the Fed Chair Jerome Powell testified before Congress who pushed for more fiscal support in conjunction with the recently issued monetary stimulus. Small-cap stocks (+2.3) narrowly outperformed large-caps (+2.0%) and growth beat value adding to the existing disparity between styles as represented by their respective Russell indices.
With most states reopened and economic activity on the upswing, a few factors are becoming evident. First, new cases of COVID-19 are continuing to increase rapidly in certain states including California, Florida, Texas, and Arizona. These states are now grappling with methods to cope with the influx of infected residents in hospitals and stricter methods to contain the virus. Simultaneously, the nation’s weekly economic data offered concern around the true shape of a full economic recovery. On Tuesday, the Commerce Department reported a 17.7% increase in monthly retail sales in May, the best in history, doubling expectations. However, labor market news contradicted the positive retail results, as initial weekly jobless claims tallied in at 1.51 million Americans – more than what was expected. Additionally, continuing jobless claims remained inflated at over 20 million.
International Equities followed a similar path to U.S. equities as most indices rose. The developed, international MSCI EAFE Index rose by 2.1% for the week and the MSCI Emerging Markets Index rose 1.6%. Most countries around the globe ended the week higher supported by various stimulus efforts and the reopening of economies. For instance, the Bank of England pledged to expand its bond-buying program by £100 billion, and Japanese stocks rose from positive sentiment and an imminent recovery despite a steep reported drop in exports. Interestingly, the MSCI EM Latin America Index declined although Brazil, its largest country constituent, reported positive local currency returns. This is due in part to the decline of the Brazilian Real relative to the U.S. Dollar and increasing coronavirus cases in emerging markets.
In the U.K., inflation fell to a four-year low of 0.5% as crude oil prices plunged, and the number of unemployment claims rose by 528,000 in May to a total of 2.8 million. Japan’s exports declined by 28% year-over-year in May, proof the virus has crippling effects on global product demand. Amazingly, Japanese vehicle exports sent to the U.S. fell by almost 50% in May – far worse than economists forecasted. China’s employment numbers showed some life as the latest Manpower survey indicated hiring intentions have moved into positive territory (+4), still the lowest level in four years, but hinting to a quicker economic recovery than previously thought. Some emerging market countries are now facing the brunt of the coronavirus spread, contributing to the largest single-day report of new cases on Friday (over 180,000). Brazil, Russia, and India are all getting battered with new daily cases, and Brazil has recently surpassed 1 million confirmed cases, second in the world only to the U.S.
Credit Markets were flat to higher in most areas as yields remained unchanged over the week. The representative 10-year U.S. Treasury yield held firm from last week at 0.70%. The largest catalyst for credit securities last week was the Fed’s announcement it will begin purchasing individual U.S. corporate bonds to supplement the existing purchases of exchange-traded funds. Following this optimistic statement and improved overall market sentiment, bond sectors including investment-grade corporate bonds, high-yield corporate bonds, and municipal bonds all rose.
Tuesday, June 23, 2020
•US – Manufacturing and Services PMI
•Europe – Manufacturing and Services PMI
Wednesday, June 24, 2020
•Germany – Ifo Business Climate Index
Thursday, June 25, 2020
•US –Jobless Claims
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.