Financial Markets in the Second Half of 2016

At the time of this writing, most US market indicators are at their highest levels for the year, some even at record highs. If we had listened to the market pundits from many of the major banks and investment firms, we would have expected just about the opposite. In recent weeks, many of us wrestled with the term “Brexit” which was the acronym for the action of Britain exiting the European Union (EU). Many, including myself, did not believe the country would actually choose to leave the EU. It was truly a surprise to many in the financial markets and because of this, global markets suffered huge (as much as 18%) losses in just two days. As has been the case for several years, such sudden drops in stock market values actually present a buying opportunity for those who look to the long-term and stick to the fundamentals of sales, earnings per share, and new product or service development.

On the earnings front, many companies reporting second quarter results in recent days have met or beaten expectations of analysts. Of course, this has propelled the market even higher. There are many global markets outside the US that haven’t recovered from the Brexit shock, and in fact, have continued to decline due to the uncertainty presented to the rest of the EU by Britain’s actions. Key issues of trade and tariffs will overhang these markets until the withdrawal terms have been established and there will be a better opportunity to evaluate the impact on the economies involved.

During this process, one effect on the US economy has been the strengthening of the US dollar against most foreign currencies (with the exception of the Japanese Yen). The dollar strengthened primarily because of the uncertainty surrounding all other currencies. In market terms, some call it a “flight to quality.” This means that foreign investors move their capital from more uncertain marketplaces into the US markets, or other markets where they have more confidence--at least temporarily. I have frequently discussed using professional money managers for retirement accounts, college savings accounts, and overall personal financial management goals. I would emphasize that, in my opinion, this course of action is more prudent now than at any time in recent history. Even though the big banks and investment companies had a more negative perspective on the overall economy, their fund managers watch trends day-to-day and some have very good performance records year to date.

With half of the year remaining, it’s a good time to closely look at your investment portfolios and see where you stand. Maybe some changes are warranted. Maybe performance has been good and you’re satisfied. In either case, a periodic check is reasonable to fine-tune or make adjustments as needed. One reason to look into this now may be to evaluate any opportunities in international markets. Most advisors and fund managers, such as BCU Investment Advisors, have access to international investment opportunities with no barriers to entry. As is often the case in financial markets, things get overdone when important news hits. It is often an opportunity for those well-armed with information and advice.

Going forward, I believe the US elections will play a significant role in formulating this economic picture by the end of the 4th quarter. If you believe the various polls, which I confess I do not, you may choose one course of action. If you tend to have a “wait and see” perspective, my opinion is that there will be ample time to adjust your investment mix going forward. I have always believed that slow and steady wins the race. Or perhaps I should modify that to slow, steady, and consistently adding to your savings.

Consequently, as we move into the second half of 2016 and begin to look toward the New Year, we will have myriad economic challenges to evaluate as we modify our portfolios or choose an entirely new course of action. In summary, we will have to be aware of the eventual impact of Brexit to the European economy. We will need to have a close eye on the US elections for any indications of policy shifts or budgetary constraints that will result from one candidate or another. Lastly, we will need to be mindful of the continuing impact of global economic events on the US dollar. These are not daunting tasks: Financial advisors and money managers typically publish quarterly newsletters or bulletins that highlight these types of issues. Read, investigate, and then invest wisely.

This article was written by Patrick Catania

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. BCU has contracted with CFS to make non-deposit investment products and services available to credit union members. BCU Investment Advisors is a trade name for the investment services available at BCU.