Conway’s QuickTake: Week of May 4, 2020

Here’s What Happened Last Week:

U.S. Equities
Large-cap U.S. Equities were little changed over the week with the S&P 500 Index falling 20 basis points (-0.2%) over the period. Small- and mid-cap stocks both outperformed large-caps, with each segment rounding out its best monthly performance since 1987. Also, in contrast to recent months, the energy (3.0%) and materials (1.9%) sectors were amongst the best performers backed by hopes for more normalized demand. Utilities (-4.0%) and healthcare (-2.6%) sectors were the bottom performers, although their year-to-date results are more favorable. A rebound in the aforementioned sectors contributed to the slight outperformance of value over growth for the week.

Positive news surrounding Gilead’s clinical trial of its drug Remdesivir helped boost sentiment earlier in the week. More specifically, Remdesivir was shown to reduce the time to recovery. An Oxford University team also has shown promising results for a potential vaccine which could be ready for the public as soon as this September. While medical progress on mitigation efforts is promising, the economic toll of the shutdown efforts appears bleak. An additional 3.84 million Americans filed for unemployment last week, bringing the trailing 6-week total to more than 30 million or nearly 20% of the U.S. working population. Rising unemployment and higher uncertainty has directly impacted consumer spending. The figure fell by 7.5%, the largest decline on record over the past 60 years. Additionally, tensions are again on the rise between the U.S. and China. President Trump acknowledged the potential for imposing new sanctions on China for its lack of its cooperation during the pandemic. Secretary of State, Mike Pompeo, also stated that there is evidence supporting that the coronavirus originated from a Chinese lab.

Source: iStock 2020

International Equities
International Equities generally outperformed their domestic market counterparts. European markets responded positively to the news that many eurozone countries would be lifting lockdown restrictions in the coming weeks. Japanese markets also rose, although to a lesser extent. Emerging markets posted strong gains, with the MSCI EM Index rising 4.3% over the week, aided by China’s continued reopening efforts.

In Europe, the ECB left its policy rate at a record low of -0.5%. It also committed to inject additional liquidity into markets through the purchase of over €1 trillion of bonds in addition to other easing measures. Like the Fed, the ECB has continually reaffirmed its commitment to doing whatever is necessary within its power to support the eurozone economy. Eurozone GDP shrunk at a record rate of 3.8% over the first quarter, ahead of the 3.5% consensus forecast. In Asia, the Bank of Japan also committed to additional easing measures, including the removal of a previously implied quota on government bond purchases and a tripling of corporate and commercial paper purchases. In China, progress towards normality continues, as additional quarantine restrictions are relaxed. Perhaps an indication of other how countries might progress, China’s PMIs so far indicate a slow but steady recovery.

Credit Markets
Credit Markets were mixed as yields rose modestly over the period. The Federal Reserve Policy Committee met last week and agreed to keep rates at near 0% until the economy recovers closer to its employment and inflation goals. There was heavy issuance in the corporate bond market last week, as companies sought to shore up balance sheets. The level of issuance was met with strong demand as investors are still starved for yield in this low interest rate environment. The municipal market was modestly negative and underperformed treasuries. Concerns around the impact of lost revenues for municipalities and politically motivated headlines has added pressure to this area of the market.

Looking ahead…
Tuesday, May 5, 2020
•US – Balance of Trade (March), Markit Composite PMI and Services PMI (April)
•Canada – Balance of Trade (March)
Wednesday, May 6, 2020
•Euro Area – Markit Services PMI (April), Retail Sales (March)
•US – ADP Employment Change (April), MBA Mortgage Applications
•China – Caixin PMI (April), Balance of Trade (April)
Thursday, May 7, 2020
•US – Initial Jobless Claims, Continuing Jobless Claims
•Britain – Consumer Confidence (May)
Friday, May 8, 2020
•US – Non-Farm Payrolls (April)

Resource of the Week:
The recent snapback in equity markets amidst disappointing economic data has left many investors scratching their heads. Among them is Chris Bloomstran, the founder and CIO of value-oriented investing firm Semper Augustus Partners. This episode of Invest Like the Best is worth a listen for Chris’ current perspective on the public equity market, why it will be hard for the market to deliver great returns for the next decade relative to the last, and where current opportunities may lie.

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.