Conway’s QuickTake: Week of September 16, 2019

Here’s what happened last week:

U.S. Equities
Accommodative central bank policy has continued to offer support for equity markets both in the U.S. and globally as domestic large-cap benchmarks approach all-time highs. The S&P 500 increased 1% last week, lagging the Russell 2000’s gain of 3.6% and Russell 1000 Value’s gain of 1.7%. This weekly outperformance by small-cap and value-oriented equities has been rare this year as both indices lag the overall performance of the S&P 500 year-to-date. Within the S&P 500, materials (3.9%), industrials (2.6%), and financials (2.3%) had the best performance. Financials were helped by a recovery in long-dated bond yields while materials and industrials benefited from a pro-cyclical stance and investor flows into value names.

Market expectations for the number of Fed rate cuts have moderated substantially over the last several weeks. Currently markets are pricing in at 65% probability of a rate cut at the next FOMC meeting, which will take place September 17-18 this week. This probability has declined steadily since the beginning of the month, where markets were pegging a rate cut at almost 95%.

International Equities
Most international indexes outperformed U.S. counterparts last week. Broad developed international equity markets rose 1.9%, as measured by the MSCI EAFE Index. European stocks were boosted by a fresh round of stimulus from the ECB, which cut its key interest rate from -0.4% to -0.5% and pledged to purchase €20 billion a month of eurozone debt starting in November. This was the first cut since March 2016 as the ECB promised not to raise rates until inflation improved to more robust levels.

Japanese stocks also had a strong week as markets were helped by improved trade discussions and European stimulus. Despite a strong week for Japanese equity markets, the country’s economic data continues to disappoint as Q2 GDP data came in 0.50% below estimates.

The MSCI Emerging Markets Index rose 1.6% over the week as trade talks between the U.S. and China turned somewhat constructive, bolstering Chinese equities. Chinese officials announced there would be a small list of U.S. products exempt from the latest round of tariffs. In response, President Trump quickly tweeted that he would postpone a 5% increase on $250 billion of Chinese imports. On Friday, China announced it would exclude U.S. soybeans, pork, and several other agricultural products from additional tariffs. All in all, the combined moves suggested a slight de-escalation of tensions. Despite positive momentum, a longer-term solution still seems far away.

Credit Markets
Positive trade and U.S. economic data pushed bond yields higher, with the 10-year treasury yield ending the week at nearly 1.9%. This contributed to negative returns for most U.S. bond indexes last week and represented a substantial move for rates. Investment grade corporate issuance remained robust as companies welcomed the chance to lock in lower rates. U.S. state and local governments followed suit as they consider issuing 50- or even 100-year bonds. Although probabilities for a cut have declined recently, markets are still positioned for a rate cut at the Fed meeting this week.

Looking ahead…

  • Tuesday (9/17): German ZEW Economic Sentiment (Sep)
  • Wednesday (9/18): GCB CPI (YoY) (Aug) / EU CPI (YoY) (Aug) / US Building permits (Aug), US Crude Oil Inventories, Fed Interest Rate Decision and Statements released
  • Thursday (9/19): GBP Retail Sales (MoM) (Aug), Bank of England Interest Rate Decision and meeting minutes / US Philadelphia Fed Manufacturing Index (Sep), US Existing Home Sales (Aug)
  • Friday (9/20): Canadian Core Retail Sales (MoM) (Jul)

Resource of the Week
Anyone who’s been to a baseball game, theme park, or mall likely is familiar with Dippin’ Dots or the self-proclaimed ‘Ice Cream of the Future.’ What you might be less familiar with is the company’s story. Founded by Curt Jones in the late 1980s, Dippin’ Dot’s story is a unique demonstration of perseverance that unfortunately has a somewhat sad ending. Nonetheless, Curt is back at it today with his new company, 40 Below Joe, which sells frozen coffee creamers and treats.

Sources:, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, Business Insider, AB: This Week in Muniland, NPR, Forbes