Investment Commentary – June 29th, 2016
Market Indices as of Market Close June 29th, 2016
Dow 17,694 (1.55% YTD)
S&P 2,070 (1.31% YTD)
NASDAQ 4,779 (-4.56% YTD)
Global Dow 2,285 (2,033 52 week low /2,568 high)
10-year Treasury 1.51 (1.42 52 week low /2.49 high)
Gold 1,321 ($1,049 52 week low /high $1,363)
Oil $49.51 ($32.22 52 week low /high $61.30)
Wall Street rebounds from Brexit with second day of big gains
Wall Street recorded big gains for a second day on Wednesday as investors continued to scour for bargains and digest the fallout from Britain’s stunning vote to leave the European Union.
The S&P 500 has recouped more than half of its losses from the two-day equities rout sparked by the British referendum, which had erased $3 trillion in value from global equity markets, according to S&P Dow Jones Indices.
The S&P financial sector .SPSY, which was beaten up in the wake of the vote, gained 2.3 percent, leading all sectors.
Energy shares .SPNY jumped 2 percent, supported by higher oil prices. All 10 industry groups closed higher.
“It’s not the end of the world and it never was the end of the world, and to have these kinds of reactions was ridiculous,” said Jeff Weniger, senior portfolio strategist at BMO Private Bank in Chicago.
The Dow Jones industrial average .DJI rose 284.96 points, or 1.64 percent, to 17,694.68, the S&P 500 .SPX gained 34.68 points, or 1.7 percent, to 2,070.77 and the Nasdaq Composite .IXIC added 87.38 points, or 1.86 percent, to 4,779.25.
The gains marked the biggest two-day run for the S&P 500 in four months.
What “Brexit” Means for Growth Stocks
The United Kingdom’s decision to leave the European Union may be a game changer, but top-performing companies in select industries should continue to generate growth.
Global economic growth likely will be lower now, though still positive.
We believe that this current “muddle-through” U.S. economy remains a positive for high-growth companies with strong secular growth characteristics.
Interest rates likely will remain lower for longer than originally anticipated, and we expect that central banks will continue to provide liquidity, cushioning the impact on equity markets.
Uncertainty and volatility have increased considerably, and, therefore, we would not be surprised to see equities churn in the shorter term.
We expect that high-growth stocks will resume market leadership, particularly U.S.-focused companies, which is a view we held prior to the Brexit vote. Underlying earnings are reasonably solid, and we have not seen a significant sell-off in growth stocks, aside from companies that are more exposed to Europe. The vast majority of our portfolio is in companies that generate the bulk of their revenues and profits in the United States.
Reaction to the Brexit Outcome
While the Brexit vote has had a significant impact on the markets, and likely will continue to cause volatility in the near term, the outcome does not alter our view that high-growth names are in the process of returning to market leadership.
JPM Thought Of the Week
The projections from the US Federal Reserve (‘the Fed’) officials have become a major
market focus, given the role central banks have taken in stimulating the economy since the
2008 financial crisis. As part of the projections, Fed officials give their view on where they
believe the Fed funds rate will be at the end of the next 2-3 years as well as their forecast for
the ‘longer run’ interest rate. As we highlight in this week’s chart, the median Fed projection
for the long-run Fed funds rate has now reached a record low of 3%, after a 0.25%
downgrade from their March projections. It would seem that the Fed increasingly believes in
a ‘new normal’ of lower inflation, lower growth and hence lower interest rates. But investors
expect rates to stay even lower for longer with markets expecting interest rates to still be
below 1% by the end of 2019.
THIS DAY IN FINANCIAL HISTORY
June 29th, 1906: On this day in 1906, President Teddy Roosevelt signed into law the Hepburn Act, giving the Interstate Commerce Commission (ICC) the authority to set maximum rates for railroads. This was the first government regulatory commission ever created and led the way for other regulatory commissions in industries such as food processing and meat processing.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.
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