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Jun 27 2016

The world is changing: The Brexit vote is a small piece of a very complex puzzle

Market Update: Briton’s voted to exit the Eurozone last week, sending shock waves through markets, creating political turmoil and causing enormous amounts of speculation as to what it all means. And while speculation is running rampant, the only thing we know for certain is that the process to exit the Eurozone will take about 2 years, perhaps longer as the process is largely up to the U.K. Parliament.

 

That’s it, we can’t be sure of anything else. A new referendum is unlikely, in spite of gathering over 3 million signatures requiring Parliament to discuss the matter. How will corporations react, will big banks move out of London as some pundits have suggested? Will this cause a new recession given the already fragile economic outlook for Europe and the rest of the world? Perhaps, but then again that could happen regardless of the Brexit vote. The world is changing, the Brexit vote is just one more, small piece of a very complex puzzle. Looking at the recent events in Europe, Britain, through the lens of a U.S. investor is more reassuring than most have discussed, as the U.S. economy is now un-equivalently more attractive and on more solid footing than virtually all other major economies of the world. Correspondingly, while there will likely be increased short-term market volatility, the fundamentals for most businesses, particularly domestic ones, have not changed materially as a result of Brexit. Given the general unease and nervousness associated with the implications of Brexit, we expect high-quality dividend paying stocks to gain even more favor with investors, as their relative safety and attractive yields offer a bit of a safe haven.

 

In the long-term, we think that the implications and economic impact of the Brexit vote will likely be less severe than many pundits think. Central Bankers will likely remain dovish, keeping interest rates low for even longer – there is even some speculation that the U.S. Fed’s next move will be to lower rates. And while multi-national corporations will likely have an even more conservative attitude towards cap-ex spending these factors will likely be temporary. For now, all indications are that the global economy will withstand this shock and that intermediate and long-term growth trajectories remain unaltered as a result of Brexit.

Jun 24 2016

UK Exits European Union

Markets were roiled overnight and Friday morning, after Briton’s voted to exit the Eurozone. Globally equity markets fell and safe haven assets such as Treasuries rallied – If U.S. markets close where they open today, they will have lost about 1 ½% for the week and end where they started in April of this year. In other words, another no “real” action quarter. Although Central Bankers will do their best to reassure markets, the impact of the Brexit vote on the world’s economies will take 6 to 12 months to be felt. As such, investors should expect dovish monetary policy, i.e. no rate hikes this year, lower growth forecasts and a generally conservative attitude towards cap-ex spending should also be expected. However, this will likely prove to be a temporary environment, as the ultimate economic impact of the vote will likely be much more subdued than most fear.

 

Looking Ahead:

The Brexit hangover will come on Monday, after market participants will have had the opportunity to digest the information and think through the repercussions of the British vote. And while there will likely be increased short-term market volatility, the fundamentals for most businesses have not changed dramatically. The proprietary GGFS Montebello Process® is designed to address the various needs of investors through the careful segmentation of assets and diversification of portfolio strategies with a strong focus on lower-risk / lower-volatility investments. Furthermore, as a result of the fears associated with the Brexit vote, we anticipate high-quality dividend paying stocks to gain more favor amongst investors who are not willing to settle for 1%’ish returns from high-grade bonds.

 

Next Week’s Market Moving Events:

 

Monday: Brexit hangover, U.S. International Trade, PMI Services, Dallas Fed Manufacturing data

Tuesday: U.S. GDP (Q1), Corporate Profits, Case Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing Survey

Wednesday: Personal Income and Spending, Pending Home Sales, Janet Yellen Speaks, Farm Prices

Thursday: Lots of International Data

Friday: PMI & ISM Manufacturing, Construction Spending

 

 

May 23 2016

This Week’s Market Moving Events

Market Recap:

In spite of headlines alerting investors that major indexes such as the Dow Jones Industrial Average have declined four weeks in a row, markets are a mere 3 ½% off their all-time highs. More significant than the eye-catching headlines, markets have been acting rationally, punishing companies who haven’t delivered on their earnings and growth promises, while rewarding those that have. Yes, the upcoming June Fed meeting and fears of a potential “Brexit” (Great Britain exiting the Eurozone) are adding to the volatility, and there continue to be some concerns over the broad economic outlook, but overall markets activity has been sensible and calm. The energy sector continues to be amongst the best performers in reaction to rising oil prices, while large-cap pharma stocks are trading on expected consolidation.

