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Market Recap – Brexit Provides Wake-Up Call for Clinton Supporters

July 22, 2016 | Craig Birk, CFP®

Market Digest – Week Ending 7/22

The S&P 500 rose 0.6%, posting its fourth consecutive weekly gain. The dollar strengthened moderately as investors continue to evaluate the impact of Brexit on Europe and emerging markets currencies were impacted by the failed coup in Turkey. Earnings were mixed. Intel and GE disappointed while GM trounced expectations. Oil prices fell due to high supply numbers and the higher dollar.

Weekly Returns:

S&P 500: 2,175 (+0.6%)
FTSE All-World ex-US: (+0.1%)
US 10 Year Treasury Yield: 1.57% (+0.02%)
Gold: $1,322 (-1.2%)
USD/EUR: $1.097 (-0.5%)

Major Events:

• Monday – Japanese conglomerate Softbank agreed to buy ARM holdings for $32 billion in order to increase focus on the “internet of things”.
• Thursday – The Justice Department sued to stop two separate mergers between some of the nation’s largest health insurers – specifically Anthem’s bid for Cigna and Aetna’s combination with Humana.
• Thursday – GM announced its best financial quarter in seven years, but also issued caution around the second half of the year.
• Thursday – Liberty Media was said to have approached Pandora about acquiring the company for $15 per share, or $3.4 billion. The overture was rejected.
• Thursday – Sales of previously owned homes reached the highest pace since February, 2007.
• Friday – At least 8 people were killed in a shooting in Munich in what appears to be a terrorist attack.

Our take:

Donald Trump’s convention week didn’t go off exactly as he planned. First, his wife Melania’s speech turned out to be partially plagiarized from a former speech of Michelle Obama. Then Ted Cruz chose not to endorse him during his speech, prompting a backlash that was poorly received.

Roughly 32 million viewers tuned in to watch him speak, which was more than Mitt Romney got, but less than John McCain. Demographic advantages for Hilary Clinton will make it tough for Trump to win the election. His best hope is that the media is obsessed with him and he has people’s attention. If he can use that to win them over, anything could be possible, but it didn’t work this week.

Brexit provided a wake-up call for Clinton supporters that just because something is “supposed to” happen, doesn’t mean it necessarily will. It will be an interesting fall. As far as markets are concerned, the outcome will have important policy impact but we don’t think investors should get emotional as it relates to long term asset allocation. It is nearly impossible to predict how a candidate would perform in office and even if you could, the stock market has a long history of doing just fine with not-so-great Presidents.

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