Surprise! Markets Reach All-Time Highs after Brexit

You can’t keep a good man down, and when it comes to the bulls in this market — you can’t keep them down, either.

In fact, since the post-Brexit lows on June 27, stocks have surged more than 6%. Along the way, the Dow Jones Industrial Average and the S&P 500 Index have racked up a series of new, all-time highs.

The reaction in stocks since the Brexit vote has been exactly the opposite of what most investors were expecting.

Why?

It is my opinion that news of the Brexit vote simply revived long-held hopes of more monetary stimulus from central banks, even if the new fiscal stimulus came in the form of government spending.

And while we have seen some encouraging economic data since then — the blowout June jobs report and some decent initial Q2 earnings reports, for instance — the next leg for stocks is by no means a certainty.

As for bonds, after weeks of falling to new all-time lows, the yields on the 10-Year U.S. Treasury Bonds have finally turned higher (see chart below).

This spike in yields is something we were watching for, as it is an indicator that traders are starting to get a bit more “risk on” with their outlook for the economy.

Meanwhile, another safe-haven play, gold, has seen a pullback this week. The chart here of the SPDR Gold Trust (GLD) shows the small pullback from the recent 52-week high.

While this week’s rebound has been laudable, I think it’s way too early to say that we’ve sailed past the headwinds.

Over the next few weeks, we are really going to start seeing earnings flood in, and the results from last quarter — coupled with companies’ outlooks for the whole year — will go a long way toward telling us if we are about to have a bullish summer.

If you’d like to find out how my subscribers are currently taking advantage of the price action in this market, then I invite you to check out my Successful ETF Investing newsletter today by clicking here.

Your First-Half Market Scorecard

The first half of 2016 is in the books, and it’s been one marked by a lot of big price swings, a lot of buying in safe-haven assets and a lot of buying in stocks.

Check out the list here of some of the markets I monitor each day. Here you’ll find the performance data for each respective index, year to date through June 30.

• S&P 500           2.69%
• Dow                   2.90%
• Nasdaq            -3.29%
• Nasdaq 100   -3.86%
• Gold                24.65%
• Silver              35.44%
• Treasuries     15.19%

Although there was a decent move higher in large-cap domestic stocks, tech and large-cap tech struggled through the first half of the year. And while stocks generally experienced a back-and-forth first half, it was a different story entirely with safe-haven assets such as gold, silver and long-term U.S. Treasury bonds.

Gold and silver have shined so far in 2016, easily outpacing equities. More significantly, Treasury bonds also outpaced stocks by a wide margin.

It is this boost in Treasury bond prices, one that has pushed bond yields down to record lows on the 10-year Treasury note, that have me feeling more than a bit uncomfortable.

The reason why is because bond yields should not be falling so low when stock prices also are pushing up toward all-time highs. At some point, something has to give, and if history is any harbinger of things to come, the bond market will win out over stocks.

In a year that’s been fraught with some big bouts of selling, as well as some big buying, we now are at a place where we expect more volatility to continue.

Election uncertainty, Brexit outcome uncertainty, Fed uncertainty, etc., all will help determine what’s next for markets.

And while we can’t be certain of what’s going to happen, we can be reasonably sure that the markets are going to throw us at least a few curve balls along the way.

The only thing we can do, as investors, is to stay in the batter’s box and keep our eyes on the ball.

Words by Malala

“Terrorism will spill over if you don’t speak up.”

— Malala Yousafzai

The activist, author and Nobel Peace Prize winner knows firsthand about terrorism and the evils that the West now faces from radical Islamics. Here, she reminds us that it’s incumbent upon us all to speak out about it, lest this evil continue to spill over into the world.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

In case you missed it, I encourage you to read my column from last week about the good news from the June jobs report. I also invite you to comment about my column in the space provided below.

Doug Fabian