Conway’s QuickTake: Week of September 30, 2019

Here’s what happened last week:

U.S. Equities
The S&P 500 Index finished the week down 1.0% as investors digested new market uncertainties. These included renewed concerns about the U.S./China trade conflict in addition to an impeachment inquiry into President Trump’s interactions with Ukrainian President Zelensky. Within the S&P, defensive sectors outperformed with utilities (1.2%) and consumer staples (1.0%) producing the best weekly results. Cyclical and growth-oriented sectors including energy (-2.7%), healthcare (-2.4%), and communication services (-1.9%) were the biggest laggards. This translated to the Russell 1000 Value Index besting the Russell 1000 Growth Index by 0.8% over the week. The year-to-date gap between growth and value stocks has narrowed slightly to just below 5%. Small-caps again underperformed large-cap equities following a brief reversal earlier in September. The Russell 2000 Index continues to lag the S&P 500 Index by roughly 6% so far this year on a total return basis. U.S. markets have also started to show waning excitement for big-name IPOs. This was demonstrated by the recent IPO in fitness company Peloton, whose shares were down nearly 20% from its listing price.

The U.S. consumer, a consistent bright spot in the global economy, is starting to fade. The consumer confidence index fell more than expected as consumers are growing cautious amidst rising global uncertainty. The U.S./China trade conflict once again appears to be escalating. Things seemed to be improving early in the week after the Treasury Secretary indicated that trade talks were set to resume in early October. Then it quickly turned south after President Trump accused China of intellectual property theft during his speech at the U.N. On Friday, U.S.-listed ADRs for Chinese companies were hit hard when reports surfaced that the White House was considering limiting U.S. investment in these businesses. This could force exchanges to delist ADRs in companies such as Alibaba and Tencent.

iStock 2019

International Equities
Most international equity markets realized small losses last week over similar concerns of political uncertainty and slowing global growth. The MSCI EAFE Index was close to unchanged, falling 20 basis points. The MSCI Emerging Markets Index had a larger decline of 1.3%. Within emerging markets, the MSCI China Index fell 2.6% due to concerns over limitations on U.S. investment in Chinese companies.

In the U.K., the high court ruled that recently elected Boris Johnson’s suspension of Parliament was illegal. This was another blow to Boris Johnson’s short tenure as PM; he’s already facing calls for his resignation. This all contributes to continued uncertainty around Brexit. Germany’s economy continues to flash recessionary signals as German PMI fell to its worst reading in about a decade. Japan’s economy also continues to show signs of stalling, although the country did recently sign a trade deal with the U.S. In similar fashion, China reported a fall in producer prices and industrial production. Within emerging markets, India recently announced a reduction in corporate tax rates in efforts to stimulate the economy. Local markets were boosted on the news.

Credit Markets
Political and economic uncertainty contributed to a slight decline in U.S. Treasury yields. The 10-year yield sits at roughly 1.67%. Credit spreads also widened modestly contributing to a negative weekly return for high yield bonds despite the fall in rates. High-yield bond spreads remain narrow relative to historical averages and year-to-date fixed income returns are impressive. The Bloomberg Barclays U.S. Aggregate has increased 8.5% so far in 2019 and the comparable high yield index is up over 11%.

Looking ahead…

  • Monday (9/30): 
    • Germany – Unemployment Change (Sep)
    • Great Britain – GDP (QoQ and YoY)
    • Japan – Tankan Large Manufacturers and Large Non-Manufacturers Indices (Q3)
  • Tuesday (10/1):
    • Germany – Manufacturing PMI (Sep)
    • Great Britain – Manufacturing PMI (Sep)
    • Eurozone – CPI (YoY) (Sep) and ECB President Draghi speaks
    • US – ISM Manufacturing PMI (Sep)
  • Wednesday (10/2):
    • Great Britain – Construction PMI
    • US – ADP Nonfarm Employment Change (Sep) and Crude Oil Inventories
  • Thursday (10/3):
    • Great Britain – Composite PMI (Sep)
    • Great Britain – Services PMI (Sep)
    • US – ISM Non-Manufacturing PMI (Sep)
  • Friday (10/4):
    • India – Interest Rate Decision
    • US – Nonfarm Payrolls (Sep), Unemployment Rate (Sep) and Fed Chair Powell Speaks

Resource of the Week 
If you’re looking for an espresso shot-sized update on the VC world, this podcast might be the answer. Joe Lonsdale is a founding partner at venture firm 8VC, operated as a co-founder of Palantir and founded the fintech firm, Addepar. Jon’s conversation with Ted Seides packs a lot into a 30-minute discussion.  

Sources:, The WSJ, T. Rowe Price Global Markets Weekly Update, Business Insider, Barron’s, Bloomberg