July 06 2016
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%
- Russia (RTS Index) 22.95%
- Brazil (Bovespa) 18.86%
- Pakistan (KSE 100) 15.14%
- Canada (S&P/TSX) 8.11%
- China (Shenzhen A Shares) -14.49%
- China (Shanghai A Shares) -17.22%
- China (SSE Composite) -17.22%
- Japan (Nikkei 225) -18.17%
- Italy (FTSE MIB) -24.37%
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.
- Data as of 7/01/161-WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)0.0320.0290.0120.0920.0940.051
- Dow Jones Global ex-U.S.3.4-1.7-11.5-0.7-1.9-0.4
- 10-year Treasury Note (Yield Only)1.5NA126.96.36.199.2
- Gold (per ounce)1.9188.8.131.52-28
- Bloomberg Commodity Index3.114.2-11.7-10.6-10.6-6.4
- DJ Equity All REIT Total Return Index4.814.122.613.612.17.3
*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of the bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.