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The British vote to leave the European Union (“Brexit”) ignited a global stock price decline that shaved off $3 trillion in market value before staging a recovery to close out the month.1
For the month, the Dow Jones Industrial Average rose 0.08 percent while the Standard & Poor’s 500 Index added 0.09 percent. The NASDAQ Composite fell 2.13 percent.2
The markets were fixated on the stream of Brexit polls all month. Early on, the polls suggested that the “Leave” camp might prevail and it caused markets to stumble, especially in Europe. Anxiety over the vote’s outcome drove a risk-aversion mentality that dragged stock prices and bond yields lower.
Even as oil broke the $50 per barrel mark and the Fed announced its decision not to raise rates in July, the markets remained focused on Brexit. In the days leading up to the referendum, spirits improved as new polls showed stronger voter support for remaining in the EU.
Also reported, voters surprised analysts and commentators alike, delivering a rebuke to the EU. Markets opened lower in the Pacific region and the selling wave swept across Europe and the U.S. The flight to safety was on, as stock prices cratered, yields fell, and the U.S. dollar and Japanese yen rose.
The market’s two-day dive sent domestic stocks into negative territory for the year, but recovered in the ensuing days, recapturing much of the losses realized in the wake of the British vote.
The majority of S&P 500 sectors were lower for the month, including Financials (-5.50 percent), Materials (-3.33 percent), Technology (-2.72 percent), Consumer Discretionary (-2.31 percent), Industrials (-1.73 percent), and Health Care (-0.20 percent). Only Utilities (+5.18 percent), Consumer Staples (+1.77 percent), and Energy (+0.85 percent) ended higher.3
Much like the U.S. markets, overseas markets were volatile following the British decision to exit the EU, with the MSCI-EAFE Index falling 4.45 percent for the month.4
Despite a recovery in the last week of June, major markets, such as Germany and France, were hit hard. Smaller markets, such as Italy and Spain, experienced even larger losses.5
Some markets in the Pacific region fared better, with more modest declines in Hong Kong and Australia.6
Gross Domestic Product: The final revision to the first quarter’s GDP growth rate was 1.1 percent, up from an earlier reading of 0.8 percent. Higher exports and business spending accounted for the positive revision, though the growth rate still reflects a struggling economy.7
Employment: Despite a sharp drop in the unemployment rate, from 5.0 percent to 4.7 percent, new hiring increased by just 38,000, the fewest jobs created since September 2010. This weak number, combined with downward revisions in the previous two months, brought the average monthly job gains over the last three months to 116,000, a significant deceleration from the 219,000 average increase over the prior 12 months.8
Retail Sales: Retail sales rose 0.5 percent in May, led by gains in online and gas purchases. Following a gain of 1.3 percent in April, consumer spending, which accounts for about two-thirds of economic activity, has rebounded substantially from the numbers posted in the first quarter of this year.9
Industrial Production: Industrial output declined in May by 0.4 percent, weighed down by declines in autos and electric utilities. Capacity utilization also dropped by 0.4 percentage points to 74.9 percent, indicating sizeable slack in American industries.10
Housing: Housing starts slowed in May, falling 0.3 percent from April. Despite the weak report, housing starts year-to-date are 10.2 percent higher from the same period last year.11
Sales of existing homes rose 1.8 percent in May, the biggest jump since February 2007, and were higher over May 2015 by 4.5 percent. Slowing inventory of both existing homes and new homes have led to rising prices, with the median price of an existing home climbing 4.7 percent from a year earlier, to $239,700.12
New home sales dipped 6.0 percent, following a surge in April. Despite the decline, sales of new homes in May were still the second-best performance since the recession ended.13
CPI: For the third consecutive month, consumer prices rose, increasing 0.2 percent in May. It has now been seven straight months that core prices (excluding the volatile food and energy components) have matched or exceeded 2.0 percent—a target threshold followed by the Fed in its interest rate decision-making process.14
Durable Goods Orders: Orders for goods designed to last three or more years fell 2.2 percent, led by a 34.1 percent fall in military aircraft orders. Business investment remains weak, with nondefense capital goods orders down 3.5 percent this year.15
The Federal Reserve policy makers left rates unchanged and lowered their sights on how much they expect to raise rates over the remainder of the year and through 2017. Continued slow economic growth and low inflation have contributed to the Fed’s cautious approach to raising rates.16
In her two-day testimony to Congress on June 15, Federal Reserve Chair Janet Yellen gave little indication that rates would be hiked in July, conceding that there was considerable uncertainty in the economic outlook, though she did not expect a recession this year. In addition to the economic headwinds that have not abated, Yellen cited additional concerns, including the June 23 vote in Britain to exit or remain in the EU and the economic transition China is undergoing.17
The “Brexit” vote may take months for the financial markets to digest. In reality, the process of exiting the European Union will be counted in years, which may mean an overhang of uncertainty, or an incremental march that allows markets to adjust more smoothly to the exit’s impact.
