Weekly Market Recap September 9, 2019

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Weekly Market Recap

September 9, 2019

Last Week:

Return

Index

Close Week YTD

Dow Jones Industrial Average 26,797 1.5% 14.9%

S&P 500 Index

2,979 1.8% 18.8%

NASDAQ

8,103 1.8% 22.1%

Russell 2000 Index

1,505 0.7% 11.6%

MSCI EAFE Index

1,874 1.7% 8.9%

10-yr Treasury Yield

1.56% 0.06% -1.13%

Oil ($/bbl)

$56.62 2.8% 24.7%

Bonds*

$113.67 -0.2% 8.8%

Source: Bloomberg, 09/06/19

*Bonds represented by the iShares U.S. Aggregate Bond ETF

U.S. Equity Markets ? U.S. large cap equities (S&P 500 Index) rose 1.8% as the U.S. and China announced they will meet in early October to discuss trade; U.S. economic data was resilient, a UK hard Brexit appears less likely, and Hong Kong protesters received positive news from the local government o Energy (+2.6%) outperformed as the price of oil rose +2.8% o Consumer discretionary (+2.6%) outperformed with retail, apparel and accessories, and auto parts seeing strong gains o Information technology (+2.4%) outperformed as semiconductor and hard disk drive stocks rallied o Communication services (+2.0%) outperformed with strength in video games (ATVI +7.9%) and cable stocks (Comcast +4.7%) o Financials (+1.9%) modestly outperformed with strength in insurance, though banks slightly underperformed o Industrials (+1.8%) performed in-line with strength in engineering and construction, multinationals, and machinery o REITs (+1.4%), consumer staples (+1.2%) and utilities (+0.4%) underperformed as investors favored less defensive sectors o Materials (+0.9%) underperformed with a pullback in "safe-haven" precious metals stocks, though industrial metals fared well o Healthcare (+0.7%) underperformed with a pullback in managed care stocks ? China announced on Thursday that Vice Premier Liu will come to the U.S. for high-level trade talks in early October. The 13th high level negotiation will be complicated by another tariff increase set to take effect on October 1st, and there may be a lack of incentives by either side to make a deal, according to the New York Times.

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Weekly Market Recap

September 9, 2019

Source: Wolfe Research

? In the past year, tariff and trade concerns as well as declining interest rates have likely contributed to the strong performance of U.S. "defensive sectors" like utilities, REITs, and consumer staples relative to more cyclical sectors and foreign stocks 1-Year Price Return Ending August 31st, 2019

Source: Credit Suisse

? One thing seems reasonably obvious. The inverted yield curve and a future recession seem unlikely to sneak up on the general public

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September 9, 2019

Source: Fundstrat, Google Trends

? Interesting equity market performance patterns have occurred during days when President Trump writes more than 35 Tweets per day versus less than five Tweets per day

Source: BofA Merrill Lynch U.S. Equity & Quant Strategy, Twitter, S&P

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Weekly Market Recap

September 9, 2019

U.S. Economic and Political News ? August ADP Employment showed a gain of 195,000 jobs, well above the 150,000 consensus forecast ? But Non-Farm Payrolls showed the opposite: an advance of 130,000 jobs missed the 160,000 consensus estimate o The unemployment rate remained at 3.7%

Source: Bureau of Labor Statistics

? August ISM Non-Manufacturing of 56.4 topped the 54.0 consensus estimate ? The IHSMarkit Purchasing Managers Index inched up to 50.3 in its final August reading from 49.9 in

the preliminary report. Still, that marked the lowest result since September 2009 ? By contrast, the ISM Manufacturing Index fell to 49.1 in August, from 51.2 in July, and missed the 51.0

consensus forecast. It was the worst reading since January 2016. The New Orders component of the index fell to 47.2

Source: Bespoke

? Boston Fed President Eric Rosengren said that if the economy "continue[s] to grow around 2%, no immediate policy action would be required."

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Weekly Market Recap

September 9, 2019

? Mr. Rosengren's comments stand in sharp contrast to St. Louis Fed President James Bullard, who argued for an "aggressive" cut in interest rates, because "we are too high" ? with the Fed Funds rate exceeding the yield of all U.S. Treasury bonds. "We should have a robust debate about moving 50 basis points at this meeting. It'd be better in my mind to go ahead and get realigned right now. Why not just get to the right point today?"

