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Weekly Market Update – June 17, 2016

The Dow finished 58 points lower on Friday as the market focused on uncertainties surrounding the upcoming U.K. referendum on whether to remain in the European Union. For the week, the Dow was down 1.1% and year-to-date the index is up 1.4%.

The uncertainty surrounding the U.K. exiting the European Union, or “Brexit”, was the main driver of market volatility in the past week. The latest polls showed the “Leave” camp is in the lead. The UK’s Chancellor of the Exchequer warned that leaving the European Union could lead to reduced trade and investment, which would need to be compensated for by increased taxes or cuts to services. The vote is to take place next Thursday, June 23rd. However, the murder of British Labour Party Member of Parliament Jo Cox on Thursday could delay the referendum. Markets should remain volatile in the coming week in anticipation of the vote.

The Federal Reserve kept interest rates unchanged on Tuesday and reiterated future interest rate hikes’ dependence on inflation and other economic data. The Fed expects a stronger labor market, healthier household spending, and less negative impacts from net exports, but also noted “Brexit” uncertainties and productivity headwinds. Following the news, the 10-year Treasury yield dropped to 1.59%, the lowest level since December 2012. This interest rate weakness was favorable for our fixed income strategy.

Other economic data were mixed: May headline CPI inflation increased 0.2%, below consensus of 0.3%. Initial jobless claims were 277,000, continuing the long streak of readings below 300,000 despite the weak May payrolls report. Crude rallied to $48.09 as the dollar weakened and inventory data improved.

Next week’s economic calendar highlights include Initial Jobless Claims and New Home Sales (June 23rd), and Durable Orders Report (June 24th). The referendum on Britain exiting the European Union will be held on June 23rd.

Have a good weekend,

Natalie Do

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Ulland Investment Advisors

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