Conway’s QuickTake: Week of June 8, 2020


Here’s What Happened Last Week:

U.S. Equities
U.S. Equities produced their best weekly return in more than two months on the heels of further economic recovery signs. The catalyst that accounted for roughly half of the week’s gains was the May jobs report released on Friday morning which indicated about 2.5 million jobs had been added by employers during the month. This news was announced as a complete surprise to nearly every economist and is thought to indicate the U.S. is well along its journey of an economic recovery. Remarkably, the S&P 500 and Wilshire 5000 indices are nearly flat for 2020. Last week, value stocks outperformed growth for the third consecutive week and small-cap stocks beat large-caps (as measured by their respective Russell indices). Within sectors, energy and financials led and recouped some of their losses for the year. Interestingly, all the positive market reactions unfolded amidst ongoing civil turmoil and organized protests throughout the nation.

Many economic surprises attributed to the positive sentiment throughout the week. First on Wednesday, ADP reported the private sector jobs declined by less than expected in May. Then on Friday, the Labor Department officially reported employers adding back 2.5 million jobs during the month. This came as a huge surprise to everyone, since most predictions were calling for a decline of about 9 million jobs. It also translated to a new domestic unemployment rate of 13.3%, down from the most recent 14.7%. Additionally, the Institute for Supply Management’s service activity gauge reflected a smaller contraction that was forecasted in May. Separately, the consumer savings rate reached a record-high 33% in April implying there is an excess amount of cash sitting on the sidelines waiting to be incorporated as the economy reopens. Some newsworthy topics from past weeks, namely the U.S.-China trade tensions and the fight against the coronavirus, seemed to have taken a backseat behind the optimistic economic numbers.

Source: iStock 2020

International Equities
International Equities performed very well, as countries reacted to reopening news along with a brand-new European stimulus package. The MSCI Europe Index rose by almost 9% after the European Central Bank (ECB) said it will continue to react appropriately to drive their inflation rate to their target. The ECB also increased its bond-purchasing program by €600 billion with the intention to reinvest the proceeds into the economy for the next 2.5 years. Developed international markets, represented by the MSCI EAFE Index, had a great week as the index increased by just over 7% for the week. However, this lagged emerging market equities, represented by the MSCI EM Index. The index rose 7.9% for the week, supported by strong returns from China and Latin America. The recently enacted law by China to nationalize Hong Kong did not seem to negatively impact Chinese markets much last week.

Credit Markets
Credit Markets had mixed results for the week, depending on the sector. Despite Treasury yields rising following the strong economic news, credit spreads tightened and both investment grade and high yield corporate bonds advanced. The 10-year Treasury rate ended the week at 0.91%, its highest level since mid-March. Municipal bonds rose through Thursday but fell back slightly on Friday to end the week flat represented by the Bloomberg Barclays Municipal Bond Index. Likewise, the Bloomberg Barclays U.S. Aggregate Bond Index, the broad barometer for domestic fixed income, fell slightly by -0.5% for the week.

Looking ahead…

Tuesday, June 9, 2020
•US – NFIB Small Business Optimism
•Euro Area – Quarterly GDP numbers
•Japan – Monthly PPI figures
Wednesday, June 10, 2020
•US – Core CPI, year-over-year
Thursday, June 11, 2020
•US – Core PPI, jobless claims
Friday, June 12, 2020
•Euro area – Industrial production figures
•US – University of Michigan Consumer Sentiment

Resource of the Week:
One of the backbones of small business in the country is the restaurant industry. This episode of Business Casual features a conversation with the famous restaurateur, reality TV star, and owner of Red Rooster in Harlem, New York, Marcus Samuelsson. He gives his experienced opinion of how the restaurant industry is handling the current pandemic, what obstacles his and other restaurants are facing or may have even overcome, and what he expects to emerge out from this in the future. If you enjoy eating out at a small business restaurant, take a listen to this and think through the logistics required to run such a business.

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.