Conway’s QuickTake: Week of September 2, 2019

Here’s what happened last week:

U.S. Equities
After three weeks of negative performance, domestic equities were positive on renewed hopes for a trade deal between the U.S. and China. The industrial sector (+3.7%) was the best performing, helped by strong results from UPS. Although positive, defensive sectors including consumer staples (+1.6%), real estate (+1.8%) and utilities (1.8%) were relatively weak vs. others. Growth stocks continue to outpace value so far this year, as the Russell 1000 Growth Index is up 23.3% year-to-date vs. the Russell 1000 Value’s 13.8% advance.

President Trump calmed markets early in the week, stating that prospects for a trade deal were improved and that China was eager to make a deal. Despite this, China’s media suggested that its position remained largely unchanged. Outside of trade, the domestic consumer appears to be in good shape as personal spending rose by 0.6% in July, the best pace in three months. That said, the University of Michigan’s consumer sentiment index had the largest decline in nearly seven years and reached its lowest level since late 2016. This type of mixed economic data along with trade uncertainty should continue to fuel general market volatility.

International Equities
Broad international equities were positive last week, with the MSCI EAFE Index increasing nearly 1%. European stocks (as measured by the MSCI Europe Index) rose more than 2%, due largely to improved trade conversations between the U.S. and China. Italian stocks rallied after the country’s left and populist parties agreed to a coalition. Japanese equities posted small gains for the week and remained well behind other developed equity markets so far in 2019. Broad emerging markets rose just over 1%, as measured by the MSCI Emerging Markets Index. Chinese stocks rose a similar amount although trade remains a headwind.

The Brexit saga continues in the U.K. as newly elected PM Boris Johnson suspended Parliament from mid-September through mid-October. The move is aimed at reducing the amount of time opponents of Brexit will have to restrict a no-deal withdrawal from the EU. The continued drama pushed the GBP to 1.22 USD per 1 GBP, the lowest level in about a decade. Meanwhile, Germany’s economic data continued to indicate that its economy is heading for a recession. Manufacturing data across most sectors and business sentiment continued to fall more than expected. In Japan, unemployment reached a nearly 30-year low of 2.2%, largely attributed to a shortage of workers. Despite a historically tight labor market, Japanese inflation was still under 1% and remains below the Bank of Japan’s target of 2%. A fresh round of U.S. tariffs on Chinese goods went into effect on September 1st. This included a 5% tax on $300 billion of Chinese imports and a 15% tariff on a range of consumer goods. 

Credit Markets
The 10-year Treasury yield remained inverted below the 2-year tenure for the much of the week. Additionally, the 30-year yield fell to record lows and briefly was under the three-month note rate. Because long-term rates are so low, the U.S. is considering issuing its longest maturity debt ever – with treasuries of 50-year or 100-year maturities. Despite recent declines in domestic rates, U.S. yields remain ahead of other developed markets, many of which have negative yields. 

The municipal market had a high level of issuance for the week, which was quickly absorbed as demand continued to be high. As a marker of demand, municipal bond funds realized their 33rd consecutive week of inflows, according to T. Rowe Price. Otherwise, the investment grade and high yield corporate market remained quiet as summer months wrapped up. 

Looking ahead…
Markets will be looking closely at the US ISM Purchasing Managers Index, released on Tuesday and Thursday of this week, which is a leading indicator for future US manufacturing and service sectors of the economy. The week rounds out with US unemployment and change in Nonfarm payrolls. The US labor market has been a bright spot recently as other economic indicators point to a looming slowdown.

  • Tuesday (9/3): GBP Construction PMI (Aug), US ISM Manufacturing PMI (Aug)
  • Wednesday (9/4): GBP Composite PMI (Aug), GBP Services PMI (Aug)
  • Thursday (9/5): US Nonfarm Employment Change (Aug), US ISM Non-Manufacturing PMI (Aug), US Crude Oil Inventories
  • Friday (9/6): US Nonfarm Payrolls (Aug), US Unemployment (Aug)

Resource of the Week 
Recode and Vox released an in-depth article and associated discussion into one of the largest and most polarizing companies of our time, On one hand, Amazon is obsessed with ‘delighting’ the customer while also being a fierce competitor and questionable employer. The multi-part series – Land of the Giants, investigates Amazon’s rise, the influence of Prime, and other implications of the retail giant.

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