Monday, September 9, 2019

Week In Review | Sept 9 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.

Rally for Risk Continues

  • Stocks rallied during the Labor Day shortened week. The S&P 500 gained 1.8% to register its first back to back positive weeks since early July. International stocks and US small caps rallied as well, while the US dollar index retreated from a 2-yr high and gold declined. Each US equity sector was higher last week, with Energy and Discretionary the leading groups.
  • The Hilliard Lyons View: Moves last week continued positive momentum to close out August, with many markets still somewhat range bound. Trade news and the derivative concerns around economic growth and sentiment likely remain the foremost drivers for daily moves in markets, but we discern little real news broke on this front last week. All S&P 500 equity sectors advanced in consecutive weeks for the first time this year.

All S&P 500 equity sectors advanced in consecutive weeks for the first time this year.

Economic Data Dive

  • Institute for Supply Management (ISM) manufacturing data for August last week showed a contraction in activity relative to July. This was the first such reading since 8/2016, although ISM’s non-manufacturing data point indicated continued growth in the service sector. Rail data published last Wednesday showed traffic in the US declined for a 7th straight month in August, but the US did add 130k jobs per the Bureau of Labor and Stats.
  • The Hilliard Lyons View: Data out in the past few days supports the idea of ‘muddle through’ US economic growth. We view rail and manufacturing data as evidence of at least some marginal damage to trade activity, while strong labor, wage and consumer data continues to underpin a more positive view toward our economy in its entirety.

Yield Curve Update

  • The 2/10 curve closed each trading session last week not inverted. Rates last week were broadly higher, with the US Aggregate index posting its first week of losses since the week ending July 26. Futures are pricing in a 100% probability of a Fed rate cut on September 18.
  • The Hilliard Lyons View: However small the changes might be, we are happy to see incremental moves toward normalization of the interest rate curve. On average, we expect higher rates to portend well for risk assets in the current environment. Corporate credit spreads remain tight, and in our view highlight a divergence between bigger concerns at the macro level (vs micro).

A Look Ahead

  • The Hilliard Lyons View: Geopolitical wildcards aside, this could be another slow week on Wall Street. Economic data due out this week is relatively sparse, highlighted by Retail Sales data on Friday. Earnings for the week are back-end loaded as well, with Kroger, Oracle and Broadcom each expected to release results on Thursday. The three noted companies are the only reports we expect from S&P 500 companies this week. The next Fed meeting is scheduled for September 17-18, and will likely be a source of speculation and interest over the coming days.

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.