Q2 2016 Market Commentary

July 15, 2016


Worldwide equity prices went for a brief roller coaster ride at the end of June following Britain's vote to leave the European Union ("Brexit").  Despite a very rocky start to the year and the June volatility, most stock prices posted relatively nice gains for the first half of the year.


Unexpected events like the "Brexit" usually lead a rush to perceived safer assets like Government bonds, the US dollar itself, and to some extent larger US equities.  Other strong currencies like the Japanese yen and Swiss Franc also attract investment in times like these.  Somewhat surprisingly, emerging markets stocks showed strength during the brief period of turmoil.


Long-term investors recognize that risk and uncertainty are ever present in the markets. Those who exit markets upon identifiable events often miss out on significant recoveries.  What we've often seen in the past is those who remain in a well-diversified portfolio get rewarded over time. Over the last 25 years, one dollar invested in a global portfolio of equities grew to more than five and one-half dollars.


10-year U. S. Treasury bonds rose in value as their interest rates fell to their lowest in recorded history and now are under 1.4%. As central banks around the world buy securities to lower interest rates and spur economic growth, the supply of government bonds shrinks, driving up the prices and lowering the yields. Many other developed countries have negative interest rates on government bonds, where the investor must pay the government to hold their money.


Commodity prices, including oil, have firmed up this year, and that might explain some of the strength in emerging markets.  Real estate prices continue to climb, and low interest rates certainly explain part of the price gains.




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