Market Update - October 1, 2019Submitted by Jodi Vleck , Beta Wealth Group on October 1st, 2019
For the week ended September 27, U.S. equities generally lost ground partly due to the President's pessimistic comments regarding trade talks with China at the United Nations and the start of the Democratic impeachment inquiry against the President, with large cap equities outperforming small caps. By sector, defensive consumer staples and utilities outperformed while communications services, energy and health care all experienced losses for the week. Also impacting sentiment negatively were rumors that the Trump administration might possibly restrict U.S. investor flows into China and potentially delist Chinese companies from U.S. stock exchanges, and the market's lukewarm response to recent IPOs such as Peloton and the pulling of IPOs for headliners such as WeWork.
Foreign stocks in developed markets were flat to slightly positive in local currency terms, but declined in keeping with equities in the U.S. after accounting for a stronger U.S. dollar. U.K. markets gained modest ground amid fears of a ‘no deal’ Brexit or another extension by the stated deadline of Oct. 31 while at the same time, the Eurozone Flash PMI fell to its worst level in seven years, raising the odds for continued and prolonged monetary easing. Elsewhere, Japan and the U.S. reached a limited trade deal, offsetting data indicating a manufacturing contraction and uncertainty surrounding a recent consumption tax increase, which economists feel has the potential to drive the economy back into recession. Emerging markets lagged for the week with Chinese markets faring the worst owning to the lack of progress in trade talks, followed by Russian and Mexican markets which were pressured by lower commodity prices. In contrast, Indian markets gained upon implementation of a significant corporate tax cut.
U.S. bonds ticked slightly higher as investors shied away from risk, which dampened interest rates on the longer-end of the curve. Longer-term treasuries again outperformed, while high yield corporates and floating rate bank loans lost some ground. Foreign bonds in developed markets were little-changed being held back by a stronger dollar, while emerging market bonds lost ground in keeping with most risk assets.
Real estate equities in the U.S. rose last week, in line with other defensive sectors, while foreign REITs provided positive returns. Commodities generally were pressured, with the energy sub-group declining as the price of crude oil fell to around $56/barrel, with Saudi Arabia announcing a partial ceasefire with insurgents in Yemen that recently damaged oil drilling and production facilities.