PMC Weekly Review - July 8, 2016

A Macro View – Just when you thought it was safe to go back in the water…

The Brexit aftermath has reminded us once again that US equity markets have been turbulent in recent years. Although prosperity appeared to have returned to the markets in 2013 and 2014 (2014 marked the third straight year the S&P 500 Index posted double-digit gains), volatility increased in 2015. An August 2015 sell-off, spurred on by fears of slowing growth in China, saw sharp drawdowns reminiscent of the October 2008 crash. Investors experienced dramatic swings throughout 2015 as the market wrestled with the effects of China's currency devaluation, falling oil prices, and uncertainty over interest rates hikes. The markets
bounced back by year end, with both the Dow Jones Industrial Average and S&P 500 Index closing 2015 essentially flat, only to see US equity markets suffer their worst start to any year in history right out of the gate in 2016.

Equities continued to struggle in 2016 through mid-February, but began to recover during the second half of the quarter. Losses were regained, and then some, as the S&P 500 closed the quarter up +1.4%. The market environment seemed to calm in the second quarter of 2016, but just when it seemed safe to go back in the water, Britain’s vote to exit the European Union sent
markets reeling, causing an abrupt, albeit short-lived, sell-off. Within a week, US equity markets had essentially returned to pre-Brexit levels. The S&P 500 ended the quarter up +2.5%, but in the wake of Brexit, many have been left wondering what comes next.

In spite of heightened volatility, from a 10,000 foot view, US equity markets essentially have gone nowhere over the past few years. The S&P 500 Index has stayed roughly in the range of 1800-2100 since 2014. But despite the fact that US equity markets have not moved the needle in the grand scheme of things, overall, investors can appreciate that their portfolios have been flat (but not down), and have fared much better than international equities. And while it is fair to say that going forward there is much uncertainty surrounding US equity markets, and many question whether we are in the early stages of a new bear market, within the global context, investors should bear in mind that US equity markets lately have done better than most.

Nevertheless, although taking a step back to put things in context can provide some much needed perspective, no one has a crystal ball, and no one knows for sure where the markets are headed. The most important take away for investors, regardless of where we are and what may lie ahead, is that market volatility is inevitable. Stay the course. Stay invested. Stay in the water. Timing the market is difficult, especially in abnormal market environments. Fortune favors the disciplined investor, and the greatest rewards often follow significant periods of turmoil.

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