The Brexit Edition
On June 23, British voters voted in favor of referendum, opting for a quick divorce from the EU. The aftermath of the vote was heard around the world, and rattled global markets, as the probability of referendum by most analyst fluctuated between 15% - 40%. The unexpected referendum has caused panic, with investors looking for a safe haven. We expect market volatility to continue for the remainder of the year, with the following areas of interest:
• Political Uncertainty in the UK.
• Lower Growth in the EU
• Interest Rate Direction by the Fed.
• The US Presidential Election
With British Prime Minister David Cameron set to exit Number 10 Downing Street, the conservative party looks towards new leadership. The UK now faces a new challenge of finding a worthy leader, and unfortunately the candidates seem to lack favor as well as charisma. New leadership and direction is a must, as the big banks have discussed moving operations from London to other areas of Europe. With the UK expected to lose jobs, the EU will not escape unscathed,as we expect a decline in Eurozone GDP. In the aftermath of the referendum vote, both Standard & Poor’s and Fitch downgraded the United Kingdoms credit rating from AAA to AA (AA+ to AA).
We expect the Federal Reserve to leave interest rates untouched for the remainder of the year, and although some analyst have predicted the probability of an interest rate cut, at Samra Wealth Management we find this unlikely, and unwarranted, given the Fed’s mandate to promote maximum employment, stable prices and moderate long-term interest rates. Although it is not the role of the Fed to maximize corporate earnings, this would not be the first time we have seen the Fed overstep its mandate.
For investors of US equities, we expect the volatility to continue for the remainder of the year with uncertainty in the race for thePresidency, as polls show Hillary Clinton, edging out Donald Trump by a margin of 5 points. We continue to keep a close eye on select sectors, as we expect to see a decline in financials, and energy, if democrats remain in the White House.
Given recent events, we emphasize the importance of portfolio rebalancing, diversification across asset classes, and the inclusion of Alternative Investments (AI) to help dampen volatility. As currency investors look for a safe haven, both the US Dollar and Japanese Yen, continue to show resilience, with spreads increasing against both Pound Sterling, and the Euro. We expect to see further increases in Gold, surpassing the 21% year to date increase, however, we do not expect Gold to reach new highs.
International markets have been rattled, however, the media continues to play a big part in creating widespread panic. Inexperienced investors are quick to forget the market declines over the past year, when the market descended below 1,900 on 4 occasions. With the S&P hovering at 2,000, we remind our clients the sky is not falling, and although Britain may be headed towards recession territory, the decline in confidence creates tactical opportunity, while making little to no changes in our clients core portfolios.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor
Samra Wealth Management, A Member of Advisory Services Network, LLC