The U.S. markets declined as trade tensions with China have continued to escalate last week. The S&P 500 ended the week down 1.17% and the Dow was down 0.69%, the fifth consecutive weekly loss.
- The tech sector reacted negatively to the China news, finishing as a laggard for the week
- Poor earnings forecasts from companies like Nordstrom and Urban Outfitters caused retail stocks to decline
- Trade worries also hit emerging markets stocks, which have lost momentum recently after a strong start to the year
- The 10-year Treasury dipped below 2.30% on Thursday, the lowest since Nov. 2017
- The 3 month to 10-year yield curve remains inverted
- High yield bonds have remained relatively free of the volatility (only 5 bps move on the week) but are roughly 50 bps wider than the tight levels from April
- This is worth noting as some view high yield as a barometer for future domestic economic activity
Chart of the Week:
- Despite only outperforming the S&P 500 on 27 of 52 weeks (i.e. 52% of time), stocks that demonstrate lower volatility have outperformed the S&P 500 by more than 10% over the past year.
- With the S&P 500 Index potentially recording its first down month of the year, most Low Volatility ETF’s have not only withstood the pressure, but managed to rise to new highs last week.
- Keep in mind that low-volatility stocks (and ETF’s) can trail the benchmarks on the way up, but tend to fall less when things sour.
Bloomberg data represents the iShares Edge MSCI Min Vol USA ETF (USMV) and the iShares Core S&P 500 (IVV)
Disclosure: This Commentary represents a review of topics of possible interest to Pennsylvania Trust’s clients and is not personalized investment advice. It contains Pennsylvania Trust’s opinions, which may change following the date of publication. Information obtained from third-party sources is assumed to be reliable but is not guaranteed. No outcome – including performance – is guaranteed, due to various uncertainties and risks. This document is not a recommendation of any particular investment. Investment decisions for clients are made on an individualized basis and may be different from what is expressed here. Past performance is no guarantee of future results.