Economic Outlook

Brexit Vote Defines Quarter, Echoes Anger, Angst And Anguish Worldwide

The real story of the quarter was the historic UK vote to leave the European Union. While there are endless possible triggers for investor, worker and voter unease, this is only the latest spark for uncertainty.

This could be an isolated event. But, seeking to anticipate possible scenarios, what’s really at stake is the possible early erosion of the “open borders” consensus that has set the stage for investors for nearly 30 years and has contributed to low inflation, increased wealth and standards of living, and sustained strong financial market performance globally. It could take years to know.

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Equity Portfolios

Stocks Dispassionate Through The Age Of Discontent

Through a lot of interim price “noise,” the equity market has generated decent returns year to date.

At quarter-end, Brexit was the latest catalyst for fear. However, two factors helped stock prices quickly recover. A global, frantic search for the safety of bonds drove interest rates sharply down, which, all else being equal, makes risk assets like stocks more attractive. Further, Brexit, as well as a weak “jobs” number for May, led the consensus on tighter Fed policy (read: higher interest rates) to shift quickly to “much later… maybe 2018.” This perception or hope for a more supportive posture by the central bank also seems to be fostering additional stock buy-backs.

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Fixed Income Portfolios

Math Is Not Your Friend

The Fed has weighed market uncertainty and Brexit against a steadying U.S. economy and gradually rising inflation to keep interest rates unchanged so far this year. Especially in a world where monetary easing and negative interest rates are de rigueur, the Fed’s deliberate, data-dependent approach to monetary policy appears to be the correct one. Our fixed income strategy counts on diversification and bond math to uncover select opportunities.

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