655 Engineering Drive,
July 07, 2016
Dear Friends, If you weren't paying close attention to financial markets during the first half of this year, you might think not much happened. Year to date, the domestic stock market is slightly up and foreign markets are slightly down. In fact, it's been a roller coaster ride. We had a sharp selloff at the beginning of the year over worries about China and as the price of oil dropped below $30. Then at the end of June we had another selloff related to the surprise outcome of the Brexit vote. Both times, markets mostly recovered. The price of oil, short term moves in interest rates and the Brexit vote are perfect examples of big surprises that caught short term, tactical traders off guard and potentially cost them billions of dollars. We strongly believe that tactical portfolio changes in response to current events or headlines are far more likely to erode value as opposed to adding to investor returns over the long term. We remain committed to our diversified approach and recommend discipline and extreme caution in making radical portfolio changes based on the day's events. We hope you had a wonderful 4th of July holiday. Please let us know if you have any questions or if we can help you in any way. Matt and Andrew
Key Dates/Data Releases
7/1: PMI Manufacturing Index, ISM Manufacturing Index
7/6: International trade
7/8: Employment situation
7/14: Producer Price Index
7/15: Consumer Price Index, retail sales, industrial production
7/19: Housing starts
7/21: Existing home sales
7/26: New home sales
7/27: Durable goods orders, FOMC meeting
7/28: International trade in goods
Quarterly Market Review: April-June 2016
In the world of equities, the second quarter of the year was anything but dull. April saw the large-cap S&P 500 and Dow make marginal gains, with the small-cap Russell 2000 and the Global Dow leading the way for the month. The Fed left interest rates at their 0.25%-0.50% range, noting that economic growth had slowed since the beginning of the year. May ended up being another good month for equities as each of the indexes listed here posted positive monthly returns headed by the tech-heavy Nasdaq (3.62%) and small-cap Russell 2000 (2.12%). June started out with relatively lackluster returns for stocks as labor added only 38,000 new jobs and the Fed, once again, reiterated its reluctance to raise interest rates based on lagging inflationary trends, weakening in the jobs sector, and sluggish exports.
But the month and quarter ended with quite a bang, primarily precipitated by the UK's referendum vote to withdraw from the European Union, which sent stocks around the world into a dramatic tailspin, felled the British pound by over 10%, and drastically cut some long-term bond yields (see Japan). Nevertheless, by the last day of the quarter, stocks seem to have weathered the storm and regained much of what they had lost. Of the indexes listed here, only the Nasdaq lost value quarter-to-quarter. On the plus side, the Dow and S&P 500 posted quarterly gains of 1.38% and 1.90%, respectively.
Gold continued to increase in value, closing the month and quarter at $1,324.90. Long-term bond yields hit the skids as investors poured money into bonds, raising bond prices and narrowing yields.
As of June 30
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Whether the impact of the Brexit vote continues to negatively affect equities remains to be seen. The FOMC, which meets at the end of July, will be armed with reports on several important economic indicators including consumer prices, producer prices, and the employment situation--all of which come out before the Committee's July meeting.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Childs Company is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice and are not a Certified Public Accounting (CPA) firm.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.
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