Monthly Archives: July 2016

Up, up and away–that’s how the latest rally in equities feels. Coming in the wake of Brexit and a whole host of other factors, bull markets really do climb a wall of worry.

For starters, lingering anxieties over the survival of the EU, the euro, and fears Italian banks will implode are just some of international concerns that are preoccupying investors. Then we have negative interest rates and any ominous message(s) global bond markets may be trying to send.

There’s always the tepid U.S. economic recovery and nagging fears that central banks are out of ammunition.

But nothing seems to have deterred investors during July.

Instead, the Street has warmed up to the idea that Q2 will mark the end of the profit recession. And the economic expansion, which isn’t young anymore, still has some life left in it.

But let’s not stop there. Fed rate hikes are expected to be gradual, and companies can’t seem to stop gorging on their own shares via buybacks.

All in all, it has been a perfect recipe for a summer rally.

Just two weeks ago, stocks took a nasty beating in the wake of the surprise Brexit vote. But life in the EU goes on, and there hasn’t been any meaningful headlines coming out of Europe recently.

Historically, U.S. investors have always returned to the U.S. fundamentals, absent major overseas events. For now, the pattern has repeated itself.

The latest catalyst to spark gains was the strong June payrolls report, which pushed the S&P 500 Index to within one point of a new high.

I seriously doubt the economy is as strong as June’s 287k rise might suggest, but taken together with May’s paltry rise, the economy is still generating jobs and doesn’t seem set to stall.

The immediate fallout from the Brexit vote was a steep selloff in stocks. But when cooler heads prevailed, buyers stepped in.

Despair turns to jubilation? Well, that’s a stretch on both sides.

But jittery short-term traders that hit the sell button are realizing economic activity between the UK and the EU won’t stop simply due to a nonbinding referendum (that will likely be binding).

Risks aren’t going away and more volatility may occur as investors price in the uncertainties of Brexit. But the strong rally last week was encouraging.

Moreover, much of the recent data heading into Q3 has been encouraging, too.

Weekly jobless claims are near a cyclical low, the Challenger layoff report was one of the lowest readings of the last two years, and both the ISM Manufacturing and Non-Manufacturing Indexes exceeded expectations.

Rock bottom yields in Europe bear watching, and we may see some additional aftershocks that could create volatility in our markets. However, an improving US economy is likely to lessen risks to the profit outlook.