It looks like the British aren’t the only citizens who disagree with the “New World Order (NWO)” agenda, as Americans have elected a non traditional president. This has sparked a “risk-on” trade, meaning that U.S. Treasuries are being sold, and the equity markets (as you can see from the monthly returns above) are being purchased with strong conviction.
With the exception of some Information Technology and Health Care companies, August was a blah month for equities. Earnings growth for the S&P 500 during the second quarter of 2016 was -3.2%, and this marks the fifth consecutive quarter for declining earnings growth. Just four of the ten S&P 500 Industry Sectors showed earnings growth during the second quarter: Consumer Discretionary, Telecom, Health Care, and Utilities.
Well, the British Sterling Pound has not bounced back to its pre-British exit from the European Union position, but everything else continues to appreciate. Last month, we warned of European and Asian capital flowing into the U.S. Markets – both equities and bonds – and as expected, this has been the case, pushing our equity markets and bonds markets way up. While this assists our total returns for the year, it makes it difficult to purchase fixed-income securities for new money that needs to be invested for income purposes. As we stated many times, fixed-income securities, unlike equities, have a price ceiling; otherwise, you would enter into a negative rate or yield. Given this drawback for fixed-income securities, we are forced into purchasing funds, or ETFs, as a temporary substitute for individual bonds.
This last week of June has given the New World Order the first real road block in decades. As the Brit’s took to the polling booth to vote for the ability to determine their own future, the markets became spooked and volatile. Many of the markets quickly recovered the early losses, but the British Sterling Pound has taken a 10% loss to rest at 1.33 per U.S. Dollar, which the Sterling hasn’t seen since 1985. This global volatility has been pushing investors into U.S. government and U.S. Corporate debt. The 10yr U.S. Treasury note has dropped in yield to 1.47%. While we don’t believe the Federal Reserve can increase short-term rates anytime in the near future, it does make it quite a burden to find bonds with a decent yield for investment purposes. We are pleased with the returns for the first half of 2016, but we are never satisfied and will continue searching for income opportunities. The main caveat for markets in the U.S. is that other European Union countries could follow the path of the British and potentially unravel the EU and their currency. Then we would see large amounts of investment capital fleeing into the U.S., forcing rates and yields even lower for U.S. investors.
Of the S&P 500 companies, 99% have reported their first quarter numbers for 2016 and aggregate sales are down by -2.24% and aggregate earnings are down -8.35%. These are actual sales and earnings vs. the previous quarter. However, equity prices are still showing a positive correlation to oil, which touched above $50 per barrel on May 17th – the first time this year. Although the IMF and World Bank have lowered their domestic and global GDP growth rates for 2016 and beyond, domestic equities increased during the month.