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.
Risk Assets Still out of Favor
- The S&P 500 fell 1% last week, which was still better than US small caps and emerging markets. Developed international stocks outpaced the S&P for a fourth week in a row. Gold posted its worst week of 2019, falling by nearly $20/oz., and oil continued to backslide while bonds rallied. Staples and Utilities were leading sectors, while Healthcare was a laggard.
- The Hilliard Lyons View: On the surface, last week represented what has been somewhat stereotypical this summer: lower rates and a stronger USD corresponding with risk off markets. The real story however, is probably a bit more complicated with the key theme for us on the week being confusion surrounding possible impeachment of the President. Around the edges, consumer confidence data on Tuesday (negative) and marginal developments on trade (positive) were likely meaningful. Stealthy moves for international stocks this summer underscore the value of diversification.
Developed market international stocks have outpaced the S&P 500 for four consecutive weeks.
Politics Politics Politics
- An evolving scandal over conversations with the President of Ukraine finally compelled Democratic leadership in the House to pursue real steps toward the impeachment of President Trump. Elsewhere, polling data out last week suggests that Senator Elizabeth Warren could be the current Democratic frontrunner for the 2020 presidential nomination.
- The Hilliard Lyons View: Warren is perhaps the least market-friendly candidate in the field, and her rise likely impacted Healthcare stocks last week in particular. That said, we believe implemented policy will generally be less impactful than campaign rhetoric suggests (for all candidates). We do not take a strong tactical stance on impeachment proceedings, but do suggest a failed impeachment attempt could boost Trump’s reelection bid.
Yield Curve Update
- Every session for the past four straight weeks, the 2/10 curve has finished not inverted. Futures are pricing in a 71.1% probability of another Fed rate cut by the end of this year.
- The Hilliard Lyons View: Tight corporate credit spreads remain an underappreciated positive data point, in our view, suggesting a divergence between concerns at the macro and micro levels. We are happy to see 2s and 10s sustain a normal relationship.
A Look Ahead
- The Hilliard Lyons View: The Chinese Communist Party (CCP) celebrates its 70th anniversary this week. For the sake of optics, we expect CCP interests to keep a tight grip on markets and avoid potentially negative conversations. Several important economic data points are due out this week, including the September Jobs report on Friday. Consensus calls for 145k job additions, a modest uptick from 130k in August. Reads into both manufacturing (Tuesday) and services activity (Thursday) are expected this week as well. We remind investors that a reading above ‘50’ for these two ISM PMI reports indicates expansion.
- 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.
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.