Peek of the Week
June 27, 2016
The Markets
Surprise!
Britain is leaving the European Union (EU) after 40 years of membership.
Last Thursday, almost
three-fourths of voters in Britain – about 30 million people, according to the BBC – cast ballots to determine whether
the United Kingdom would remain in the EU. By a slim margin, the British people
opted out.
Early
Friday, Reuters reported on the
immediate and potential repercussions of the decision:
“Britain has voted to leave the
European Union, forcing the resignation of Prime Minister David Cameron and
dealing the biggest blow since World War II to the European project of forging
greater unity. Global financial markets plunged on Friday...The British pound
fell as much as 10 percent against the dollar to levels last seen in 1985…The
euro slid 3 percent…World stocks saw more than $2 trillion wiped off their
value, with indices across Europe heading for their sharpest one-day drops
ever…The United Kingdom itself could now break apart, with the leader of
Scotland – where nearly two-thirds of voters wanted to stay in the EU – saying
a new referendum on independence from the rest of Britain was ‘highly likely.’
”
U.S. stock markets dropped
sharply, too. Barron’s reported
markets’ response to the British exit (Brexit) didn’t indicate the bull market
in America was over. Citing a report from Morgan
Stanley, the publication noted American companies generate 70 percent of
revenues domestically, which means U.S. stocks are less susceptible to the
vagaries of international events than those of many other countries. That may
make U.S. stock markets attractive to investors.
During the next few weeks, as the immediate
and extreme response to the news settles and investors realize little will change
immediately, the world should gain a better understanding of the ways in which
Brexit will affect Britain and everyone else.
Data as of 6/24/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
-1.6%
|
-0.3%
|
-3.4%
|
9.0%
|
9.9%
|
5.0%
|
Dow
Jones Global ex-U.S.
|
-1.6
|
-4.9
|
-16.7
|
-0.3
|
-1.7
|
-0.2
|
10-year
Treasury Note (Yield Only)
|
1.6
|
NA
|
2.4
|
2.6
|
2.9
|
5.2
|
Gold
(per ounce)
|
1.9
|
23.8
|
12.1
|
0.7
|
-2.8
|
8.5
|
Bloomberg
Commodity Index
|
-2.0
|
10.7
|
-13.5
|
-11.7
|
-11.0
|
-6.4
|
DJ
Equity All REIT Total Return Index
|
0.0
|
8.9
|
16.6
|
13.4
|
12.1
|
7.3
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
what happens now? It
seems likely the British government will spend the next few weeks or months
developing a strategy for its departure from the EU.
Right
off the bat, the British need to put a new leader in place. Prime Minister
David Cameron resigned after his side lost Thursday’s vote. Cameron’s comments suggest
he does not plan to invoke Article 50. He indicated the new Prime Minister
should be responsible for initiating the process.
Article
50 is a clause in the Lisbon Treaty describing the legal process a country must
follow to notify the European Union it intends to withdraw. Once notification
is delivered, there is a two-year window to complete negotiations. Any
extension of negotiations requires the agreement of all EU members, according
to The Guardian.
Once
they’ve given notice, the U.K. will have to negotiate the terms of its exit
from the EU and establish the terms of its future relationship with the group.
According to the International Monetary
Fund (IMF), the nation also will need to renegotiate trade relationships
with 60 or so non-EU countries where its trade is currently guided by EU
agreements.
No
one can be certain how Britain’s economy will be affected as the nation
determines its new position in the world’s pecking order. However, The Economist reported on two possible
futures, as set forth by the IMF:
“In
the first scenario, Britain quickly agrees on a new trade deal with the EU; in
the second, the negotiations are more protracted and Britain eventually settles
for basic World Trade Organization rules. In the first scenario, sterling depreciates
by 5 percent. GDP growth slips to 1.4 percent in 2017 and unemployment rises
slightly…In the second scenario, Britain falls into recession next year.
