Conway’s QuickTake: Week of November 2, 2020
Here’s What Happened Last Week:
U.S. Equities and Economic Data/News
Domestic equities recorded their worst weekly decline since March amidst surging coronavirus cases, the election outcome uncertainty, and lack of additional fiscal stimulus (for now). Most major indices fell into correction territory (down more than 10% from recent peaks), although the S&P 500 Index narrowly missed this mark. The declines were broad-based with the IT and consumer discretionary sectors falling the most. More defensive sectors, such as utilities, generally fared better. By market-cap, small-caps narrowly underperformed large-caps as investors generally fled to quality. The dispersion between value and growth stocks was more mixed. The CBOE Volatility Index reached its highest level since early June, although the Index remained well below levels reached in March earlier this year.
COVID-19 cases continued to rise across the country. Hospitalizations rose by at least 10% over the past week in more than 30 states. There was some positive news on treatment progress against rising cases. AstraZeneca reported early data showing that its vaccine candidate produced a robust immune response in the elderly. Economic data was generally upbeat. U.S. GDP increased at an annualized rate of 33.1% over the third quarter, ahead of consensus estimates of closer to 31%. Weekly jobless claims also came in ahead of expectations and reached a new pandemic low. Continuing claims kept declining but were more in-line with anticipated figures. Last week marked the height of the third-quarter earnings reporting season with 180 of the S&P 500 constituents reporting. Most of the tech giants reported and bested estimates, although strong earnings were not enough to keep many of these names in positive performance territory for the week.
International Equities and Economic Data/News
Most international equity markets also declined. Developed, international equities fell to similar levels as U.S. equities. Emerging market equities generally held up better but still were down. European shares fell the most since March as investors digested new lockdown efforts to contain a surge in COVID cases. U.S. political uncertainty also appeared to weigh on global sentiment. Chinese stocks were lower but had smaller losses than other indexes. Smaller declines in a large constituent supported emerging market benchmarks. Chinese fintech company Ant Group is nearing its mega IPO. The company, an offshoot of Chinese e-commerce giant Alibaba, aims to raise around $35 billion by selling an 11% stake in a dual Hong Kong-Shanghai listing in what promises to be the world’s largest IPO, exceeding Saudi Aramco’s $29 billion sale last year.
Many major European countries imposed stricter lockdown measures to help contain a recent surge in cases. Notably, new restrictions will likely allow many some businesses and schools to remain open in efforts to soften the blow to the economy and way of life. The European Central Bank (ECB) maintained a dovish stance keeping its deposit rate unchanged at -0.5%. Notes from their recent meeting indicated that risks were still tilted to the downside and that they will continue to reassess the economic outlook to calibrate easing efforts. The Bank of Japan (BoJ) lowered its growth outlook for the remainder of 2020 as it believes that a recovery in demand for services could take longer than expected based on the pandemic. It also kept rates unchanged at its last meeting with the short-term policy rate set at -0.1%. The People’s Bank of China (PBOC) asked local banks to suspend the use of a countercyclical factor (CCF) in fixing the renminbi’s daily midpoint against the USD. The move was interpreted as an effort to allow the currency to become more market driven.
Yields were mixed on the week, with the curve lower heading into Friday’s close. The yield on the 10-year Treasury opened the week around 0.776% and ended the week trading around 0.746%. The flattening of the curve helped push Treasury prices slightly up, as the spread between the 5- year and 30-year bond hovered around 120 basis points (1.2%). Despite the stronger than expected retail sales data, the curve was mostly unchanged, and the focus remains heavily weighted on market sentiment and stimulus talks. The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately flat for the week. Municipals underperformed Treasuries on the week with benchmark yields 1 basis point (0.01%) lower across the curve. With record low rates and uncertainty surrounding the election, state and local governments are coming to market in record numbers to avoid volatility in the coming weeks.
Monday, November 2, 2020
•US ISM Manufacturing Index
Wednesday, November 4, 2020
•Euro Area PMI
Thursday, November 5, 2020
•US Jobless Claims
•Bank of England Rate Decision
Friday, November 6, 2020
•US Unemployment Rate
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Piton Investment Management
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.