As the long days of summer are upon us I thought I’d share some thoughts with you. The Equity markets in the United States continue to trade near their all-time highs, having recovered from the dramatic drop at the beginning of the year. Concerns at the time included a slowdown in economic growth in China, the effect of low oil prices on the financial system, continued weakness is Corporate earnings and Monetary Policy in the United States.
What’s changed to cause such a rebound in Stock prices? Not that much really. Corporate profits continue to disappoint for the first half of the year. China continues to be a concern. The International Monetary Fund (IMF) warned on the perils of Chinese debt and its effect on economic growth. On the positive side, oil prices have rebounded to trade near $50 per barrel. Most importantly, the Federal Reserve has signaled that Interest Rates will remain lower for longer, alleviating fears of several rate hikes in 2016 that could have derailed the shallow economic growth in the US.
Going forward for the next quarter, I have a cautious tone for the equity market. I would expect that volatility continues to increase. I think that being a bit more risk averse for the immediate future would be prudent. The European markets are focused on Brexit, the vote taking place to have Great Britain leave the European Union. While the polls are almost evenly divided between leave or stay, the betting line (where people are actually taking a stance with their money) favors a stay vote. Interest Rates in many European countries remain negative, in an effort to spur growth. Savers are paying banks to hold their money. This is causing many investors to place their funds into hard assets like Gold, trading back to its highest level in almost 2 years, and Real Estate.
Interest levels in the United States are trading at extremely low yields and do not offer much to an investor. If the Federal Reserve follows a policy of remaining accommodative for longer than expected and inflation creeps back into the economy, it could be a bumpy ride as prices of bonds adjust. I would expect that the Federal Reserve will raise rates at least on time before the election to signal the confidence in the economic recovery. Then I expect they remain on the side lines thru the fall.
Finally, the election this fall will have a large bearing on the market. I believe that the uncertainty surrounding its outcome will weigh on the market. Until the next President and Congress is elected, there will be no clear path on policy for CFO’s to make plans for their company’s future nor should the consumer feel confident enough to increase their spending. A number of factors, Trade, Immigration, Corporate Taxation, Government Regulation and Entitlements are all going to be affected by its outcome and should have ramifications on the investment outlook.
The opinions expressed herein are those of Riverbend Planning Group. The data and opinions are furnished for informational purposes only and should not be considered a solicitation for an investment decision. Although it is derived from sources believed to be accurate, Riverbend Planning Group makes no guarantee to the accuracy of the information.Back to Blog