What happened in June?
On June 23, U.S. stocks were approaching new highs and on a trajectory to close the quarter and year-to-date in positive territory. Later that evening, citizens in Great Britain voted to remove their country from the European Union (EU), a politico-economic union of 28 nations.
Since that vote, U.S. and international stocks have experienced a roller coaster ride of lows and highs. The next two trading sessions following June 23 saw over $3 trillion in global assets disappear, the largest real-dollar drop in history. Since that June 27 low, stocks have rallied +5%, the largest 3-day gain since February.
When the dust settled, U.S. Stocks (S&P 500 Index) closed the quarter +2.3% and sit 3.5% YTD. The "Brexit" vote had a bigger market impact on international stocks as the ACWI ex-U.S. closed the quarter -0.6% and is now -1.0% YTD.
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June 24, 2016: Read our market update on Great Britain's decision to leave the European Union here: |
Moving into July
We increased exposure in our tactical strategies throughout June and specifically after the Brexit announcement. We enter July approximately 91% and 95% in our U.S. and international strategies respectively. With a strong economic backdrop and increased valuation signals, we expect continued growth in the near-term as the recent pullback provided an attractive entry point.
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Indicators that Improved |
Indicators that Remained Positive |
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Valuation Though still modestly stretched, stocks cheapened on a relative and absolute basis. With a rush to safe-haven assets such as cash, bonds, and gold, yields continue to be squeezed thus opening the door for equities which are providing higher risk-adjusted return potential.
Technical The volatility index (VIX), often referred as a fear index, spiked in June to its highest level in over five months. A rise in volatility without corresponding data to support the fear is seen as a bullish indicator. |
Macroeconomic The U.S. economy continues to grow. GDP rose at an annualized 1.1% rate in Q1. Although the most recent payroll number was disappointing, U.S job growth is robust, supported by nearly record low layoffs and record high job openings. With a weakened jobs report and Brexit concern, The Federal Reserve backed away from a June or July rate hike.
Sentiment Both the Purchasing Managers Index and the NAHB, a housing market index, produced better than expected results. |