Second Quarter 2016 Market Commentary

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The first half of 2016 repeated the same pattern as 2015 and 2014 with a poor performing first quarter followed by a stronger performing second quarter. During the second quarter, economic indicators showed improvements in consumer spending, retail sales, and manufacturing.  The pace of hiring declined in May and the rate of growth in the housing sector showed moderation.


In general, the domestic economy showed signs of health causing the Federal Reserve Chair to comment about a potential rate hike in the coming months. However, the outcome of the Brexit vote created economic uncertainty to the point that rates are predicted to remain unchanged for the remainder of the year.

While the Brexit vote caused the US markets to experience an immediate sharp downturn, it was quickly offset by a rally that resulted in all three of the market indexes recording advances in the five days following the Brexit vote. At the end of the five-day period, the S&P 500 added 3.22% and the index turned positive year over year.   The Dow Jones Industrial average advanced by 3.15% and the NASDAQ Composite rallied 3.28%. The net result was that Wall Street had its best week of 2016.


The global economy was showing signs of improvement until the “Leave” campaign triumphed in the Brexit vote. This outcome caused the established global markets to go haywire and resulted in a downturn in the indexes of essentially all of these markets. This outcome was sufficient for Standard & Poor’s and Fitch to downgrade the credit rating of the U.K. to AA. The uncertainty of the impact this will have on the economy of the U.K. and the GDP of the E.U. is likely to fuel volatility in the global markets. Concern about the potential of other members deciding to exit the E.U. will likely add to this volatility.

It will take years for the answers to emerge about the impact of Brexit on the economies of the U.K., E.U., the U.S. and ultimately the global economy.  Domestically, economic indicators are showing signs for continued moderate improvement for the third quarter and possibly through the remainder of the year. So what does this mean for the retirement investor?


We continue to advocate for making investment decisions based on pre-established goals and warn against making drastic portfolio movements in reaction to current events. In light of the market volatility over the past eighteen to twenty-four months, it is prudent to reassess your risk tolerance. Other factors to consider are forward-looking market and economic indicators and your estimated retirement horizon. Adjusting your portfolio to be in keeping with these factors may be in order.

Diversification is the primary tool for managing risk and this is a good time for reassessing your portfolio risk level. We at UPAL are eager to help guide you through this process and encourage you to contact us to schedule a review of your portfolio.

We wish for you a fun-filled summer!