Advisor Insights Market News Weekly Market Commentary

Market Commentary: July 19, 2016

The market pushes on!

Written by: Benjamin Bimson CIMA® / BCJ Financial Group

I am writing this short commentary from Yellowstone National Park. All I can say is that it is breath-taking and if you have not been, I highly recommend a trip. It was worth the three days of driving to get here.

Back to the commentary!

The markets have been on an incredible clip since the two days after the Brexit vote. The odd thing is that bond yields have also been on a decent clip as well, bringing yields strangely low. Based on the low yields right now, it is quite odd to look at forward looking returns for fixed income.

Here is a projection by Research Affiliates based on current levels. It really highlights what happens with an uncertain interest rate future amidst the lowest rates we have ever seen in many bonds. It makes real returns project with much lower returns as well as higher than average volatility.

 

Source: Research Affiliates

Source: Research Affiliates

 

More decent economic data points to the equity markets are continuing to be supported. Industrial production is looking much better in June, rebounding 0.6% (the most in a year).1 We will need to continue to watch this space to make sure that it can expand to help support the relatively high PE ratios we are seeing in equities right now. Industrial Production is a leading indicator that can point toward increased inventory and sales, both of which would help support equity valuations and keep the rally going further. Overall, these are bullish for the economy and a support for expansion, but it still looks to be in the final years and certainly is looking better than was feared at the beginning of 2016.

This has been a brief note, largely because internet service in Yellowstone is incredibly slow and limited. The good news is that I will share one of the beautiful scenes my family and I enjoyed today. I hope you enjoy it as well. This is looking from Artists Point up the Yellowstone Canyon at the Lower Falls. It is breathtaking.

 

Photo courtesy of Ben Bimson

Photo courtesy of Ben Bimson

 

Looking at the rivers and falls reminds me a lot of the markets, around the bend may be a big falls, a cool spring, or a rushing river teaming with life. No matter what, it seems to just keep going and making its way forward. Our job is to navigate the best we can, avoid the big falls that cause damage and move with it when it is safe to do so.

 

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Citations

1 Economy Closes Q2 On A Positive Note, But Sentiment Falls. Ned Davis Research Group. July 15, 2016

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