Conway’s QuickTake: Week of October 28, 2019


Here’s what happened last week:

U.S. Equities
Last week, the S&P 500 had a solid 1.2% gain amid third-quarter earnings season and recent positive geopolitical events. Within the S&P, the energy (+4.3%), IT (+2.5%), and industrials (+2.2%) sectors performed best. A recovery in Boeing’s stock supported the industrials sector. Despite announcing a large decline in sales following the grounding of its most popular new jet, the 737 MAX, Boeing now anticipates the aircraft will return to service before the end of the year. Yield sensitive sectors such as real estate (-1.1%) and utilities (+0.5%) lagged as rates rose to the higher end of the recent trading range. Small caps outpaced large caps, with the Russell 2000 Index rising 1.5% and value (Russell 1000 Value: +1.5%) outpacing growth (Russell 1000 Growth: 1.1%).

In terms of economic data, durable goods orders disappointed by falling by about 1% in September. Orders for non-defense capital goods excluding aircrafts also underwhelmed, falling a more-than-expected 0.5%. This metric suggests business investment is declining. On the positive end, IHS Markit Flash PMI rose to its highest level in six months, suggesting that the domestic manufacturing sector could be stabilizing.

Source: iStock 2019

International Equities
Both the MSCI EAFE and Emerging Markets Indexes were roughly in line with the S&P for the week. Strong earnings helped push non-U.S. indexes higher, although Brexit and trade tension uncertainty remained.

The E.U. once again extended the Brexit deadline, this time through January 31 of next year. The extension also allows the U.K. to have an election this year while not simultaneously having to deal with exiting the E.U. Continued Brexit uncertainty has pressured the British pound. Outside of Europe, Japanese economic data continues to disappoint. Both exports and manufacturing data slid and underwhelmed. Despite disappointing data, positive trade developments decrease the likelihood of an additional rate cut this month. For reference, Japan’s current short-term interest rate target is -0.1%, and the incremental impact of making rates more negative is questionable. Things were more upbeat in China, with several companies reporting positive earnings and the People’s Bank of China (PBoC) offering a liquidity injection into markets, boosting sentiment. 

Credit Markets
Domestic yields continued to recover from lower levels reached in early September and October. As of the close of the week, the U.S. Treasury 10-year yield was hovering around the 1.8% level and at the upward end of the recent trading range. The rise in rates caused most fixed income asset classes to have flat to negative returns. Amid tight supply all year, the municipal market had an elevated level of new issuance, contributing to slight underperformance. High yield outperformed in line with the equity markets and positive developments in the healthcare sector, a sizable constituent of the asset class.

Looking ahead…

Monday, October 28, 2019 
     •ECB President Draghi Speaks
Tuesday, October 29, 2019
     •US Consumer Confidence (Oct) and Pending Home Sales
Wednesday, October 30, 2019
     •German Unemployment Change
     •US
          -ADP Nonfarm Employment Change (Oct)
          -GDP (Q3)
          -Crude Oil Inventories
          -FOMC Statement
          -Fed Interest Rate Decision
     •China – Manufacturing PMI
     •Japan – BoJ Monetary Policy Statement and Outlook Report
Thursday, October 31, 2019
     •Eurozone CPI (YoY) (Oct)
     •China Caixin Manufacturing PMI (October)
Friday, November 1, 2019
     •US – Nonfarm payrolls (Oct), Unemployment Rate (Oct), ISM Manufacturing PMI (Oct)

Resource of the Week
Ever wonder what life would be like if your property taxes were eliminated entirely and you had the bare minimum of local regulation? Well Art Martinez de Vara was tired of wondering and worked to create a new city outside of San Antonio called Von Ormy. The deemed ‘Liberty City’ worked to get to no property taxes and seeks to save money wherever it can. While it sounds great in concept, the outcome might surprise you. 

Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, A|B: This Week in Muniland, The Motley Fool, CNBC