After a tumultuous start to 2016, major domestic stock indexes continued to stabilize in the early part of the summer, despite the news of Brexit. Thankfully, there were no new negative developments in China and oil prices increased slightly. Investors did not exactly “sell in May and go away” – a common stock market saying.
The overall numbers indicate that the economy may be leaving its first-quarter issues behind and the real estate market appears healthy. Hiring moderated, but retail sales, personal spending, and inflation all picked up. The positive news was enough to prompt questions about an interest rate hike, and certain Federal Reserve officials publicly entertained that possibility, until news of Brexit broke.
Oil Prices Up Slightly, Though Still Historically Low
Oil prices settled into a sweet spot of sorts; they were high enough to soothe market analysts, but not too high as to cause gas price spikes for consumers. Crude oil was just under $50 per barrel as supply disruptions and falling U.S. inventories reduced stockpiles, global demand firmed, and markets held out hope for an agreement on production cuts between OPEC and non-member producers.
Interest Rate Increase Postponed
Near the end of the month, statements from the Federal Reserve made it clear the possibility of a June rate hike was on the table. As the market digested the rising odds of one or more rate hikes this year, stocks at first dipped, then seemed to shrug it off as the major domestic indexes finished in positive territory. However, once news of Brexit broke, the increase was postponed.
Global Economy Recovers from “Brexit”
As we discussed in our blog last month, there is fear among investors that global economic growth will slow substantially as a result of the Brexit. However, while we expect increased political and economic uncertainty, we do not expect global economic growth the be significantly affected.
A Snapshot of the Bond Market
Turning to bonds, floating-rate loans repeated their outperformance versus other fixed-income segments in line with our expectations, notching a 0.9% return during the month. Municipal bonds returned 0.1% in June, outperforming core bonds, which were flat.
Over the last few years, despite headline risks, including Puerto Rico’s debt default this year and Detroit’s bankruptcy filing (2013), municipal bonds have outperformed taxable intermediate-term bonds over the trailing one-, three-, five-, and 10-year periods, before adjusting for the effect of taxes.
India Continues Strong Growth
Data shows India retaining its rank as the world’s fastest-growing large economy. Its GDP for the first quarter was 7.9%, following 7.6% growth in 2015.
Metals Drop Together
The key metals dropped in unison against a rising dollar. Gold slipped 6.05% for the month on the COMEX; silver, 10.55%. They, respectively, ended May at $1,215.40 and $16.02. Platinum lost 8.75% on the month; copper, 8.11%. The U.S. Dollar Index headed north, rising from its April 29 close of 93.08 to a May 31 settlement of 95.83.
Real Estate is Still Hot
Real estate values remain strong. New home buying improved 16.6% in April to its hottest pace in eight years. March’s Case-Shiller 20-city composite home price index showed a 5.4% yearly advance, meaning home prices were rising more than twice as fast as inflation.
Two barometers of present and future housing activity also looked good. The NAR’s pending home sales index rose a healthy 5.1% to a peak unseen since February 2006. The Census Bureau announced a 6.6% gain for housing starts (but also a 3.6% retreat for building permits).
What’s In Store for the Rest of 2016?
Overall, we feel that the economy is generally performing well, especially for an election year, which typical causes stagnation. Depending on how the political events unfold, we anticipate modest stock gains as more certainty is introduced after November. We believe the biggest threats to stock prices are unforeseen global conflict or terrorist attacks.
Beyond any unexpected events, the next shock will likely come from an increase in interest rates, which is becoming more likely as the economy recovers and inflation increases. An interest rate increase could cause stock prices to decline temporarily. For the near future, we are pleased with the economic outlook and expect the recovery to continue throughout the end of the year. If you have questions, feel free to email or call me to learn more.
No matter what happens in the markets, finding true financial freedom may be closer than you ever thought possible. To learn more, download our free report, 12 Keys to a Successful Retirement Strategy today. If you need help, call my office at 770.249.7424 or email me today at firstname.lastname@example.org.