Whither Brexit, Withering Rates
Friday, July 8, 2016
- For the quarter, the S&P 500 Index and the Russell 2000 Index gained 2.5% and 3.8%, respectively, while developed international stocks fell 1.5%.
- U.S. Aggregate Bonds gained 2.2%, continuing to defy expectations as yields around the world fell to all-time lows.
- Stocks and other risk assets dropped briskly in immediate response to the Brexit vote, but then quickly recovered on expectations of further central bank accommodation.
- At the close of the quarter, there were still more questions than answers in regards to the impact of Brexit.
- The political volatility currently exhibited around the world can be tangentially traced to low global economic growth.
- Studies have shown a strong relationship between current bond yields and ten-year forward bond returns, which would almost certainly connote lower total annual returns for balanced portfolios going forward.
- To achieve a 6% required return, an investor now has to be willing to take nearly three times the risk with their portfolio as compared to just over 15 years ago.
- We believe we have entered a period in which the path of annualized returns for blended portfolios is lower.
Modest portfolio gains were made and ultimately held during the spring despite a brief shakeup from the shocking “Brexit” vote at the close of the quarter. The United Kingdom’s June 23 vote to leave the European Union came as a notable surprise, as markets placed an 80% probability of the UK staying in the EU.
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