Conway’s QuickTake: Week of October 21, 2019
Here’s what happened last week:
The S&P 500 Index ended the week slightly higher on the back of stronger-than-expected earnings. There was an unusually large gap of nearly 4% between the top and bottom performing sectors within the index. The best performing sectors included healthcare (+2.0%), real estate (1.8%), and financials (1.6%). Real estate remains the second-best performing sector so far this year. The energy sector was again the poorest performer, falling 1.7%. So far this year, the energy sector is the worst performing sector, increasing just 2.1% year-to-date. This compares with the broad benchmark’s 21.0% gain. The IT sector also had a difficult week, declining 0.8%. The sector was dragged down by a revenue miss from IBM among other factors. Elsewhere in U.S., value names outperformed growth and small-caps bested large-caps.
At the onset of the week, investors were encouraged by strong third quarter earnings from several companies including JPMorgan, UnitedHealth, and Netflix. Later in the week, however, investors were brought back to reality by numerous disappointing economic prints. Industrial production fell more than expected, likely impacted by the ongoing GM strike. Additionally, housing starts fell more than anticipated, although there was a healthy increase in residential building permits. The IMF also cut its growth forecast from 3.2% to 3.0% with trade tensions being the main driver in the revision. Perhaps most worrisome was the slight decline in U.S. retail sales. The U.S. consumer has been a bright spot in 2019 and has helped fuel domestic growth despite the trade war. This was the first drop since February.
The developed-market, MSCI EAFE Index rose 1.2%, while the MSCI Emerging Markets Index rose 1.3%, both outperforming the S&P 500 for the week. U.K. and Chinese stocks mostly fell. U.K. stocks faltered due to uncertainty around Boris Johnson’s ability to convince Parliament to approve his tentative Brexit deal. Chinese stocks reacted to disappointing economic data.
Japanese inflation continued to fall and reached a multi-year low despite aggressive easing efforts. This added to the BoJ’s case for further stimulus at the next policy meeting. Negative and zero interest rates appear to be spreading and are crossing over to the corporate world as Toyota recently issued three-year bonds with an effective yield of 0%.
The U.S. 10-year treasury yield ended the week slightly lower (1.75%) although well above levels reached earlier in the month. Continued uncertainty surrounding Brexit and U.S./China trade negotiations has led to heightened volatility in bond yields. Outside of treasuries, the investment grade corporate market held within a narrow range and issuance was near expectations. High yield debt performed well, receiving inflows as investors continued to search for yield. Municipal bonds modestly underperformed treasuries for the week.
Tuesday, October 22nd, 2019
• US Existing Home Sales (Sep)
Wednesday, October 23rd, 2019
• US Crude Oil Inventories
Thursday, October 24th, 2019
• German Manufacturing PMI (Oct)
• European Central Bank:
– Deposit Facility Rate and ECG Marginal Lending Facility
– Monetary Policy Statement and Press conference
• US Core Durable Goods Orders and New Home Sales
Friday, October 25th, 2019
• German Ifo Business Climate Index
Resource of the week:
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Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, A|B: This Week in Muniland, The Motley Fool, CNBC