Stocks moved higher early in the week with the presumption that Britain would remain in the European Union. But with the “Exit” vote confirmed in the wee hours of Friday morning, markets turned ugly. There were few places for investors to hide as equities, interest rates and currencies were blindsided by the upset. The British Sterling fell to a thirty-year low. Financial stocks took the biggest hit, especially money-center and European banks. Friday saw the Dow tumble over 610 points or 3.4%, the largest one-day decline in about a year. For the week, the Dow and the S&P 500 lost 1.6% and the NASDAQ nearly 2%. Gold soared on market fears and jumped $27.50/oz. to close out the week at $1,320. Energy and basic material stocks also got hammered. Other than gold mining stocks, safe haven telecoms were up 1.4% for the week and utilities were flat.
As if there was not enough negativity late in the week, orders for durable goods in May were in the red by 2.2%, far below the 0.5% decrease expected, signaling that companies are still not willing to invest in their businesses. Fed Chair Janet Yellen testified before Congress with little fanfare, telling a Senate panel that “considerable uncertainty about the economic outlook remains” with recent growth “uneven”. The statement was made before the Brexit vote and some observers not only believe that a summer interest rate hike is unlikely, but the Fed may move to cut rates before the end of the year.
Market direction in the short-term is almost impossible to predict and the fall-out from Friday may indeed not be over. It nothing else, volatility will be unnerving for a while. However, I do not see a recession in the cards based on this political event and cooler heads should prevail over time. While some analysts are willing to call for buying opportunities, I believe a more conservative “wait and see” approach may be more prudent for now. Investors should stick with their long-term financial plan and wait for the dust to settle before making any hasty trading decisions.
Here is the answer to last week’s trivia question: The Boeing Company, founded in Seattle, Washington in 1919, moved its corporate headquarters from its home for over eighty years to what city? Denver, Everett (WA), Dallas or Chicago. Answer: Boeing moved to Chicago in September, 2001.
Today’s Trivia Question: Last month, which pharmaceutical company offered to buy U.S. agricultural giant Monsanto? Roche, Merck, Bayer or Pfizer.