The Intelligent Investor Newsletter – July 7, 2016

Consultiva

A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser)

The two-day panic selloff in the global stock markets that followed the United Kingdom vote to exit the European Union on Thursday, June 23 was widely attributed to the resulting uncertainty about the future of the Eurozone. So a week removed from the vote, investors are asking why did the markets recover so quickly from Tuesday through Friday of last week? This type of knee-jerk reaction is not new, as we have seen the stock market react to panic and uncertainty in similar fashion in the past. Nonetheless, the rebound in the S&P 500 has been extraordinary. It was down 2.1% year to date at the end of last Monday, and now it is up 2.9% and only 1.3% below its record high of last year (See Graph I below). The rebound was led by the cyclical sectors of the S&P 500, while the Telecom Services, and Utilities sectors were unaffected and even went vertical to reach all-time record highs.

The vote has increased uncertainty about the UK. Will Scotland now vote to leave the UK? Prime Minister Nicola Sturgeon, announced that they are considering a new referendum on independence. Who will replace Prime Minister David Cameron now that former mayor of London, Boris Johnson, dropped out of the race? The two top contenders for the leadership spot both have said that they are in no rush to trigger divorce proceedings with the EU, which could take years. All this uncertainty seems to have increased the likelihood of further monetary stimulus from the Bank of England, the European Central Bank and even the Bank of Japan. Even the U.S. Federal Reserve seems to be shying away from normalizing monetary policy, with no additional increases to the Federal Funds Rate looking ever more likely than another increase. That certainly would explain why the US 10-year Treasury bond yield has dropped to a record low in recent days (See Graph II below). This is putting the correlation between U.S. stocks and Treasury bonds into question, something that we will continue to watch closely.

Graph I

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Graph II

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by Myrna Rivera, CIMA®
Founder & Chief Executive Officer

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Consultiva is a Registered Investment Adviser. The registration with the Securities and Exchange Commission does not imply a certain level of skill or training. Consultiva has compiled the information for this report from sources Consultiva believes to be reliable. Sources include: investment manager(s); mutual fund(s); exchange traded fund(s); third party data vendors and other outside sources. Consultiva assumes no responsibility for the accuracy, reliability, completeness or timeliness of the information provided, or methodologies employed, by any information providers external to Consultiva. Conclusions reflect the judgement of Consultiva Investment Strategy Committee at this time and is subject to change without prior notice. There also can be no guarantee that using this information will lead to any particular result. Past performance results are not necessarily indicative of future performance. Diversification does not guarantee a profit or protection against loss. This document is for informational purposes only and is not intended to be an offer, solicitation, recommendation with respect to the purchase or sale of any financial investment/ security or a recommendation of the services supplied by any money management organization neither an investment advice or legal opinion. Investment advice can be provided only after the delivery of Consultiva’s Brochure and Brochure Supplement (ADV Part 2A and 2B) once a properly executed investment advisory agreement has been entered into by a client and Consultiva. This is not a solicitation to become a client of Consultiva. There are risks involved with investing including the possible loss of principal. All investments are subject to risk. Investors should make investment decisions based on their specific investment objectives, risk tolerance and financial circumstances. . Global and international investments may carry additional risks that are generally not associated with U.S. investments, such as currency fluctuations, political instability, economic conditions and varying accounting standards. Annual, cumulative, and annualized total returns are calculated assuming reinvestment of dividends and income plus capital appreciation.

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