Economic and political backdrop
Following the lack of progress in stimulus negotiations over the previous weekend, the prospects of passing a relief package before the election seemed to dim further last week. On Tuesday, Republican Senate Majority Leader Mitch McConnell stated he was only prepared to bring a USD 500 billion package to a vote – far below the USD 2.2 trillion that House Democrats were demanding. McConnell’s offer was also well below the USD 1.8 trillion the White House was proposing, and President Trump immediately criticised the Senate package as too meagre. On Wednesday, however, Treasury Secretary Steven Mnuchin remarked he and House Speaker Nancy Pelosi remained far apart on some issues.
Coronavirus worries also seemed to dampen sentiment during much of the week. Investors appeared concerned by the continued rise in cases in the US and Europe, and Wednesday brought news of pauses in trials of both Johnson & Johnson’s vaccine and Eli Lilly’s antibody treatment due to possible adverse reactions. The US also recorded its first confirmed case of reinfection with the virus. On Friday, however, markets appeared to get a lift from news that Pfizer was preparing to seek emergency use authorisation (EUA) from the Food and Drug Administration (FDA) for its vaccine as soon as November.
The week’s economic data were mixed. Core retail sales – excluding purchases at auto dealerships, gas stations, home centres and food services suppliers – rose 1.4% in September, easily reversing a downwardly revised 0.3% drop in August. The University of Michigan’s preliminary gauge of October consumer sentiment also surprised moderately on the upside. However, weekly jobless claims disappointed, rising to 898,000, a two-month high. Continuing claims again offered a more hopeful picture, however, falling from a revised 11.2 million to 10.1 million. Core (less food and energy) consumer prices rose 0.2% in September, but much of the increase was again due to higher prices for used cars and trucks as consumers sought to avoid public transportation.
In the US, the S&P 500 narrowly managed a third consecutive week of gains, finishing the week 0.2% higher (9.8% YTD). Small-cap shares lagged slightly after a recent streak of outperformance, while growth outperformed value. Russell 1000 Growth returned 0.5% (29.5% YTD), Russell 1000 Value -0.1% (-7.5% YTD) and Russell 2000 -0.2% (-0.8% YTD).
Within the S&P 500, industrials and utilities shares outperformed, while financials recorded losses as investors gave a lukewarm reception to bank earnings reports. The small real estate sector was also weak. The S&P 500 reached its high point for the week on Monday afternoon, guided higher by mega-cap technology stocks. Apple shares recorded solid gains ahead of the company’s unveiling of new iPhones on Tuesday and Amazon shares were also strong in advance of its annual Prime Day, scheduled this year to stretch over 13 and 14 October.
The week marked the unofficial start of earnings season, with 31 S&P 500 companies expected to report third-quarter results, according to Refinitiv. Analysts polled by FactSet and Refinitiv currently expect overall third-quarter earnings for the S&P 500 to fall over 20% on a YoY basis.
Fixed income markets
US 10-year Treasury yield declined to 0.75% from 0.78%. Treasury yields initially rose after the retail sales report but decreased through most of the week, driven in part by the Federal Reserve’s purchases of US government debt, concerns surrounding vaccine trials and softness in key components of the latest consumer price index data.
Core eurozone bond yields fell. A rally in German debt pushed yields on these haven securities to the lowest level since the market swoon in March. German 10-year bund yield was trading at -0.62% on Friday, down from -0.53% a week ago. In the UK, 10-year gilt yield ended the week 10 basis points lower at 0.18%, down from 0.28% at the end of the previous week.
Rising COVID-19 cases in Europe and concerns surrounding fiscal stimulus negotiations in the US continued to weigh on sentiment in the investment-grade corporate bond market. Primary issuance levels contracted throughout the week and finished well below expectations. Trading volumes were somewhat light in the high yield market, as macroeconomic concerns appeared to keep many investors on the side-lines. In issuer-specific news, AMC Entertainment was reportedly weighing its options, including a potential Chapter 11 bankruptcy protection filing, amid increasing liquidity needs as moviegoers have not returned to theatres and studios have delayed movie release dates.
Sign up for US Equity insights from T. Rowe Price
Share this article:
For Investment professionals only. Not for retail distribution.
All data and index returns cited herein are the property of their respective owners, and provided to T. Rowe Price under license via data sources including FactSet, Frank Russell, MSCI and S&P. All rights reserved. T. Rowe Price seeks to cite data from sources it deems to be accurate, but it cannot guarantee the accuracy of any data cited herein. Neither T. Rowe Price, nor any of its third-party data vendors make any express or implied warranties or representations and shall have no liability whatsoever with respect to any data and index returns contained herein. The data and index returns cited herein may not be further redistributed or used as the basis for other indices, as a benchmark or as the basis for any other financial product.
Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2020. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.
MSCI and its affiliates and third-party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and T. Rowe Price has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price’s US Financial Markets – The Week in Review is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.
The specific securities identified and described are for informational purposes only and do not represent recommendations.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
DIFC – Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd. This material is communicated on behalf of T. Rowe Price International Ltd by its representative office which is regulated by the Dubai Financial Services Authority. For Professional Clients only.
EEA ex-UK – Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L-1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only.
Switzerland – Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only.
UK – This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
You might be interested in…
Read Time: 4 mins
Read Time: 7 mins
Read Time: 11 mins
Read Time: 4 mins
See our comprehensive range of US equity funds