In with the good air and out with the bad

Believe it or not, it is already July and summer is well underway.  We have hardly had a chance to breath and, “presto,” the year is more than half over.  Well, now that the “Brexit” vote is behind us, let’s try to catch our breath and take a few moments to look back at the markets and its drivers and recap some of the things that have shaped 2016 so far.

Here are some of the main events:

Equity markets kicked off 2016 with the worst 10-day start-of-the-year in the history of the US stock market, trading down with the oil price, which itself dropped below the $30 level in early January.

In the first part of 2016, China cut reserve requirements for its banks and devalued its own currency in an effort to stimulate China’s economy.  China’s Purchasing Managers’ Index jumped in March, but then began falling again, reflecting the contraction in industry. 

Newly appointed Minnesota Federal Reserve President, Neel Kashkari announced the need to break up the “too big to fail” banks.  August appears to be when Neel and the gang are to begin substantive talks around the topic.  That should keep the second half of the year lively.

In March the Federal Reserve kept rates on hold citing global weakness, specifically in China, as the primary culprit, and we began in earnest to hear rumblings of Great Britain leaving the EU.  Oil prices stabilized and began to trade in a range from $40 to $50 per barrel.

While the US labor market continued to improve, the most recent May and June jobs numbers were head-scratchers for most economists.  Instead of an anticipated 75,000 jobs for the month of May, only 11,000 jobs were added to the economy.  May’s dismal number was then countered in June.  Instead of the estimated 175,000 new jobs, we got a whopping 287,000 new jobs added to the economy. 

The Department of Labor expanded the definition of an investment fiduciary and struck a blow on behalf of the everyday investor by requiring advisors to identify conflicts of interest around the advice being offered.  Various investment and insurance organizations immediately filed lawsuits challenging the validity of the new fiduciary standard.

BREXIT!  In a surprise that shocked the world, Great Britain voted to leave the EU, resulting in global stock market declines and, most notably, big falls in the British Pound and the Euro. Central bankers around the globe assured the investing public they would take all necessary steps to maintain liquidity and price stability. 

Recently, stocks and bonds have been rallying on the post-Brexit central banking news mentioned above.  In the US, the S&P index closed at new all-time highs, and oil prices are back at around $45/barrel.  The Federal Reserve is (at the time of this writing) still on hold for any rate increase, as the US 10-year bond hit its lowest yield ever at 1.36%. At the same time there are over $11 trillion worth of international bonds with negative interest rates.  This is a pretty tough time to be a saver.

Whew!  That’s quite a bit to pack into a six-month window.  For all the excitement and market volatility, most of our diversified investors ended the recent quarter with positive returns for the year, certainly benefiting from the recent market run-ups.  So let’s all take a deep breath, enjoy the summer, and look forward to what the market will bring us for the second half of 2016.