Monday, July 15, 2019

Week In Review | July 15 2019

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

The Investment Strategy & Research team of Hilliard Lyons, A Baird Company, supports you and your Wealth Advisor with investment guidance to help you separate meaningful news from idle noise via timely market commentary.

US Large-Caps Lead

  • The S&P 500 rallied last week, although US small-caps were lower. Both developed and emerging equities fell despite a weaker dollar. Energy and Consumer Discretionary were leading sectors last week, while Healthcare lagged. Oil continued higher, and gold rallied back above $1400/oz.
  • The Hilliard Lyons View: Congressional testimony on Wednesday from Fed Chair Jay Powell seemed to be the inflection point for markets last week. We expect the markets particularly like the Fed acknowledging risks across the global economy even though June Jobs data (July 5) was stronger than expected. Exchanges between Powell and Congress were substantive and amicable, in our view, with both sides supporting an unbiased Fed.

Exchanges between Fed Chair Powell and members of Congress were substantive and amicable.

Financials in Focus

  • Reverberations from the announced restructuring at Deutsche Bank remained a story last week. This followed the big US banks announcing strong results to the Fed’s stress test, and hiking capital return programs. Financials are among the first to report earnings, with a host of companies set to report this week, including: JP Morgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, PNC, BB&T, and US Bank.
  • The Hilliard Lyons View: Early July can be light on corporate news, but in a market that has been dominated by macro topics and politics, Financials have been interesting. The sector remains a slight laggard YTD, but has been resilient of late. We will be monitoring reports for any visibility the group may have into the health of the global economy.

Rates Mixed, Curve Steepens

  • The yield curve steepened last week. Yields on the 2-year note were nearly unchanged (-1 basis point), while the 10-year note and 30-year bond added 9 and 10 basis points to their yields, respectively.
  • The Hilliard Lyons View: Last week was the first in 2019 where 2- and 10-year yields have outright moved in opposite directions.

A Look Ahead

  • The Hilliard Lyons View: Earnings season is just ramping up this week, but there are plenty of high profile names among the 50 S&P 500 companies confirmed to report. Aside from Financials, reports skew toward the Healthcare and Industrials sectors. The list includes: Johnson & Johnson, Abbott Labs, United Healthcare, CSX, Union Pacific, Honeywell, Phillip Morris and Netflix. Economic data this week is varied and relatively heavy. Industrial Production (Tuesday) may garner some attention, as should housing data (Wednesday) that includes mortgage applications, building permits and housing starts. Sentiment data from the University of Michigan (Friday) and Retail Sales (Tuesday) will provide insight into the continued health of the US consumer. Globally, we expect markets to react relatively well to China’s GDP print of 6.2% growth (out this morning), even though it’s weak by recent standards. Protests in Hong Kong probably mean the most if/when they elicit a visible response from Beijing.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC, A Baird Company, cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss. Note: It is not possible to invest directly in an index.   

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.