Unemployment hits about 7 percent by 2018, up from around 5 percent now (during
the financial crisis it peaked at 8.5 percent). Real wages will stagnate,
mainly because of high inflation. Surprisingly, Britain’s trade balance will
move into a small surplus, thanks not to the dynamism of exporters but ‘because
demand for imported goods plunges due to exchange-rate depreciation and reduced
consumption.’ ”
In
a victory speech, Boris Johnson, former Mayor of London, Brexit supporter, and
a favorite to become the next Prime Minister, said:
“In
voting to leave the EU, it is vital to stress there is no need for haste…There
is no need to invoke Article 50…We have a glorious opportunity to pass our laws
and set our taxes entirely according to the needs of the U.K.; we can control
our borders in a way that is not discriminatory but fair and balanced and take the
wind out of the sails of the extremists and those who would play politics with
immigration.”
EU
leaders appear to have a different timetable in mind than recommended by Cameron
and Johnson. In a joint statement, Martin
Schulz, President of the European Parliament, Donald Tusk, President of the
European Council, Mark Rutte, Holder of the Presidency of the Council of the
EU, Jean-Claude Juncker, President of the European Commission, said:
“We now expect the United Kingdom government
to give effect to this decision of the British people as soon as possible,
however painful that process may be…we hope to have [the U.K.] as a
close partner of the European Union in the future. We expect the United Kingdom
to formulate its proposals in this respect. Any agreement, which will be
concluded with the United Kingdom as a third country, will have to reflect the
interests of both sides and be balanced in terms of rights and obligations.”
Will this be the glorious
opportunity promised by the leaders of the ‘leave’ side or a tragic split as
predicted by the ‘remain’ leaders? Much depends on when and what Britain
negotiates with the EU. In the meantime, there is likely to be considerable
economic uncertainty and some market volatility.
Weekly Focus – Think About It
Since the outcome of the referendum was announced, the top questions
asked of Google in the U.K. have been:
1.
What
does it mean to leave the EU?
2.
What is
the EU?
3.
Which
countries are in the EU?
4.
What
will happen now that we’ve left the E.U?
5.
How
many countries are in the EU?
NPR opined that British voters seem to have
given serious thought to the implications of their choices after the polls had
closed.
Warm regards from Eagan,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
P.S. Please feel free to forward this commentary
to family, friends, or colleagues.
P.S.S. Also,
please remind your friends and family members becoming Medicare eligible that
we offer Medicare insurance and Part D options with NO COST to work with Leif as
their agent
For more information and resources visit our website at www.HagenFN.com
For more information and resources visit our website at www.HagenFN.com
For Medicare supplement and part D information and
resources, please visit MEDICAREforSENIORS.info
Please FOLLOW and “LIKE US” on FACEBOOK.com/HagenFN
Please Read our Blog @ http://HagenFinancialNetwork.blogspot.com
Please Follow our Tweets on Twitter.com/SafeLeif
Check out this: http://www.MedicareForSeniors.info
* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
* To unsubscribe from the
“Peek of the Week”, please reply to this email with “Unsubscribe” in the
subject line, or write us at: Hagen Financial Network, Inc. 4640 Nicols Road,
Suite 203; Eagan, MN 55122.
Sources:
http://www.barrons.com/articles/brexit-selloff-highlights-strength-of-u-s-market-1466828693?mod=BOL_hp_highlight_2 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-27-16_Barrons-Brexit_Selloff_Highlights_Strength_of_US_Market-Footnote_3.pdf)
http://www.economist.com/news/britain/21700748-sober-analysis-economists-washington-dc-imf-lays-out-grave-consequences (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-27-16_TheEconomist-The_IMF_Lays_Out_the_Grave_Consequences_of_Brexit-Footnote_7.pdf)
#financialadvisorEaganMN
#financialplannerEaganMN #wealthmanagementEaganMN
#hagenfinancialnetwork
