June 2016 Month In Review
When I sit down to write the Month in Review (MIR) I am usually able to pull from multiple “big-ticket” items to discuss at different levels of depth. The dollar surges. Oil collapses. The Fed still has no idea what to do. The jobs market looks great, and on and on. However there are few months that encompass an event that could re-shape a part of the world forever. Enter, June 2016.
Before a brief thought of the Brexit (which should be a term we are all somewhat familiar with today), let’s take a quick look at the markets. In light of the events in Europe, I am adding what happened to European markets this last month.
Last Month Performance
For starters, the S&P 500 and Russell 3000 (both US Market indices) were up 0.26% and 0.21% respectively1. Meaning if you had been out of the country and not on your phone for 30 days, you would see those returns and remark, “Looks like the markets didn’t do anything this month.” On the contrary, if you hadn’t turned on the news for 24 days, and then happened to run across CNBC on Friday the 24th, your stomach would have turned over twice. From Friday the 24th through Monday the 26th, the S&P 500 and Russell 3000 both fell -5.34% and -5.59% respectively1. All from an event that happened 3,464 miles away (New York to London)2. So what happened in their backyard? The MSCI Europe index fell -13.41% in those same two days1. If emotions got the best of you, you quickly sold out of all your stock positions in your 401k and fled to safety. Then the rest of the month happened. In just the next 3 days, the S&P 500, Russell 3000 and MSCI Europe indices all rebounded 4.95%, 5.08%, and 8.15% respectively. In fact, as I write this the S&P 500 has hit its new all-time high!
Lessons to Learn
So what lessons can we take away from the month of June? – First of all, it is imperative that as an investor you rely on substantive analysis for entering and exiting the markets. Trading on a whim because of short-term bursts in the market (up or down) is not a sustainable investment philosophy. Looking at near-term performance to forecast the next 6 months is also a time-tested failure. Making controlled trades on conviction and analysis will always give you the best shot at growing and preserving your investments. It doesn’t mean you cannot take advantage of a volatile market in the short-term; but your buy and sell discipline needs to be air-tight. As a reminder for you DIY-ers, you need to take into account valuations, fundamental and technical analysis, as well as macro-economic indicators to have a thorough understanding of where your investment thesis should fall.
On the Brexit
Our own Brexit was celebrated a few days ago. As I watched the fireworks show from my grandfather’s cul-de-sac I commented to my wife that the sounds of explosions and the smoky skies were an ever present sign of war that our forefathers went through so we could enjoy the freedom today. Yes, freedom is good. The relationship between the EU and the UK just got awkward. It’s your classic high-school tale of “we’re breaking up but we can still be friends.” Feelings have been hurt. Emotions are high. The biggest economic impact this vote carries is what kind of trade policies will be put in place between the UK and the EU. On most other major accounts, nothing really changes (besides immigration policy). The UK already has their own central bank (the Bank of England), already runs their own currency (because they never were a part of the Eurozone) and already has a highly developed banking district (London). In the end, I suspect we will find that the UK will have trade agreements similar to other non-EU countries like Switzerland: basically free3. Keep in mind that the EU is at a trade surplus from the UK4,5. Meaning that any stricter trade agreements than “free” would be a negative economic impact to the rest of the EU. This is good motivation to “stay friends” with each other.
Elections
Finally, we are about to walk into unprecedented times in our country’s political landscape. Between the GOP and Democratic nominees, I can only assume that you will be popping popcorn in the microwave before each of the three debates starting in September. The more interesting story might be how the Libertarian party has seen nationwide polls as high as 8%. This dwarfs the previous high of 1.06% seen last in 19806. And while a third party candidate hasn’t been allowed in debates since Ross Perot in 1992, you begin to wonder if this year the Commission on Presidential Debates will loosen up their requirements to be present at the debate7. Regardless, this is turning out to be quite the exciting election season, and my hope is that if anything, this stirs more people to get out to the polls so a larger number of Americans are heard. Out of the 218.9 million eligible voters in 2012, only 146.3 million were registered and only 126.1 million made it to the polls. That means that there were 42.5% of eligible voters whose voices weren’t heard8.
As always, if you have any questions at all we are here to help.
As a quick note, please be looking for our invitation to our Mid-Year Outlook webinar we will be hosting live in the coming weeks. This will be a great time to see our halftime show as well as ask any questions you wish.
Best Regards,
-Brian
1Morningstar Office data
2http://www.answers.com/Q/How_far_is_great_britain_from_the_US
3http://www.eeas.europa.eu/switzerland/index_en.htm
4https://www.uktradeinfo.com/Statistics/OverseasTradeStatistics/Pages/EU_and_Non-EU_Data.aspx
5http://www.tradingeconomics.com/united-kingdom/balance-of-trade
6http://www.thefiscaltimes.com/2016/07/01/Libertarian-Party-Burning-Polls-Will-It-Matter-November
8http://www.statisticbrain.com/voting-statistics/
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing involves risk, including the loss of principal.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.