World Champions
I will start with the pleasant news. Since the last blog, the Cleveland Cavaliers brought a championship to Cleveland for the first time in 52 years. For those of you who do not live in Cleveland, the last game was an epic battle and the sports highlight of almost every Cleveland sports fan’s life. Following the win was the most incredible victory parade ever. It is estimated that over 1.3 million people (the most ever in Cleveland at once) attended the celebration. There were people of all ages and backgrounds all rallying together around the champions. It was truly one of the best moments in Cleveland ever! Below are a few photos that capture a bit of the experience and crowd. WATCH: Parade Highlights and/or WATCH: The Best Two Minutes in Cleveland Sports Since 1964
Brexit
Now on to the really exciting news. Last night, contrary to market expectations, voters in the U.K voted to leave the European Union (The “Brexit”). This outcome, as you know, reverberated across the world’s financial markets. There is an abundance of media coverage on this subject, so it would not be valuable for me to merely regurgitate that. I will, however, visually share some of the implications in a series of charts:
Biggest Move Ever for the British Pound: The chart below shows the GBP and its corresponding one day changes (bottom). Today was the biggest move ever, affecting currencies and related assets worldwide. Also note that today’s move places the currency at its lowest level in thirty years.
British Pound (40 Years)
Biggest Move Up For Gold Since 2008: With this new unknown injected into the market, investors are scurrying toward perceived safety. Not surprisingly, gold and other safe-havens are up strongly today. Looking at the chart below, one might also argue that the four-year downtrend started in 2011 in gold is over.
Gold (7 Years)
Biggest Move Ever for European Banks: For numerous reasons, the European banks are getting pummeled today. As you can see in the chart below, today’s move surpasses those of 2008-2009:
European Bank Index (30 Years)
US Rates Lower: As part of the “flee to safety” trade, money is flowing into U.S. Treasuries. The rate on the 10-year bond is now down to 1.56%. This is the lowest level in years, and is approaching THE low of 2012. On a related note, today’s news has shifted the impression of future Fed interest rate moves and has increased the chances of rates being lower for longer. This has many implications, but one that I have been talking about is the “yield bubble”. If investors expect rates to be lower for longer, their thirst for high-dividend paying stocks will likely continue.
Ten-Year U.S. Treasury Rate (Since 2008)
U.S. Stock Market Lower: The U.S. stock market is also being affected by the Brexit, obviously. While the media is focusing on the move today, compared to other markets and asset-classes, today’s sell-off is actually quite orderly and not too extreme. In fact, the market has only corrected back to where it was last week before the consensus shifted toward believing the Brexit would not happen. Looking at the S&P 500 chart below, today’s market move, while unpleasant, is hardly alarming. The coming days and weeks will determine whether this was a “blip” for our markets or the beginning of the next downturn.
