Conway’s QuickTake: Week of November 4, 2019

Here’s what happened last week:

U.S. Equities
The S&P 500 and Nasdaq indexes both reached record highs during the fourth consecutive positive week for U.S. equities. A strong jobs report paired with the Fed’s rate cut decision were key drivers. Earnings have come in better than expected during one of the busiest reporting weeks; nearly one-third of S&P 500 companies delivered results. Healthcare (+3.0%) and Information Technology (+2.1%) were amongst the best performing sectors driven by strong earnings. Energy stocks (-0.3%) lagged because of a decline in the price of oil due to oversupply concerns. Small-cap indexes remained below highs reached late last year. After a brief reversal, growth once again outpaced value names. The Russell 1000 Growth Index remains about 7% ahead of the Russell 1000 Value Index so far this year.

In addition to favorable earnings, economic news remained positive over the week. First, the U.S. Federal Reserve delivered a widely anticipated third rate cut this year. Policymakers suggested they would hold off on additional cuts as they await economic data. That said, Fed Chair Powell stated that rate hikes were also unlikely assuming inflation remained benign. These statements suggest that the Fed will be on hold for the near- to medium-term barring unusual circumstances. Next, the U.S. and China continue to work towards Phase I of a trade deal. It appears that both sides are still working towards a resolution, though the relationship remains tenuous. Finally, the U.S. economy added 128,000 new jobs in October, well ahead of expectations. This boosted sentiment as a strong jobs market and consequently strong consumer are key drivers of the U.S. economy.

Source: iStock 2019

International Equities
Non-U.S. equity markets were positive but slightly behind their U.S. counterparts. The MSCI EAFE Index increased 1.2% bringing its year-to-date gain to 18.2%. The MSCI Emerging Markets Index was roughly in-line, rising 1.3% over the week. Year-to-date results for emerging markets remain behind developed markets, increasing 11.4% so far in 2019.

There was also a string of positive economic news outside the U.S. that helped drive markets higher. First, the E.U. granted the U.K. a 3-month extension to arrive at a suitable Brexit deal. China also had encouraging manufacturing data suggesting stronger demand from Europe and the Asia-Pacific region. This supported European stock inflows which outpaced those into U.S. equities. It also reversed a trend of 40 weeks of outflows from the region. Finally, the ECB kept rates unchanged and restarted its asset purchase program. ECB President Mario Draghi passed the baton to Christine Lagarde who officially began her tenure as President last Friday. In his last speech, Draghi called for unity among Eurozone leaders and acknowledged that monetary policy has become less effective than in the past. He suggested that fiscal policy might be required to fill the gaps.

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…
Monday, November 4th, 2019
•German Manufacturing PMI (Oct)
•Great Britain Construction PMI (Oct)
•ECB President Lagarde Speaks
Tuesday, November 5th, 2019
•Great Britain – Composite PMI and Services PMI for October
•US – ISM Non-Manufacturing PMI and JOLTs Job Openings
Wednesday, November 6th, 2019
•US Crude Oil Inventories
Thursday, November 7th, 2019
•Bank of England meeting and decisions:
-BoE Inflation Report
-Interest rate decision
-Meeting minutes and Carney speaks
Friday, November 8th, 2019
•Canada – October Employment Change

Resource of the Week:
Jim Simons and the firm he founded, Renaissance Technologies, are both legends within the hedge fund industry yet surprisingly little is known about their inner workings. In this episode of Masters in Business, Barry Ritholtz interviews the WSJ’s Gregory Zuckerman who’s latest book focuses exclusively on Jim Simons and the quant revolution he helped found. It’s a unique insight into one of the most interesting firms in recent history that has been able to sustain a 60% annualized return in their Medallion fund for 30 years!

Sources:, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, Forbes