Conway’s QuickTake: Week of November 11, 2019


Here’s what happened last week:

U.S. Equities
The Dow Jones Industrial, S&P 500 and Nasdaq indexes all reached record highs last week. Recent gains in equity markets reflect the sentiment that the global economy is in a better position than recently thought. Positive trade and earnings-related catalysts also bolstered equity markets. On a sector basis, financial (+2.5%) and energy (+2.4%) sectors were the top performers. The financial sector rose in conjunction with higher bond yields which typically leads to higher net interest margin spreads. These higher bond yields worked against yield-oriented sectors contributing to poor performance in the real estate (-3.7%) and utilities (-3.6%) sectors. Small-cap equities lagged large-caps while value outpaced growth. Despite a recent comeback, the Russell 1000 Growth Index remains more than 6% ahead of the Russell 1000 Value Index so far this year.

Despite some conflicting signals, first stages of a trade deal between the U.S. and China still appear to be in the works. The agreement would likely include some scaling back of tariffs levied as the two nations work towards a longer-term solution. Outside of trade news, economic data continues to send mixed messages. On the positive end, weekly jobless claims fell more than expected and consumer sentiment rose slightly in November. On the negative end, IHS Markit’s service sector index fell to its lowest level since early 2016, signifying a very slight expansion. 

Source: iStock 2019

International Equities
The MSCI EAFE Index rose 0.5% last week, lagging comparable U.S. large-cap indexes. Emerging markets, on the other hand, rose 1.5% exceeding most U.S. benchmarks. Emerging market equities were particularly bolstered by renewed optimism surrounding phase I of a trade deal as Chinese representation in the MSCI EM Index is high.

As the European earnings season winds down, about half of companies that reported beat consensus expectations. Against this positive earnings backdrop, the IMF cut its Eurozone growth forecast for 2019 based on concerns that the slowdown in manufacturing could carry over to the services sector. The slowdown in Germany remains a key culprit as it’s the Eurozone’s largest economy. Outside of Europe, MSCI was set to boost the weighting of mainland Chinese equities in its emerging markets index. The weight of Chinese A-share companies or yuan denominated stocks that trade on local exchanges would rise from 2.6% to 4.1%.

Credit Markets
U.S. bond markets produced positive returns last week. The fall in rates following the Fed decision was a key driver of performance. For reference, the Treasury 10-year yield ended the week at 1.73%, down from last week’s close of 1.80%. The 10-year yield got as low as 1.69% on Thursday but recovered some lost ground on Friday following the positive jobs report. Municipals were also positive, although they lagged treasuries last month. The spread between the two asset classes remains historically tight.

Looking ahead…

Tuesday, November 12th, 2019
     •Great Britain – Average Earnings Index + Bonus and Claimant Count Change
     •Germany – German ZEW Economic Sentiment
Wednesday, November 13th, 2019
     •US Core CPI, Fed Chair Powell Testifies
     •Japanese GDP
     •Chinese Industrial Production
Thursday, November 14th, 2019
     •German GDP
     •Great Britain Retail Sales
     •US PPI, Crude Oil Inventories and the second day of Powell’s testimony
Friday, November 15th, 2019
     •Eurozone CPI figures
     •US Retail Sales

Resource of the Week
In an unusual career pivot, Luke Holden gave up an early career in investment banking to start a lobster shack in NYC. What started as a 200-square foot take-out restaurant in the East Village about 10 years ago, has grown to a specialty chain with more than 40 locations across the U.S. and Asia. If you ever been to Luke’s Lobster or just enjoy a good start-up story, this episode of How I Built This is for you.

Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, TechCrunch, Business Insider