2016 First Quarter Investment Review

Second quarter didn’t break any records or get us off to a huge start but we did see many good indicators throughout the market … until this past month. 

Brexit first of all looked like it was never going to actually happen, for many reasons. But then it did. Subsequently, the markets took a tumble on that Friday and Monday as we all came back to work. But as we closed out the quarter the S&P 500 had recovered to 2102, just 8 points shy of the 2113 pre-Brexit on June 23rd. 

So why is this? Nightly news, your CNN Apple Watch notifications and just about everybody else made this seem like the end of the world. In contrast, this was quite a muted response to something expected to be so catastrophic. 

Let’s look for some bright signs or silver linings that might explain this: 

  1. Frankfurt and Paris are jumping for joy. London’s “City” (their financial hub) has traditionally been the European finance hub for decades. However with the cut from the EU these two euro cities are attempting to position themselves to become the new EU financial hubs. This can actually be a great thing for the continental EU. While the UK and Germany have been the #2 and #1 economic producers in the union much of the rest of Europe is still struggling from their previous economic crisis and could use some transfer of human capital to help improve their economies. Many EU countries still have 10% + unemployment and the shift of 1000s of jobs to the continent can actually be a good thing for continued improvement. 
  2. Does the UK pose an issue similar to what we saw in Greece? No … quite simply it does not at all. The organization of the UK (already quasi-separate, on their own currency, etc) makes some stark differences. Furthermore, the UK gilts which were trading at 105 have seem a jump to 110, a 20% return which is really quite phenomenal given the “horror that would be the Brexit.” So rather than seeing risk premium applied to these debt instruments we’re experiencing a bull market in this area giving further confidence to the fact that the Brexit was only uncomfortable for a few days, has since recovered, and the market chugs along as it always has. 

In summary - the S&P 500 actually had the strongest weekly rebound that its had all year. So for market timers or people who jumped ship at the first sign of rough seas, they would have locked in losses and been forced to buy back securities at the higher price point today. If your time horizon is long (or even medium for that matter) the best course of action continues to be stick with asset allocation, expect volatility within reason, and if you had cash on the side during those down days that would have been an opportunity to buy up securities at a discount. There are also opportunities for rebalancing and our advisory platform will be making recommendations for small changes as they see fit. 

Let’s keep strong, stay on target and continue to methodically build wealth together.

 

 

 

Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results. 2016-25639 Exp 9/16