CMP Financial Planning

Economic and Investment Update: Second Quarter 2016


Economic and Investment Update

As the second quarter draws to a close, many stock categories are showing gains for the year, while all bond categories are up.  Large and small value stocks returned 3.5% to 5.5% and have outperformed growth stocks, which have small losses for the year. US stocks have outperformed foreign stocks; most foreign stock categories are showing small losses.  Surprisingly, the diversified emerging-markets category with returns of 4% have outperformed the other foreign markets and much of the US market.  Bond returns so far this year are all positive. The riskier bond categories (long term and lower credit quality) have returns of 6% to 10% while less risky bond categories have much lower returns of 1% to 5%.

According to Krishna Memani,  Chief Investment Officer at Oppenheimer Funds, the outlook for risk assets remains largely favorable  based on the expectations that there will be continued global policy accommodations, a cyclical emerging market recovery, fading headwinds for corporate earnings and cautious investor positioning, and that the bull market cycle we’re in–already the longest on record–will persist through the year.

Continued volatility should be expected, though.  The latest item to cause concern in the news cycle these past few weeks is Brexit, Great Britain’s upcoming vote on whether to leave or remain in the European Union.  Pro-Brexit advocates have framed leaving the EU as necessary in order to protect, or perhaps restore, the country’s identity:  its culture, independence and place in the world.  This argument is often expressed by opposition to immigration.  “Remain” supporters typically argue that staying in the Union is better for the British economy and that concerns about migration and other issues are not important enough to outweigh the economic consequences of leaving.  The expectation is that if the Brits opt to leave, the financial markets will suffer. Stay tuned for how Britain’s vote will affect world markets.

By Christina Povenmire, MBA, CFP