2nd Quarter 2016 Wrap Up ~ Financial Markets Round Up

“Buy the shock” is emerging as a new buzzword — and investment strategy — on Wall Street.” ~ Adam Shell on Brexit

By Catherine Austin Fitts

Overview

Equity markets made a sharp correction in the 1st Quarter, then regained losses and more in 2nd Quarter. Thanks in part to Brexit, US equities continue to outperform Europe. The fixed income markets continue to experience low and falling interest rates, with more than $12 trillion in sovereign bonds trading at negative interest rates by the end of the 2nd Quarter. The markets are clearly struggling with greater political and financial uncertainty as the global economy slows. Commodities began to rally with gold and silver putting in an exceptionally strong performance in the first half of the year.

[This chart reflects prices adjusted for dividends; charts below may not.]

US Dollar Index

Whither the US dollar? The dollar, under pressure throughout the 2nd Quarter, touched the critical 92 floor. Nevertheless, Brexit gave the dollar renewed short-term strength as did negative interest rates in foreign sovereign markets.

Equities

We have added several charts on European equities to look at the impact of Brexit on the markets. Please note the European bank charts. All signals are to expect a European banking crisis this summer.

Despite the strength in US equity prices over the last four years, US equity performance is overly dependent on share buybacks and must overcome falling forward earnings – another reason for the concern regarding productivity and inequality.

NORTH AMERICA

SPX (S&P Large Cap), PKW (Buybacks)

SCHA (U.S. Small Caps), SCHM (U.S. Mid Caps), SCHX (U.S. Large Caps)

U.S. Equities: 1, 3, 5 Year Sector Performance

Source: Morningstar

Motif Investing

Motif offers an interesting picture on what’s up and what’s down!

Highest Earners

Lowest Earners

ITB (U.S. Home Construction)

IYR (U.S. Real Estate)

IBB (Biotech)

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Obamacare ETFs: IHE (U.S. Pharmaceuticals), IHF (Providers), IHI (Medical Devices)

EFA (International Developed)

EUROPE

Brexit hit European markets hard at the end of the 2nd Quarter, returning prices near to the February correction lows.

VGK (FTSE)

VGK(FTSE), EWU (UK), SPY (S&P)

DAX (Germany).

EUFN (European Financials), KBE (US Financials)

European Financials: DB (Deutsche Bank), RBS (Royal Bank of Scotland), BCS (Barclays)

ASIA

The Asias economies are clearly outperforming the rest of emerging markets, although in equity markets in the 2nd quarter, it was the emerging markets that were strong. Concerns about a China slow down and debt levels are growing. However the biggest challenge for the world is Chinese structural reform as China rebalances the domestic economy and uses financial resources to build the Silk Road and flex its naval muscles in the South China Sea.

FXI (China Large Caps)

PIN (India)

EEM (Emerging Markets)

WAFMX (Frontier Markets).

Fixed Income

Interest rates continue to fall, reaching historic lows in the 2nd Quarter. Given central bank policies, interest rates are expected to stay low for the foreseeable future.

IEF (5-7yr Treasury ETF) vs. TLT (20 yr. + Treasury ETF)

AGG (US Bond Aggregate) vs. JNK (High Yield Bond ETF)

Commodities

Commodities rallied in the 2nd Quarter. The price of oil rose and then fell back as concerns regarding global slowdown grew. Gold and silver were the star performers.