The Markets – Second Quarter’s End

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markets july 5

Second quarter ended with a spectacular finale of Brexit-inspired market volatility.

Investors typically welcome sharp market movements with about the same level of enthusiasm that canines show for fireworks. However, recent market agitations highlighted a key tenet of investing: Volatility often creates opportunity. Following an initial Brexit sell-off, global markets rebounded. Last Friday, Financial Times reported:

“Global equity indices continued their stunning post-Brexit vote recovery, “core” government bond yields hovered near record lows, and sterling stayed in sight of a three-decade trough against the dollar as a tumultuous week in the markets drew to a close. The dollar finished the week on a broadly softer note, helping gold stay in sight of the two-year high it struck five days earlier. Oil prices were volatile but Brent regained the $50 a barrel mark in late trade.”

During the first half of 2016, opportunities weren’t always where investors might have expected to find them. Barron’s reported stocks have become income providers and bonds have been delivering capital gains. “With dividends included, the Standard & Poor’s 500 index returned 3.84 percent in the year’s first six months, according to Bianco Research. Meanwhile, the Treasury’s benchmark 10-year note returned roughly twice that, 7.97 percent…”

Some of the strongest stock market performance was found in emerging markets. On July 1, MarketWatch reported the best and worst (in italics) performing indices for the first half of 2016:

• Argentina (Merval) 25.77 percent
• Russia (RTS Index) 22.95 percent
• Brazil (Bovespa) 18.86 percent
• Pakistan (KSE 100) 15.14 percent
• Canada (S&P/TSX) 8.11 percent
• China (Shenzhen A Shares) -14.49 percent
• China (Shanghai A Shares) -17.22 percent
• China (SSE Composite) -17.22 percent
• Japan (Nikkei 225) -18.17 percent
• Italy (FTSE MIB) -24.37 percent

The three major Chinese indices on the list serve as a reminder that, not too long ago, concerns about the health of the global economy and the world’s financial markets focused on China. Today, the stethoscope is pressed to the heart of the European Union.

Predictions of higher interest rates in the United States have become a perennial that never blooms. Coming into 2016, the Federal Reserve was expected to increase the fed funds rate four times, making bonds appear an unwise investment choice. As mentioned, the 10-year Treasury note did just fine. However, the likelihood of the Fed raising rates fell during the quarter. Barron’s reported, “Based on Eurodollar futures prices, the U.S. central bank is likely to keep its federal-funds target steady well into next year and perhaps until 2018.”

During the last week of June, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index each experienced their best performance since November 2015, according to MarketWatch.

 

Screenshot 2016-07-05 13.45.54

Sources:

  • http://www.ft.com/cms/s/0/695db2b6-3f3a-11e6-9f2c-36b487ebd80a.html#axzz4DGMPWq66 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-05-16_FinancialTimes-Stocks_March_On_in_Wake_of_Brexit_Vote-Footnote_1.pdf)
  • http://www.barrons.com/articles/markets-confound-in-years-first-half-1467433715?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-05-16_Barrons-Markets_Confound_in_Years_First_Half-Footnote_2.pdf)
  • http://www.marketwatch.com/story/these-stock-markets-left-the-rest-of-the-world-in-their-wake-so-far-this-year-2016-07-01
  • http://www.marketwatch.com/story/us-stocks-struggle-to-hold-on-after-3-day-rally-2016-07-01
  • http://www.ustrust.com/publish/content/application/pdf/GWMOL/USTp_ARWCS8LX_Transcript_2017-05.pdf
  • http://www.poetryfoundation.org/poems-and-poets/poems/detail/48859

Disclaimer

These views should not be construed as investment advice. * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index. * The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. * The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. * Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * This newsletter was prepared in whole or in part by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with Skygate Financial Group. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * Past performance does not guarantee future results. Investing involves risk, including loss of principal. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision. * Stock investing involves risk including loss of principal.