Looking ahead:

Investors will be paying close attention to key earning reports this week from companies like Autozone (S: AZO), Toll Brothers (S: TOL) and Tiffanies (TIF) to get a better reading on the health of the U.S. consumer.

This Week’s Market Moving Events:

Monday: Autozone (: AZO) and Toll Brothers (S: TOL) report, no major economic data points are being released

Tuesday: EU Inflation data, U.S. PMI Manufacturing, New Home Sales, Richmond Fed Manufacturing Activity Index

Wednesday: Home Prices, International Trade

Thursday: Durable Goods, Jobless Claims, PMI Services, Pending Home Sales

Friday: Q2 GDP revision, Corporate Profits, Janet Yellen speaks

May 11 2016

Stocks rallied more than 1% on Tuesday, after a slew of positive earnings reports

Market recap:

Stocks rallied more than 1% on Tuesday, after a slew of positive earnings reports – including an impressive report from Amazon – lifted investor’s spirits. An absence of negative economic news and Fed speakers helped contribute to the rally as there was little new news for market bears to hang their hats on. A slight rally in Treasuries as well as the US dollar also contributed, as traders viewed this as confirmation that these are likely to remain in their current trading ranges. The JOLTS (Job Openings and Labor Turnover Statistics) report gave little reason for the Fed to become more hawkish as we approach the June FOMC meeting. While there are over 5 ½ million job openings in the United States, the rate of job changes and length of time new jobs go unfilled continue to point to a somewhat weaker than normal jobs market.

 

Looking Ahead:

U.S. equity futures are pointing to a slightly negative open in early hours, as investors around the globe are taking a pause after yesterday’s rally to search for new reasons to lift share prices. There is little in terms of economic news today, so perhaps markets will experience some calmness before the deluge of earnings and economic data, including Thursday’s Import / Export price report as well as Friday’s retail sales report. Over the weekend, investors will get news on Chinese Industrial Production as well as Retail Sales, both numbers will be heavily dissected to discern the strength of the Chinese economy. Make sure to tune into Money Matters with Gary Goldberg this Saturday at 3:00 PM on The Answer 970 AM, visit our website www.ggfs.com for details.

Apr 26 2016

Further Volatility to cause Emotional Overreactions

Market Recap:

Stocks sold off and then rebounded to close the trading day near the flat line on Monday. While oil, which had been a key driver for stock market direction, was sharply down for the day, stocks in general fared better. The ‘new’ correlation seems to be with bonds, which sold off in the early part of the day before rebounding. Earnings season kicked into high gear as some 100 companies reported on Monday alone.

 

Looking Ahead:

Investors should expect further volatility as earnings and economic news releases are sure to cause emotional overreactions. Tomorrow’s FOMC announcement will likely contain language that indicates that the U.S. economy can sustain 2 or more interest rate hikes, however that the Fed has chosen to hold off due to international concerns. The Fed is in quite a bind, as it absolutely wants to raise rates, but is (rightfully) fearful that such a move will further strengthen the dollar, thereby weakening the Chinese Yuan, which could cause a significant banking crisis in the worlds’ second largest economy. Moreover, given the challenges that Europe and Japan are facing, the negative impact on these economies is also undesirable. As such, we continue to believe that commodity prices will remain somewhat depressed, that the U.S. dollar will remain in its current trading range, and that if the Fed doesn’t raise in June, no hike in 2016 is a significant possibility. From an investors perspective this will mean that interest rates will remain suppressed, making high-quality dividend paying stocks attractive alternatives for those seeking income in a low-yield environment. Don’t miss this week’s Money Matters with Gary Goldberg; for stations and air times, please click here. Visit our website at www.ggfs.com for more details, including for a free, no-obligation portfolio evaluation.

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