Conway’s QuickTake: Week of June 29, 2020

Here’s What Happened Last Week:

U.S. Equities
U.S. Equities gave back last week’s gains as reopening enthusiasm was traded for heightened concern over new hotspots across the U.S. The S&P 500 Index closed the week down 2.9%, which brought the year-to-date loss to 6.0%. This also brought the market back into correction territory – down more than 10% from February peaks. Renewed virus concerns contributed to a flight to growth-oriented ‘work from home’ stocks. As a result, the IT (-0.4%) sector was the best relative performer. More cyclical areas of the market generally were the worst performers. This included energy (-6.4%) and financials (-5.3%). The Russell 1000 Growth (-1.9%) outpaced the Russell 1000 Value (-4.2%) for the week. This extended an already historically wide year-to-date differential between the two indices which now totals more than 25%.

There have been dramatic spikes in coronavirus cases in areas of the country that were previously less affected with portions of the south and California the hardest hit. The national total of new daily cases continues to rise and is reaching new record levels. This brings planned reopenings into question and could result in additional lockdowns, although there are many who oppose this. As it stands, several notable companies, such as Disney and Apple, have already delayed reopenings and/or closed stores. Microsoft even announced that it would close most of its retail stores permanently. On the more positive end, continued economic disruptions could lead to additional stimulus from Washington. Economic data also continued a positive trend as IHS Markit’s service and manufacturing sector activity both beat expectations. New home sales also came in well above consensus, although existing home sales fell short.

Source: iStock 2020

International Equities
International Equities generally outperformed U.S. counterparts for the week. The developed, international MSCI EAFE Index fell 1.3% in USD terms while the MSCI Emerging Markets Index was nearly flat for the week. While coronavirus jitters remain present globally, the rate of new daily cases is more stable (or declining) outside of the U.S. The Emerging Markets Index was bolstered by positive performance from Chinese equities as economic readings improved.

In Europe, an upswing in economic data helped boost confidence that the continent could be bottoming. The flash IHS Markit Eurozone PMI reading surged to 47.5 in June over the 31.9 reading in May. This was the second largest jump in the survey’s history. Business confidence across the continent also rose in key countries including Germany and France. While improving data is encouraging, tensions between the U.S. and Europe could be flaring up. The EU strongly condemned the potential for additional tariffs by the U.S. on $3.1 billion of EU and UK goods. Outside of Europe, trade tensions also might be on the rise between China and the U.S. While President Trump tweeted early in the week that the trade deal with China was “fully intact,” other headlines indicate that any U.S. intervention in the affairs of Hong Kong and Taiwan could put the phase one trade deal at risk. Outside of trade, China’s economic data continued to improve. Notably, China’s property market has remains surprisingly resilient given the backdrop.

Credit Markets
Credit Markets were little changed, although the benchmark 10-year U.S. Treasury yield fell slightly to 0.64% based on virus concerns. With the exception of treasuries, most fixed income market gains from lower rates were offset by the widening of credit spreads. More defensive areas of the market, such as municipals, generally held up the best. Munis were also bolstered by limited supply and robust demand. More credit sensitive asset classes, such as high yield, fell the most as they were most directly impacted by widening credit spreads. High yield also suffered based on its composition, as it has a larger exposure to cyclical areas of the market such as energy, retail, and financials. The airline segment also traded lower, factoring in concerns that demand would remain constrained for longer than expected.

Looking ahead…
Monday, June 29, 2020
•Japan – Unemployment Rate
Tuesday, June 30, 2020
•China – Manufacturing PMI
Wednesday, July 1, 2020
•US – ISM Manufacturing Survey
Thursday, July 2, 2020
•US –Unemployment and Jobless claims
Friday, July 3, 2020
•Euro are – Unemployment Rate

Resource of the Week:
Brad Gerstner is the founder and CIO of Altimeter Capital, a multi-billion-dollar technology and media focused hedge fund. Brad and his team are known for a deep expertise in internet enabled businesses, having been early investors in companies like Expedia, Facebook, Uber, and many more. This conversation discusses the evolution of opportunity in this style of investing, including the important shift to private investing, where much of the value creation now happens. Additionally, Brad and Patrick from Invest Like the Best discuss the shift of consumer intent on the internet, the role that essentialism in Brad’s business and life, and the rise of the Chinese internet giants like ByteDance (developer of TikTok).

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.