Conway’s QuickTake: Week of October 7, 2019

Here’s what happened last week:

U.S. Equities
The S&P 500 had its third consecutive week of losses as broader signals of an economic slowdown surfaced. Sector performance within the S&P varied. The information technology (+1.2%) and healthcare (+0.9%) sectors were the best performers. The IT sector benefited from strength in Apple’s stock, a large underlying component, while the healthcare sector was bolstered by a Wall Street Journal report that there may be a near-term settlement limiting future liability for opioid producers. The energy sector was the worst performer, falling roughly 4% as global growth concerns pushed the price of oil down. Economically sensitive sectors, including materials, industrials, and financials, also had a difficult week based on growth concerns. This contributed to a large difference between Russell 1000 Value Index (-1.1%) and Russell 1000 Growth Index (+0.6%) performance. The Russell 2000 Index, a proxy for small-caps, also lagged large-cap indexes.

The most notable economic news last week was the unexpected decline in September’s ISM factory activity. The reading fell for the sixth consecutive month and further into correction territory; the index is now at its lowest level since 2009. The slowdown also is showing signs of expanding into the services sector with the ISM nonmanufacturing index falling to its lowest level in three years. One silver lining in this data is that it provides more backing to the Federal Reserve to take greater easing action. Futures markets are now pricing a 90% chance of an additional rate cut at the end of October. That said, recent cuts appear to have less of a stimulative impact on markets than they did historically.

Source: iStock

International Equities
Non-U.S. equity indexes generally had larger losses than domestic indices. The MSCI EAFE Index fell 2.2% while the MSCI EM Index was down 0.5%. European stocks were hit particularly hard with the MSCI Europe Index falling 3.0% as weak data and tariff worries took hold. Upcoming emerging market performance will likely be greatly influenced by the tone of upcoming trade negotiations between the U.S. and China.

Economic data overseas continued to worsen. In Europe, the slowdown in manufacturing also showed signs of spreading to the services sector. The weakening services sector in Germany pushed the total PMI index into contraction territory for the first time in six years. Evidence of a further slowdown will likely arm central banks with the ability to enact additional easing. The U.S. announced $7.5 billion of tariffs on European goods after the World Trade Organization approved of retaliatory actions in response to E.U. subsidies to Airbus. In Japan, government bonds fell after the Bank of Japan indicated that it was unable buy as many bonds across maturities as in the past and will rely more heavily on foreign debt to meet return obligations. In emerging markets, reopened trade talks between the U.S. and China will likely drive sentiment in the coming weeks.

Credit Markets
While slowdown concerns hurt stocks, they positively supported non-credit sensitive bonds. Domestic yields fell back to lower levels with the Treasury 10-year yield ending the week just above 1.5%. While yields moved lower, spreads widened marginally – impacting the performance of more credit sensitive asset classes such as high yield debt. Widening spreads also reflect investor concern about slowing growth. Despite concerns, investor appetite for new issuance was generally met with reasonable demand. Demand for municipal paper also remained robust.

Looking ahead…

  • Monday (10/7): 
    • US Fed Chair Powell Speaks
  • Tuesday (10/8):
    • Bank of England Gov Carney Speaks
    • US PPI (Sept)
    • Fed Chair Powell Speaks
  • Wednesday (10/9):
    • US JOLTs Job Openings (Aug)
    • US Crude Oil Inventories
    • US FOMC Meeting Minutes released
  • Thursday (10/10):
    • Great Britain – GDP and Manufacturing Production figures released
    • US – Core CPI
  • Friday (10/11):
    • Canadian Employment Change figures (Sept)

Resource of the Week
J.P. Morgan has released their fourth quarter Guide to the Markets, recapping data, charts and insights from the third quarter. If you’re searching for a quick debrief on the current state of the global economy and markets, the Guide to the Markets is a good place to start.

Sources:, The WSJ, T. Rowe Price Global Markets Weekly Update, Bloomberg, J.P. Morgan,