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Weekly Market Update – June 24, 2016

The Dow finished 611 points lower on Friday as the market reacted to the “Brexit”, Britain’s vote to leave the European Union. For the week the Dow was down 1.56% and year-to-date the index is flat.

The Brexit referendum is this week’s focus. Britain’s surprise vote to leave European Union on Friday triggered significant volatilities, which drove the world’s equity market down and sent investors to gold and government bonds. The long-term concerns involve a potential disintegration of European Union which can increase inflation pressure as a result of renewed large government deficits and currency depreciation. Anti-EU politicians from Italy, France, and the Netherlands already have called for referendums. This continued economic uncertainty will keep global investment weak and slow overall growth, detrimental to equities but generally beneficial to fixed-income and safe-haven investment. This year, we have reduced our portfolio’s European exposure by 50% before the Brexit vote. The preferred securities in our portfolio held up very well today, only down 0.4% vs. 0.7% decline for the US Preferred stock index PFF. The U.S. 10 Year Treasury yield dropped by 17 bps to 1.57%.

Domestic economic data were mixed this week. Existing home sales increased 1.8% in the last month to 5,530,000 for the third straight monthly increase, but new home sales declined 6% to 551,000. Weekly jobless claims came in better than expected at 259,000, and Markit’s flash manufacturing Purchasing Manager Index rose to a three-month high of 51.4, indicating faster growth of new orders and stronger employment. Crude oil was down 5% on Friday. The Federal Reserve Chairwoman Yellen reiterated the Fed’s cautious stance on data-dependent interest rate hikes, citing uncertainties on economic growth outlook.

Next week’s economic calendar highlights include third estimate of Q1 GDP and June Consumer Confidence (June 28th), Crude Inventories (June 29th), Initial Jobless Claims (June 30th), and Auto and Truck Sales (July 1st). We expect less volatility and maybe a rebound next week.

Have a great weekend,

Yansong Pang (庞岩松)


Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464