? New York Fed President John Williams sought the middle ground between Messrs Rosengren and Bullard, saying the economy remains "in a favorable" place, while his "number one goal" is to keep the economic expansion intact, by "carefully monitoring and remain[ing] vigilant". As we've asked in previous weekly e-mails, when is the Fed ever not carefully monitoring and vigilant? Is the correct read of these various Fed speakers that the most likely outcome later this month is a 25 basis point rate cut, i.e. neither as dovish as Mr. Bullard nor as hawkish as Mr. Rosengren?

International Markets and News ? European equities (STOXX Europe 600) rose +2.0% as dissipating political risk including more optimistic U.S.-China trade talks, decreasing probabilities of a no-deal Brexit, a new pro-EU Italian government and improving Hong Kong civil unrest benefitted global markets o There was, however, more weak German macro data with industrial production and factory orders dropping in July, fueling worries about a looming recession and stoking expectations more fiscal and/or monetary stimulus are needed o Britain's Parliament approved a bill that significantly reduces the risk of a no-deal Brexit on October 31st and UK Prime Minister Johnson's motion to trigger a snap general election did not get much support ? Chinese markets (Shanghai Composite Index) surged 3.9% as sentiment improved regarding U.S.China trade talks, reduced political risk in Hong Kong, and China's cabinet signaled it would roll out fresh stimulus measures to bolster the local economy o Hong Kong's government announced it would withdraw the highly controversial extradition bill that was the initial driver of protests; however, there is no indication this move would appease the protestors, who have broadened the scope of their demands Fitch Ratings has lowered Hong Kong's long-term credit rating by one notch to AA from AA+ after three months of protests threaten "the stability and dynamism of its business environment," the credit-rating agency said o Chinese Premier Li Keqiang issued a statement Wednesday saying that the country's State Council called for the "timely" use of tools including broad and targeted cuts to banks' required reserve ratios and "faster" implementation of measures to reduce real borrowing costs o After Friday's market close on the mainland, the People's Bank of China (PBOC) said it would cut the required reserve ratio for all banks by half a percentage point, effective September 16th, and it would cut the ratio by a full percentage point for some city commercial lenders over two stages in October and November

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Weekly Market Recap

September 9, 2019

? Japanese equities (Nikkei 225 Index) rose 2.4% on reduced tensions related to the U.S.-China trade negotiations and Hong Kong civil unrest, despite rising tensions between Japan and South Korea o The Japan News reported that the Ministry of Economy, Trade and Industry had protested Seoul's decision to drop the country from a list of "trusted" trade partners, even though the Japanese government recently took a similar action against South Korea o South Korea also decided to stop sharing intelligence with Japan, despite a common North Korean missile threat, after Japan's decision in July to restrict exports of certain technologyrelated chemicals to South Korea

Commodities ? The price of gold fell -0.9% for the week, closing at $1,515/ounce ? The price of West Texas Intermediate crude oil rose $1.42/barrel to $56.52/barrel, continuing robust year-to-date gains following a late 2018 collapse in the commodity price

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September 9, 2019

This Week:

? This week will see few earnings reports. Notable releases include, but are not limited to: HD Supply Holdings, Dave and Buster's, Zscaler, Oxford Industries, Kroger, Broadcom

? As WeWork continues to reduce the proposed valuation for its initial public offering, the following chart that dates back more than four years provides a reminder that the IPO market isn't necessarily a sure-fire route to a pot of gold at the end of the rainbow; as a group, IPOs have underperformed the S&P 500 during this time frame, with steeper drawdowns (more volatility) during periods of market weakness

Source: FactSet

? The macro-economic calendar will see consumer credit, inflation and trade balance data in the U.S., and the European Central Bank will make an interest rate decision following their meeting on Thursday

? U.S. economic data: o Monday: Consumer Credit o Tuesday: NFIB Small Business Index, JOLTS, API Crude Inventories o Wednesday: MBA Mortgage Purchase Applications, Producer Price Index, Wholesale Inventories o Thursday: Initial Jobless Claims, Continuing Claims, Consumer Price Index, Treasury Budget o Friday: Export Prices, Import Prices, Retail Sales, Business Inventories, Michigan Consumer Sentiment (Preliminary)

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As always, thank you very much for your interest in our thoughts and support of our services.

Whitney Stewart, CFA? Executive Director

Adam Bergman, CFA? Executive Director

The Chartered Financial Analyst? (CFA) charter is a graduate-level investment credential awarded by the CFA Institute -- the largest global association of investment professionals. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually reaffirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.

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Opinions contained in the preceding commentary reflect those of Sterling Capital Management LLC, and not those of BB&T Corporation or its executives. The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Sterling Capital Management LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions.

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