Key takeaways from the week

  • Stocks rallied on Tuesday and Wednesday, and the S&P 500 was up 2.3% on the week;
  • Helping stocks jump higher were economic data from the US housing sector: new home sales grew at their fastest pace since January 2008 and pending home sales grew 5.1% over the last month;
  • This acceleration in the housing market is evidence that the US economy can rebound from soft growth in the first quarter and companies can grow their earnings in the back half of 2016;
  • Rising expectations of a June or July Fed rate increase sent US Treasury yields higher last week; and
  • We see the odds of a summer Fed rate increase rising if US data this week show solid jobs gains, rising wages and an inflation pickup.

Lots of if's?

There is a lot of noise at the moment about the next rate rise in the US being touted, and fears about the Brexit vote reaching fever pitch. Are these factors something which should concern investors saving for any sort of long term goal?

Whatever happens, the outcome for sensibly placed long term investors is the same - stick to the plan.

What if the US raises rates? If Britain votes to stay in the EU? If Britain votes to exit the EU? Stick to your long term investment plan.

Of course there will be a short term reaction, but no one knows exactly what will happen and how long and far reaching that reaction will be. The market generally prices in rate rise expectations, and the impact of a Brexit is not expected to be overly damaging to UK equity prospects, and certainly not that of global equities.

Changes in these macro-economic factors cause short term fear and reaction, before the dust settles and everyone gets back to business as usual (until the next event comes along, repeat cycle).  Long term investing is about ignoring that noise, being disciplined to keep saving, and trusting your asset allocation to perform over the required time horizon.

If you're not sure what your asset allocation should be, then please send us a query and we'd be happy to help.

 

Market data

Equity Indices Value Weekly Change
FTSE 100 6270.73 1.86%
S&P 500 2099.06 2.28%
Hang Seng 20576.77 3.65%
Nikkei 225  16834.84 0.59%
Dax 30 10286.31 3.73%
Shanghai Composite Index 2821.05 -0.16%
Bonds  Value Weekly Change
US 10 yr 1.83% -0.55%
UK 10 yr 1.43% -1.40%
Commodities / Energy Price Weekly Change
Gold $1,213.78 -3.02%
Brent Crude Oil $49.23 0.75%
Currencies Majors Value Weekly Change 
EUR-USD 1.1133 -0.70%
USD-JPY 109.89 -0.54%
GBP-USD 1.454 0.17%
Central Bank  Rate
Fed Reserve 0.50%
ECB -0.40%
Bank of England 0.50%
Bank of Japan -0.10%
Prices as at Friday 27 May 2016

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