Conway’s QuickTake: Week of September 23, 2019

Here’s what happened last week:

U.S. Equities
The S&P 500 Index finished the week down 0.2%, demonstrating a muted response to both recent volatility in oil as well as the Fed rate cut. Recent small-cap and value outperformance was short-lived as these stocks lagged large-cap and growth stocks last week. The retreat in U.S. rates helped make yield-oriented sectors such as utilities (+2.2%) and real estate (+1.1%) amongst the best performers for the week. Healthcare was also amongst the best performers, rising 1.2% for the week, although it remained a laggard year-to-date. The energy sector was the worst performer, declining 2.2% due to recent volatility in the supply of oil. Rising input costs cause the industrials sector to fall as well.

The Fed delivered on an anticipated rate cut of 25 basis points, which was met with little reaction. The statement following the Fed’s monetary policy meeting offered little change in its tone and language. There appears to be some uncertainty amongst Federal Open Market Committee (FOMC) members regarding policy moving forward. For this most recent cut, three FOMC members dissented the move. Of the dissenters, two wanted to maintain rates while the other felt that an aggressive, 50 bps cut was more appropriate. This was the most dissent for this type of decision since 2016.

World map with charts and graphs as symbols of global finance

International Equities
Developed international equity markets (as measured by the MSCI EAFE Index) rose modestly (+0.6%), while emerging market equities (as measured by the MSCI EM Index) posted a small loss (-0.5%). Improved trade discussions as well as increased hope for a Brexit deal drove European markets higher. Japanese stocks were roughly unchanged (+0.2%) last week. The MSCI Japan Index is now up nearly 11% so far this year. Chinese and emerging market indices both fell over the week. The fall in Chinese equities was in response to disappointing readings from several economic indicators, suggesting the trade war has meaningfully hindered growth.

Improved prospects for an orderly Brexit supported the British Pound. The Bank of England kept rates unchanged last week as it appears to be committed to maintaining lower rates amidst Brexit uncertainty. Despite the negative overhang, U.K. unemployment continues to be at historically low levels (3.8%) with wage growth intact. The Bank of Japan (BoJ) also decided to keep short-term rates steady at -0.1% and hold longer-term rates near 0%. Recent economic data from China was disappointing and indicated that efforts to support growth haven’t been successful. In response to challenging economic readings, the People’s Bank of China cut the loan prime rate on Friday for the second month in a row. Despite tension and slowing growth, Chinese equity markets have been the recipient of increased inflows recently.

Credit Markets
Treasury rates fell from their recent spike as the asset class remained a haven amongst heightened geopolitical tension. Most bond market returns were positive, benefiting from the fall in rates. One exception was high yield, which was flat over the week. The high yield market has a large exposure to the energy sector, which was battered last week. Municipals also had muted gains and largely underperformed Treasuries. Unusual technical factors caused a spike in overnight bank lending rates last week, which in turn caused a spike in the Fed funds rate. Ultimately, the Fed stepped in with additional reserves and the rate normalized. This phenomenon caught headlines as similar spikes occurred during the Great Financial Crisis. Despite the similarities, many experts believe this was a technical anomaly as opposed to a signal of a more systemic problem.

Looking ahead…

  • Monday (9/23):
    • German Manufacturing PMI came in weaker than expected at 41.4 vs. a forecasted 44.0, indicating a sharper contraction in the manufacturing sector than expected.
    • ECB President Draghi Speaks
  • Tuesday (9/24):
    • German Ifo Business Climate Index
    • US Conference Board Consumer Confidence Index
  • Wednesday (9/25):
    • US New Home Sales (August)
    • US Crude Oil Inventories
  • Thursday (9/26):
    • US Quarterly GDP (Q2)
    • US Pending Home Sales (Aug)
  • Friday (9/27):
    • US Core Durable Goods Orders (Aug)

Resource of the Week
After a short career in minor-league baseball, Michael Schwimer thought there had to be a better way to give up-and-coming players a fair chance to make it to the big leagues. The challenge ultimately resulted in the BLA or Big-League Advance, which takes early stakes in a player’s career and future earnings in exchange for a lump sum. What’s even more intriguing is the advanced analytics platform that BLA has created to predict the likelihood of a player making to the majors. This episode of Capital Allocator’s is a great listen for sports and non-sports fans alike.

Sources:, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, Business Insider