Global equity markets have been strong this year with all three major U.S. indices delivering double-digit gains. Performance overseas has been even more impressive with the Developed Markets Index up 17% and the Emerging Markets Index up 24%.
Now that the elections have concluded, investors will shift their focus to assessing what a Trump administration aligned with a Republican Congress means for the outlook of the economy and the markets. While it will take time to implement new initiatives, we assessed the potential positives and negatives based on the priorities discussed by Trump during his presidential campaign.
Among the main factors for the significant declines in global financial markets today are the unexpected nature of the UK referendum outcome and that equity markets had rallied over the past few days on the expectation of a Remain victory, which would have maintained the status quo and reduced uncertainty.
The markets have started 2016 with a significant sell-off. The S&P 500 and Dow Jones Industrial Average are both down over 8% so far this year. Last week, both indexes officially fell into “correction” territory, defined as 10% below recent highs.
This morning the S&P 500 was down as much as 12% from its all-time highs reached in late May, meeting the definition of a market “correction.” Interest rates have fallen during this sell-off causing US Treasuries and high quality corporate and municipal bond prices to rally.
While the S&P 500 is trading near all-time high levels, the market appears to be in a holding pattern as investors await clarity on the timing of interest rate hikes by the Federal Reserve and the health of corporate earnings.
The US equity market is flat so far this year but has seen increased volatility. We have identified three factors that are having the greatest impact on stocks: Federal Reserve; Strong US Dollar; Oil.