Conway’s QuickTake: Week of September 9, 2019
Here’s what happened last week:
Domestic stocks had a strong week, bolstered late in the week by renewed trade optimism. The recent rise has contributed to a year-to-date S&P 500 gain of 20.5%, within 2% of all-time highs. Within the S&P 500, the energy (+2.7%) and consumer discretionary (2.7%) sectors were the best weekly performers. The energy sector’s strong performance was at least partly due to higher oil prices. Falling U.S. oil inventories and continued tensions with Iran were the main drivers. Despite recent strength, energy remains the worst performing sector within the S&P so far this year, rising just 4.9% versus the broad index’s more than 20% gain. The utility sector was the worst performer for the week, driven by the recent recovery in longer-term rates, making utility stocks’ dividends relatively less attractive. Small-caps (as measured by the Russell 2000 Index) lagged large-caps.
Trade discussions between the U.S. and China continued to drive sentiment. With a meeting scheduled earlier than expected in October, market participants are hopeful that negotiations will be more constructive than the last round of talks. Outside of the trade war, U.S. economic data continues to be mixed. U.S. productivity, factory orders, and ISM’s service activity all rose more than expected according to surveys last week. On the negative front, ISM’s manufacturing activity went negative in August and payroll gains were disappointing. In aggregate, U.S. economic data points to a still growing economy, but one that is slowing under the weight of the trade war.
Most international equity markets outperformed U.S. counterparts for the first time in several weeks. Developed, non-U.S. markets, represented by the MSCI EAFE Index, increased 2.5%, experiencing one of its best weeks in several months as trade and geopolitical risks eased. In particular, the reduced risk of a no-deal Brexit helped calm markets and encouraged a pro-cyclical tilt within respective markets.
Emerging markets realized similar gains (the MSCI Emerging Markets increased 2.5%), bolstered by the intended repeal of the highly controversial Hong Kong extradition bill and positive trade developments. Chinese stocks rallied as China’s cabinet signaled another round of stimulus to help support its stagnating economy. This included efforts to lower borrowing costs and encourage business and consumer spending activity.
Longer-end U.S. yields recovered during the week, as the treasury 10-year yield ended the period at over 1.5%. Despite the decline in domestic rates over the last year, demand for investment grade and municipal bonds remained robust. In particular, the investment grade market saw strong issuance which was met with a healthy level of demand. Supply of municipal bonds remains limited while heightened levels of demand persisted.
- Monday, September 9th, 2019: Great Britain – GDP (QoQ), GDP (MoM) and July Manufacturing Production (MoM)
- Tuesday, September 10th, 2019: Great Britain – Average Earnings Index (Jul), Claimant Count Change (Unemployment) (Aug) / U.S. – JOLTs Job Openings (Jul)
- Wednesday, September 11th, 2019: U.S. – August PPI (MoM), Crude Oil Inventories
- Thursday, September 12th, 2019: Europe – ECB is expected to cut Deposit Facility rate from -0.4% to -0.5%. ECB Monetary Policy Statement will also be released, and Draghi will speak to the press. This is likely to drive markets, especially as investors expected further QE in the EU / U.S. – August Core CPI (MoM)
- Friday, September 13th, 2019: U.S. – August Core Retail Sales (MoM), August Retail Sales (MoM)
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Sources: Investing.com, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, Business Insider