Week In Brief: June 17

June 20, 2016

Equities laid down last week like Kardashians in a plastic surgery center. Willingly and often. Though dovish Fed speak soothed investor nerves on Thursday, the rest of the week was a hand-wringing, hair-pulling affair. As markets were unnerved by Brexit, opaque economic data, and the realization that either Hillary or Trump will eventually inhabit the White House.
Not all news was bad, however.
Q2 earnings estimates appear to be improving. As negative revisions have become less negative, of late. A good sign. And just the potential catalyst stocks require to potentially push through the barrier under which they've remained since May 2015.
Why the improvement?

Primary reason being that forward estimate revisions for the energy sector have stopped falling. In fact, the energy and basic materials sectors have seen upward revisions to forward quarterly earnings estimates. At a time more typified by downward pressure on forward growth rates. So, while energy may not be out of the woods, the landscape has improved.
Perhaps Q2 earnings might provide some positive surprises. As opposed to confirming the negative trend witnessed these last four quarters.
Speaking of negative, Thursday marks Britain's historic vote on the future of its European Union relationship. Dubbed "Brexit," the vote signifies nothing less than the culminating opinion on the 43-year experiment in which Britain has been enmeshed in the EU. And the financial media would have you believe that if Brits head for the exit, all hell will break loose.
Underscoring the value of taking the media's caterwauling with a grain of salt.
In one corner, the exit crowd. Which claims that Britain must leave in order to restore self-government, or else continue to live under a supranational regime that the British people can hardly elect, influence or control. One that has neglected British sovereignty. While implementing the accoutrements of a relentlessly self-indulgent bureaucracy.
And in this corner, the remain crowd. Which states that Britain's exit from the EU will represent a financial calamity for the island nation. With global repercussions. As Britain's unfettered access to a huge marketplace vanishes. Followed by economic and political isolation.
Sounds pretty apocalyptic. So how true can it be? Regardless of the outcome, entrenched opinions on both sides have sold all forms of skullduggery in attempting to win. And I've no doubt that the nomenklatura who have grown roots within the E.U.'s byzantine bureaucracy have deeper pockets. And - in the near term - more to lose. So the most frightening, loudest protests doth likely emanate from them.
As of now, polls reveal a razor-thin contest. With the "remain" crowd having, perhaps, an upper hand.
Regardless, and we believe that the one we include below from Ambrose Evans-Pritchard to be among the most thoughtful, the vote will be historic. And either decision could bring lasting consequences for global markets.
Returning stateside, the Fed has consistently reported that inflation remains beneath its two percent target. But don't tell that to the man on the street.
The Chapwood Index, which tracks a basket of 500 items in 50 U.S. cities, concluded that in 2014, actual inflation was 9.7 percent. Followed by 9.6 percent in 2015. Seeing as wages rose by only a third of that, you cannot blame the middle class for viewing the political class as out of touch. Nor for its willingness to vote its disenchantment in November's election.
If you've followed the news regarding self-driving cars, you'll want to check out a new promotional video from Rolls-Royce featuring their visionary 103EX. The first two minutes feature an advertisement. The next four provide a presentation on the technology and product. The future of driving as envisioned by one of the industry's preeminent luxury brands. Interesting stuff, here.
Bottom line? Brexit has managed to gin up a vortex of geopolitical and financial concerns. Leading many to conclude that the chain reaction of causal events will halt global trade and lay low economic equilibrium. Of course, that's hogwash.
While Thursday's vote could bring volatility, calmer heads will prevail. With few signs of economic downturn on the horizon, and increasingly positive earnings trends ahead, we believe that investor optimism could reside around the corner. And though we may have to get the election out of the way, investors will eventually amass the aggregate will to push these sideways trending indices higher. Leading to mounting optimism, capital inflows and a rising tide that lifts all boats.
Brexit won't be the disaster many claim it might for the very reason that it's so transparent. Disasters sneak up. Explode. And scatter the frightened herd. As it flees in all directions seeking cover. This, my friends, is not that. Moreover, the most newsworthy stories rarely become the most important for your investments.
So take a deep breath. Relax. And enjoy your week.
Weekly Results
Major market indices finished down this week, DJIA lost 1.06%, S&P 500 fell 1.19%, NASDAQ fell 1.92%, Russell Small cap lost 1.65%. 10-year treasury fell 3 points to 1.61%. Gold rose 1.97%, up $25.10 per ounce.

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