Conway’s QuickTake: Week of March 30, 2020


The latest on coronavirus:

Coronavirus and Response
COVID-19 hit more than 737,000 confirmed cases globally as of Monday morning. The United States tops this list, tallying more than 142,000 positive cases with Italy in second with just under 100,000 cases. New York is the epicenter of the U.S. outbreak, accounting for about half of the cases nationwide. This information can be viewed positively or negatively, depending on the perspective taken. From a negative standpoint, our nation leads the world in officially reported cases of a highly contagious, respiratory distressed disease, of which there is no known vaccine or cure that exists yet. From a positive standpoint, our nation has been able to expand testing to more areas and has identified more infected people than in other impacted countries. This means we are better prepared to take precautionary, measured efforts to limit the spread. As of Sunday afternoon, the nation’s top infectious-disease expert, Dr. Anthony Fauci, said that the timeline for the U.S. to lift the numerous localized lockdowns is a few weeks away, and dependent upon the availability of a 15-minute COVID-19 testing kit being provided.

Here’s What Happened Last Week:

U.S. Equities
U.S. Equities ended the week substantially higher than the week prior, despite a moderate decline of between 3%-4% on Friday. The market rally on Tuesday March 24th resulted in the largest one-day percentage increase for the Dow Jones Industrial Average (11.4%) since 1933 and the S&P 500 Index (9.4%) since 2008. This was capped off at the close of business on Thursday when the Dow Jones again set another record, it’s best three-day increase (21.3%) since 1931. These records should not be interpreted as the end of the recent tumultuous market decline, since the CBOE Volatility Index or VIX remained at an elevated level in the 60s throughout the week, much higher than 5-year average of about 15.

Much of the increase in markets for the week is attributable to the eventual passage of a $2.2 trillion fiscal stimulus package by congressional leaders and the White House. This package easily surpasses the previous record-stimulus level of around $800 billion in 2009. Within the S&P 500 Index all sectors were positive. For the week small-cap stocks (11.7%) outperformed large-cap stocks (10.6%) while growth and value returns were mixed as measured by the relevant Russell indices. Large-cap value beat large-cap growth, but small-cap value lagged small-cap growth.

Source: iStock 2020

International Equities
International Equities followed similar positive trends that U.S. equities showed. Developed, non-U.S. equities worldwide reported strong returns as the MSCI EAFE Index rose by 11.2% in US dollar terms. That surpassed emerging markets as the MSCI Emerging Markets Index was up close to 5%, positive but less so than developed markets. China, where the outbreak began, is beginning to emerge from its quarantine at an increasing rate. Schools and restaurants nationwide are reopening, and the economy is coming back to life. The MSCI China Index advanced in USD terms by 4.7%.

Credit Markets
Credit Markets also advanced for the week due to declining yields. The 10-year U.S. treasury yield fell 0.26% over the week to end at 0.68%. This yield decline was largely a result of the Federal Reserve’s commitment to purchase Treasuries and to facilitate increased market liquidity. Both the Fed’s promise to purchase corporate debt in addition to Treasuries, and the passage of the fiscal stimulus improved sentiment for new issuers to come to the market. Consequently, increased demand in conjunction with the additional supply was a positive catalyst for credit markets. For reference, the Bloomberg Barclays U.S. Investment Grade Corporate Bond Index appreciated by 6.1%. In a reversal following two negative weeks, municipal bonds rebounded, posting strong gains led by higher-quality issues. Demand picked up which decreased the overall supply pool. The Bloomberg Barclays Municipal Bond Index posted a 7.9% weekly gain.

Looking ahead…
Tuesday, March 31, 2020
•US – Conference Board Consumer Confidence
•Euro Area – Euro area Core CPI YoY
Wednesday, April 1, 2020
•US – ISM Manufacturing
•UK – Markit Manufacturing PMI
•China – Manufacturing PMI
Thursday, April 2, 2020
•US – Jobless Claims
•Euro PPI
Friday, April 3, 2020
•US – Unemployment, ISM Non-Manufacturing
•Euro area Services PMI

Resource of the Week:
This interview with Michael Mauboussin of Counterpoint Global was rather interesting as it focused on a thoughtful and thorough framework that investors should think through before acting irrationally with any amount of capital in the markets. His approach to evaluate all variables that may impact a given market crisis or even to value an investment is quantitative in nature, and quite refreshing. What struck with me was his comment, “what should be calming, is to do math” implying that numbers don’t lie and easy to understand.

Sources: Trading Economics, Morningstar Direct, The WSJ, T. Rowe Price Global Markets Weekly Update, Worldometer

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.directly. 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.