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Post Brexit Market Outlook

July 18, 2016 in Economic Analysis

Predicting market performance for the remainder of 2016 is indeed a challenge.

 

Fiducia Group recently hosted an education breakfast featuring economist  John Tousley from Goldman Sachs.  John pulled out his crystal ball and presented his views of the economy and financial markets for the remainder of 2016.  Here are few key take-aways.  

Tell me the answer you want to hear....

Everyone wants to know how the election cycle affects the stock market.  The only statistically significant data appears to be that the markets tend to be less active and generally flat in election years and that just after a presidential election historically the markets receive a bump of 11% on average.  It has not mattered which party end up in the White House or controlling Congress.  You can get whatever answer you are looking for by changing the period or the scale.  So a Democrat isn’t lying to your when they say that the markets historically perform better if they get elected; all they need to do extent the data to before the Great Depression.  But if a Republican tells you the same facts but about their party, they too are telling the truth as long as they only include “modern” economic times dating back to the 1940s.  Ultimately the correlation between Election Results and Market Returns is very low.

How long can we keep this up?

After 84 months of US expansion, many are starting to look ahead to the next recession.  But the chances of an 8th year of expansion are still very strong (over 80% probability).  While historically there is a bout a 25% chance that there is a recession in any 12 month period, the current chances are closer to 18%.

Are equities still attractive?

Anyone could have been successful in the 2013 equities market.  If you were in the markets, you probably made money.  Clearly that is not the case in 2016, but there is still opportunity for positive performance.  Returns will not be as high as 2013, but if you can avoid making mistakes, you can find positive returns.  The challenge for investors is that in the current market the losers will outnumber the winners.

We share John’s opinion of positive outlook for the “post-Brexit” remainder of 2016.  The third quarter is off to a great start! 

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