Conway’s QuickTake: Week of May 11, 2020


Here’s What Happened Last Week:

U.S. Equities
U.S. Equities continued an impressive rebound last week with large-cap domestic indices down only single-digits so far in 2020. Resilience in technology and healthcare stocks have contributed to the NASDAQ being up 2.1% year-to-date through the close of last week. The broad-based S&P 500 Index rose 3.6% last week with top performing sectors included energy (8.3%) and information technology (6.7%). The energy sector saw an uptick due to a slowing rise in domestic crude oil inventories. The technology sector was aided by a steady gain in Apple’s share price, a large constituent of that sector. The utilities (0.6%) and consumer staples (0.9%) sectors lagged due to the “risk-on” stance by the market. Small-caps (5.5%) also outpaced large-caps (3.9%) for a similar reason, based on the Russell 2000 and Russell 1000, respectively.

Although domestic equity markets performed well last week, Economic data continued to show an unprecedented contraction in the economy. Both ISM indices for servicing and manufacturing fell more than expected in April. An additional 3.2 million Americans filed for unemployment, translating to a 14.7% unemployment rate – the highest level since the Great Depression. Despite the poor data, investors appeared hopeful that data was starting to bottom. Additionally, there are expectations that many of the recently unemployed could be rehired within the next six-months. Despite a fair level of optimism, the possibility of another escalation of the trade war between the U.S. and China added another layer of complexity to the situation.

Source: iStock 2020

International Equities
International Equities generally rose last week but underperformed their domestic counterparts. The developed, non-U.S. MSCI EAFE Index rose 0.9% for the week. Emerging Market equities lagged and produced a negative return (-0.5%). Latin America equities continued to fare poorly through this crisis and the MSCI EM LatAm index remains down over 40% year-to-date.

The European Commission expects that the coronavirus will contribute to a record contraction of nearly 8% in the Eurozone economy over 2020. Like the in U.S., the silver lining is that many expect things to bounce back in 2021 as conditions normalize. Many European nations continue to work through or announce exit plans from coronavirus lockdowns.

In Japan, the yen’s status as one of the core global reserve currencies has contributed to its strength during the flight-to-quality. The Bank of Japan continues to expand its balance sheet as it attempts to prevent a severe recession. In China, reports of confirmed coronavirus cases continue to fade and life is reportedly returning to normal. China’s economic data has been mixed so far. Sales activity over the Chinese Labor Day holiday was underwhelming while a March exports print was better than expected.

Credit Markets
Credit Markets were again mixed against a backdrop of slightly rising U.S. Treasury yields. The Treasury Department’s intent of ramping up the issuance of long-term debt to finance the deficit kept some upward pressure on bonds with longer maturities. While Treasury yields have risen modestly since touching historic lows earlier in the year, Fed Funds Futures are implying that rates will remain low, and potentially negative, for the next year.

The broad municipal market had positive performance last week as higher yields were enough to attract back some buyers. The investment grade market fell based on reduced demand from international buyers, while the high-yield market was positive based on better than expected corporate earnings from participants within key sectors like energy.

Looking ahead…
Monday, May 11, 2020
•China – Inflation Rate YoY (April)
Tuesday, May 12, 2020
•US – Core Inflation Rate YoY (April)
Wednesday, May 13, 2020
•Britain – Balance of Trade and GDP Growth figures
•Euro Area – Industrial Production
•US – Fed Chair Powell Testimony
Friday, May 15, 2020
•Euro Area – GDP figures
•US – Retail Sales, Industrial Production

Resource of the Week:
Almost no market has been immune from the effects of the coronavirus. While it is easier to get a pulse on public markets, private markets can be harder to gauge. This Invest Like the Best episode features on a conversation with Coventure’s Ali Hamed, who discusses what has happened so far, what parts of the private markets are frozen, and where opportunities may lie. The conversation also discusses about how the world has shifted digitally since the beginning of the COVID pandemic.

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.