Brexit, Terrorism, Political Conventions...and the Paradox of a Rising Market

Brexit, Terrorism, Political Conventions...and the Paradox of a Rising Market

Brexit, Terrorism, Political Conventions…and the Paradox of a Rising Market

With this morning’s dawn, July has given way to summer’s final chapter: August…but not without fireworks that started on the 4th and just didn’t know when to quit:

The vote by the people of the UK on Friday, June 24th to leave the European Union, nicknamed the “Brexit,” triggered an immediate sell off in financial markets worldwide.  By midday on the following Monday, the S&P 500 put in an intraday low of 1991.68, some 5.7% below the close of just the previous Thursday.1 “Markets do tend to overreact,” noted Rory Bateman of Schroders in London. “This may well be one of those occasions.”  Boy, was it ever, Rory!  While the hounds of financial journalism howled about the trillions of dollars in financial markets across the globe that had been “lost” or “wiped out,” a funny thing happened: for no particular reason, the S&P 500 turned back around that Monday afternoon and started moving up.  This despite a July peppered with tragic terrorist attacks coupled with ambush attacks in the U.S. on its police:  Nice and Normandy in France; New Orleans, Dallas, St. Paul, and San Diego in America.  This despite two ripping and raucous political conventions by the Republicans and Democrats, replete with protestors arrested in the streets outside each and both conventions held in July for the first time since 1960.

Not satisfied with merely finding its “lost” trillions, the U.S. stock market kept right on rising in July right through the news headlines to brand new all-time highs.2 As trading opens to begin August this morning, the S&P 500 stands at 2173.60, an advance of over 7.6% from that intraday low of June 28th.

The fireworks of July have left August with quite a paradox:  Stock indexes reaching all-time highs would suggest a robust economy, yet interest rates – in the very same month! – falling to all-time lows,3 which would suggest that things aren’t so great.

While we’re pondering the paradox…what about this crazy 2016 Presidential election?  What are we to make of THAT?!  Most certainly, the lagging job growth and flat wages of recent years has given rise to both populist causes (the Brexit) and populist candidates (Trump and Sanders) both here and abroad.  Uncertainty can be found in abundance.

What then, are the valuable lessons we can learn from this mad, scrambled July 2016? Perhaps these:

  1. IF AT FIRST YOU DON’T SUCCEED, TRY, TRY AGAIN:  Over the past 18 months, the S&P 500 index has crossed the 2100 level 24 times, only to re-cross it.  On the 25th try – after falling about 6% on the news of the Brexit vote – it crossed the 2100 once more and this time advanced on to a new all-time high.
  2. WHAT DOES “ALL-TIME HIGH” MEAN?:  Each and every time markets make new highs, just remember that all money “lost” from all previous declines – much to the consternation and disappointment of the dooms-dayers among financial journalism – has been “found” again…and then some…perhaps just not in the same pockets, however.  Those who were caught up in the frenzy of the moment and sold may very well find, at new market highs, some of their coins now in the pockets of the rest of us who maintained our long term perspective in line with the wealth plan we laid out to serve our goals and time horizons!
  3. AS THE WORLD TURNS…EVERY SINGLE DAY:  What can push the financial markets to new highs in the midst of all the news headline chaos?
  • Maybe it’s about how global population continues to grow, becomes healthier, is longer-lived, and becomes, over time, better off.
  • Maybe it’s about how innovation and technology are rapidly bringing us live video of our loved ones on a handheld device from wherever they might be or anything we can imagine delivered to our door in, at most, 2 days, or cars that will drive themselves.
  • Maybe it’s how all of the above inevitably grow, over time, the earnings, cash flows, and dividends of great companies in the U.S. and around the world…and how that, in turn, leads, over time, to higher stock prices.  Just maybe?!

As always, stay in touch, call us with your comments, observe the news headlines if only to learn wise lessons in so doing…and enjoy summer’s grand finale – August!

Jeffrey L. Watson, CFP®
WealthCare Financial Group, LLC[i]

 

1 “Brexit and the Apocalypse du jour,” Nick Murray Interactive, August 2016

2 Marketwatch.com, July 22, 2016

3 CNBC.com, “US 10-year Treasury yield closes at record low of 1.375 pct,” July 5, 2016

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