Second Quarter Investment Commentary

Contributed by: Angela Palacios, CFP® Angela Palacios

Ever heard of the Chinese curse?  “May you live in interesting times.”   We certainly have the interesting part covered this year! 

Voters are showing that around the world they are fed up with the status quo. Donald Trump became the presumptive nominee as the republican candidate for President of the United States while David Cameron, Prime Minister of the United Kingdom, announced he will be stepping down after the UK voted to leave the European Union. 

Unfortunately, “interesting” usually translates to volatility in the markets and this quarter has been no exception. With the S&P 500 up 2.46% for the quarter and 3.84% as of June 30th for the year, the ride has not been as smooth as it may appear on the surface especially during the last trading week of the second quarter.


An affirmative vote for the UK to leave the EU, or Brexit, caused a couple of days of uncomfortable downside volatility, but it did not last long. The media has a hay day with these “interesting” events and we find ourselves having to sift through the hype to dig into what an event really has to do with our portfolios. 

Let’s put some perspective around this. The United Kingdom only represents about 4% of the world’s GDP compared to the U.S. contributing 22% according to the World Bank’s Gross Domestic Product figures for 2015. In fact, the separation could take two years, after they invoke an agreement called article 50, to iron out the details and in the end may not even harm the world’s economy.  Article 50 must be invoked by the Prime Minister and likely won’t be done until later this year after David Cameron is replaced. 

The point here is that all is yet unknown and Brexit will certainly continue to cause headlines on occasion over the coming years as well as short term potential volatility

Overall, this should not impact long term returns in a significant way for most asset classes outside of the UK, and therefore we aren’t recommending a change to a diversified long-term investment strategy.   Our international holdings remain spread around the world and there are no outsized positions within the UK. These periods of short term volatility may be viewed as buying opportunities for our international portfolio managers.

Interest Rates

The Federal Reserve voted to stay their hand at the June meeting and did not raise interest rates again but left an opening to possibly raise rates at the July meeting. Economic data has come in at its continued slow growth trajectory while inflation has been benign causing the lack of interest rate increases by the Fed. The Fed was also concerned about the Brexit vote occurring one week after their meeting and this may have caused them to hold off as well. 

Bond markets remind us once again why it is important to hold them within a diversified portfolio. As volatility picks up they rarely fail to cushion our overall portfolio returns and this quarter has been no exception with the Barclays Aggregate Bond Index up 2.21%.

Your Plan and Portfolio

While interesting times may lead to volatility you can bet that some portions of your portfolio may outperform others in any year.  At the Center, we monitor the allocation of your portfolio on a regular basis.  When volatility presents an opportunity to rebalance we will act on your behalf or notify you if a change is needed.  Adding money to your portfolio, managing positions, and tax loss harvesting are some of the strategies that we can take advantage of during periods of volatility. We also anticipate future cash needs so funds are available regardless of market returns.

Here is some additional information we want to share with you this quarter:

Checkout Investment Pulse, by Angela Palacios, CFP®, summarizing some of the research done over the past quarter by our Investment Department.

Investors often avoid that which they don’t understand despite the diversification or return benefits an asset class may provide. Check out Investor Ph.D .

This month Nick Boguth, Investment Research Associate, delves into the equities with a primer on investing in common and preferred stocks.

Jaclyn Jackson, Investment Research Associate, discusses some important developments for the Real Estate Investment Trust asset class.

We strive to keep you informed! You may tune in to our webinars for market updates (there is one coming up soon, Summer Market Update: Staying cool while markets are turbulent. Click here for information and to register). These are meant to supplement your conversations with us so don’t hesitate to reach out any time you have questions or concerns. Thank you for placing your trust in us!

Angela Palacios CFP®
Director of Investments

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

Please note that all indices are unmanaged and investors cannot invest directly in an index. An investor who purchases an investment product which attempts to mimic the performance of an index will incur expenses that would reduce returns. Standard & Poor’s 500 (S&P 500): Measures changes in stock market conditions based on the average performance of 500 widely held common stocks. Represents approximately 68% of the investable U.S. equity market. US Bonds represented by Barclay’s US Aggregate Bond Index a market-weighted index of US bonds. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.