As investors peer ahead into the second half of 2016, they may want to look for what may lead markets to put “Brexit” in the rearview mirror.
In the months ahead, investors may want to watch for:
Dates of the 2016 Summer Olympic Games: August 5-21, 2016
Price Brazil estimates it will pay to host the Olympic Games: $9.8 billion 18
Price the U.K. paid for the 2012 Summer Games in London: $17 billion 19
Price Russia paid for the 2014 Sochi Winter Games: $50 billion 20
Average cost overrun for Olympic Games from 1968 to 2012: 179% 21
Primary metal used to make an Olympic gold medal: Silver (92.5%) 22
Portion of a gold medal that is actually gold: About 1% 23
Number of gold medals up for grabs in 2016: 30123
Number of gold medals American athletes are expected to take home: 43 23
Street value of a gold medal: $650 24
Number of people expected to travel to Brazil for the Olympics: 500,000 25
Number of sports on display: 42 26
Amount NBC and Comcast have paid for the rights to broadcast the games through 2020: $4.38 billion 27
Record holder for most Olympic medals won: Michael Phelps (22) 28
Number of times a parent and child have competed in the same Olympics: 70 29
Number of times a mother and son have competed in the same Olympics since 1908: 0 29
Number of mother/son duos competing in the Rio Olympics: 1 29
Site of the first modern Olympics: Athens, Greece, 1896 30
Image engraved on the gold medal at the 1896 Olympic games: The face of Zeus 30
Oldest man to ever run an Olympic marathon: Canadian Percy Wyer, age 52 in 1936 31
Oldest person to compete in the Olympics: Oscar Swahn, age 72 in 1920 (Swedish shooter) 32
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial advisor for additional information.
Copyright 2016 FMG Suite.
1. Independent.co.uk, June 28, 2016
2. The Wall Street Journal, June 30, 2016
3. Interactive Data Managed Solutions, May 31, 2016
4. MSCI.com, May 31, 2016
5. MSCI.com, May 31, 2016
6. MSCI.com, May 31, 2016
7. The Wall Street Journal, June 28, 2016
8. The Wall Street Journal, June 3, 2016
9. The Wall Street Journal, June 14, 2016
10. The Wall Street Journal, June 15, 2016
11. The Wall Street Journal, June 17, 2016
12. The Wall Street Journal, June 22, 2016
13. The Wall Street Journal, June 23, 2016
14. The Wall Street Journal, June 16, 2016
15. The Wall Street Journal, June 24, 2016
16. The Wall Street Journal, June 15, 2016
17. The Wall Street Journal, June 21, 2016
18. Bloomberg.com, January 30, 2016
19. Boston.com, February 12, 2015
20. CNN Money, July 31, 2015
21. PRI.org, February 22, 2016
22. AmericanBullion.com, April 22, 2016
23. The Telegraph, April 16, 2016
24. CNN Money, May 18, 2016
25. The New York Times, January 28, 2016
26. Rio2016.com, May 18, 2016
27. CNN.com, May 3, 2016
28. Biography.com, May 18, 2016
29. Sports Illustrated, May 3, 2016
30. Olympic.org, 2015
31. Olympstats.com, May 3, 2016
32. GuinnessWorldRecords.com, 2016