Markets, Economy

Weekly Kickstart (07/05/2016-07/08/2016)

7/5/16 8:00 AM

iStock_000000499785_Small-1Stocks rebounded last week, with the S&P 500 surging by 3.22 percent, and the CBOE’s VIX volatility index, sometimes referred as investors’ “fear gauge,” posting its largest 4-day decline on record. All of this helped the benchmark S&P 500 end the month of June up 0.09 percent, and the second quarter up 1.90 percent. Further, the S&P 500 now sits up 2.89 percent 2016-to-date, and just 1.31 percent below the all-time high hit in May of last year. With such price action it is clear that global financial markets have largely calmed following the unprecedented United Kingdom (UK) vote to leave the European Union (EU). As explained last week, the direct effects to the U.S. economy will likely be minimal but a period of uncertainty should still be expected until negotiations between UK and EU officials are finalized.

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As usual, a sharp correction in stock valuations can be quite scary at the time but investors who know to not panic during heightened market uncertainty likely weathered last month's Brexit-related uptick in volatility quite well. In fact, the Employee Benefit Research Institute (EBRI) estimated that the average account balance for consistent 401(k) participants rose in June. Younger, less tenured workers enjoyed the strongest gains last month (+2.0 percent) but this is not too surprising given these accounts’ higher sensitivity to plan contributions. However, even older workers with longer tenures (and larger account balances) experienced a healthy average gain in June (+1.1 percent). Much of the rally last week, though, was driven by short-covering, and it is still too early to tell what the ultimate fallout from Britain’s EU referendum result will be. This means that investors should remain nimble but also confident in the stock market’s long-term resiliency. Moreover, persistent participation in an employer-provided retirement savings plan, combined with dollar-cost averaging, can help investors not only benefit from rallies but also turn drawdowns into opportunities. As always, we are here to help with any questions you may have.

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To recap what we learned about the U.S. economy last week, the positives included that national manufacturing activity improved, services sector activity rebounded, consumer spending increased, a measure of Americans’ general confidence rose, and gross domestic product (GDP) growth in the first quarter of 2016 was revised higher. As for the negatives, mortgage and refinance applications slid, pending home sales declined, construction spending fell, gauges of regional manufacturing activity signaled contraction, consumers’ income growth slowed, motor vehicle sales cooled, and the number of Americans making first-time claims for unemployment benefits lifted. This holiday-shortened week the pace of economic data remains elevated, with lots of important reports on manufacturing, services sector activity, and employment scheduled to be released, along with the potentially market-moving minutes from the last FOMC meeting due out tomorrow afternoon, and the June job report from the Bureau of Labor Statistics (BLS) on Friday.

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What To Watch:

Monday

  • US Holiday: Independence Day
  • Markets Closed

Tuesday

Wednesday

Thursday

Friday

 

  


 

Sources: Econoday, Bloomberg, Twitter, Financial Times, Advisor Perspectives, J.P. Morgan, Wells Fargo, FRBSL

Post author: Charles Couch