NorthCoast has been recognized with Top Guns status by Informa Investment Solutions’ PSN manager database for the management of its Read More
July 1, 2016
What happened in June?
On June 23, U.S. stocks were approaching new highs and on a trajectory to close the quarter and year-to-date in positive territory. Later that evening, citizens in Great Britain voted to remove their country from the European Union (EU), a politico-economic union of 28 nations.
Since that vote, U.S. and international stocks have experienced a roller coaster ride of lows and highs. The next two trading sessions following June 23 saw over $3 trillion in global assets disappear, the largest real-dollar drop in history. Since that June 27 low, stocks have rallied +5%, the largest 3-day gain since February.
When the dust settled, U.S. Stocks (S&P 500 Index) closed the quarter +2.3% and sit 3.5% YTD. The “Brexit” vote had a bigger market impact on international stocks as the ACWI ex-U.S. closed the quarter -0.6% and is now -1.0% YTD.
|June 24, 2016: Read our market update on Great Britain’s decision to leave the European Union here:|
Moving into July
We increased exposure in our tactical strategies throughout June and specifically after the Brexit announcement. We enter July approximately 91% and 95% in our U.S. and international strategies respectively. With a strong economic backdrop and increased valuation signals, we expect continued growth in the near-term as the recent pullback provided an attractive entry point.
|Indicators that Improved||Indicators that Remained Positive|
Though still modestly stretched, stocks cheapened on a relative and absolute basis. With a rush to safe-haven assets such as cash, bonds, and gold, yields continue to be squeezed thus opening the door for equities which are providing higher risk-adjusted return potential.
The volatility index (VIX), often referred as a fear index, spiked in June to its highest level in over five months. A rise in volatility without corresponding data to support the fear is seen as a bullish indicator.
The U.S. economy continues to grow. GDP rose at an annualized 1.1% rate in Q1. Although the most recent payroll number was disappointing, U.S job growth is robust, supported by nearly record low layoffs and record high job openings. With a weakened jobs report and Brexit concern, The Federal Reserve backed away from a June or July rate hike.
Both the Purchasing Managers Index and the NAHB, a housing market index, produced better than expected results.