Market Update
(all values as of 04.28.2023)

Stock Indices:

Dow Jones 34,098
S&P 500 4,169
Nasdaq 12,226

Bond Sector Yields:

2 Yr Treasury 4.04%
10 Yr Treasury 3.44%
10 Yr Municipal 2.36%
High Yield 8.19%

YTD Market Returns:

Dow Jones 2.87%
S&P 500 8.59%
Nasdaq 16.82%
MSCI-EAFE 10.28%
MSCI-Europe 13.87%
MSCI-Pacific 3.86%
MSCI-Emg Mkt 2.16%
US Agg Bond 3.59%
US Corp Bond 4.29%
US Gov’t Bond 3.82%

Commodity Prices:

Gold 1,999
Silver 25.33
Oil (WTI) 76.63


Dollar / Euro 1.10
Dollar / Pound 1.24
Yen / Dollar 133.79
Canadian /Dollar 0.73

Macro Economic Overview

The British vote to exit the EU was a validation that a disintegration process of the EU is possibly underway, causing destabilization of countries throughout the EU. Britain’s vote may lead to other similar referendums, particularly with the Netherlands and France where populist sentiment is growing.

The British pound fell to a 30-year low versus the U.S. dollar following the outcome of the referendum. From a contrarian viewpoint, the plummeting British pound could provide a tailwind for the country as exports become cheaper worldwide, and tourism increases on stronger foreign currencies.

brexit blue european union EU flag on broken wall and half great britain flag, vote for united kingdom exit conceptIn the wake of the referendum’s outcome, international equity markets tumbled as uncertainty led the course. U.S. financial markets proved most resilient, with equity and bond prices returning to their pre-Brexit levels.

The Fed Reserve’s plan to further increase rates this year took a different course as the repercussions from Britain’s vote are expected to lead to slowing economic growth and a sustained low interest rate environment. While some pundits feel the Fed may ramp up stimulus efforts again by lowering interest rates should the EU and Europe’s economy falter, we do not fall into that category of thinking. We expect the low interest rate environment to remain for much longer than originally anticipated.

In the midst of the Brexit turmoil, the Federal Reserve announced that 33 selected U.S. banks passed an imposed stress test to see how well they’d perform under severe circumstances, such as high unemployment, recession, and falling asset prices. The stress test revealed that the 33 banks tested had nearly twice the amount of required capital needed, up significantly from the last stress test conducted.

Sources: Eurostat, Bloomberg, Federal Reserve


Britain’s Relationship With The EU & The Effects Of Brexit – EU Overview

Following the decision to exit the EU, the next step is to start the actual process. When the EU was established after WWII, a clause was inserted into the EU agreement to address any countries that should want to terminate and exit in the future. The clause is known as Article 50 and establishes the balance of power for ‘divorce’ talks. It also establishes the voting rules for determining how to part ways and sets a two-year deadline on talks that can only be extended by a unanimous decision of the other 27 EU countries.

While starting the formal break-up process is in the hands of Britain’s Prime Minister, a decision on how and when to end it would not be. Britain’s departing Prime Minister, David Cameron, did not trigger Article 50 and is leaving it to his successor, to the annoyance of those in the EU who want a fast and efficient break. Only the British government can decide when to invoke Article 50 as it is not designed to oust a country from the EU.

Immigration has been at the root of contention, as Britain’s net migration stood at 333,000 in 2015, the second highest figure on record for the country. Net immigration from EU countries, particularly central and eastern European member countries, rose rapidly after their accession to the EU in 2004 and offered migrants the ability to work and settle in the UK. Only by leaving the EU can the government reduce the number of EU migrants.

Screen Shot 2016-07-07 at 12.04.09 PMWith a population of over 500 million throughout the 28 EU countries, the United Kingdom represents 12.7% of the EU’s total population, one of the larger components making up the EU. The union was developed as an integral single market through a standardized system of laws that apply to all 28 member countries, thus allowing for the free movement of people, goods, services and capital.

On a global scale, the EU covers over 7% of the world population, made up of distinctive cultures and languages, all sharing the same financial and trade laws. The British approval to exit the EU is the catalyst for the end of European cohesion and symbolic of a rejection of status quo throughout Europe. International companies and multinationals may now express less interest to expand or hire in the UK as the uncertainty of the EU detachment unfolds.

Sources: Eurostat,

Equity Update – Domestic & Global Stock Markets

U.S. stocks fared better than international stocks following Britain’s announcement on leaving the EU. U.S. equity markets were resilient once the surprise of Brexit unfolded, with the S&P 500 Index and the Dow Jones Industrial Index both remaining positive for the year. Most U.S. large cap domestic equities are well insulated from global developments since 70% of their revenue is generated from within the United States. For comparison, Japanese companies generate 50% from within their economy, and European companies generate 49% from within Europe only.

With the U.S. 10-year Treasury rate below 1.5% and many international government bonds offering negative interest rates, there is a strong upward bias toward U.S. Equities. Over 60% of the companies in the S&P 500 index currently offer dividend yields higher than the 1.5% 10-year treasury.

The British equity index, the FTSE 100, tumbled in June following the Brexit vote. Companies within this index generate approximately 75% of their revenues outside of the U.K., with many maintaining contracts and arrangements with other businesses based in other EU countries. There is a high probability that decisions for capital spending and expansion by companies will be hindered by the uncertainty surrounding Britain’s divorce from the EU for the foreseeable future.



Bonds Worldwide React To Brexit – Global Fixed Income Update

As government bond yields turned negative throughout Europe, rates overseas in the U.S. and in Asia also dropped to new lows. The U.S. Treasury 10-year bond yield stood at 1.49% at the end of the June, a level not seen in a very long time.

The U.K. was stripped of its AAA credit rating by Standard & Poor’s, lowering the rating to AA. Such a change theoretically makes it more difficult for the British government to issue inexpensive debt. S&P cited the downgrade due to an increased risk because of a less predictable, stable, and effective policy framework in the U.K. S&P also noted that the U.K. has the highest financing needs among all of the 131 countries it follows and rates. The U.K. now has a worse rating from S&P than the U.S., whose rating was famously lowered by the credit-reporting firm in 2011, even after the downgrade was adamantly contested by the U.S. Treasury and government.

With the decline in yields around the developed markets, the flight to quality and safety of the U.S. Treasury market seems to be attracting global buyers even at lower yield levels. U.S. fixed income markets solidly outperformed U.S. equity markets as of the end of the second quarter, with corporate, municipal, and government fixed income sectors all advancing. An oddity to the current environment- bonds kept pace with rising commodity prices, whereas historically, bonds tend to lose value as commodity values increase.

Sources: Moody’s, S&P, US Treasury, Federal Reserve


Less Men Are Working – Labor Demographics

The Council of Economic Advisors, an agency within the Executive Office of the President, released a report in June identifying the fact that less working age men are working. The report found that the participation rate for men between the ages of 25 and 54 fell more steeply than in all but one country in the Organization for Economic Cooperation and Development (OECD) from 1990-2014. The U.S. rate is now the third lowest among 34 OECD nations. The participation rate is a measure of how many employable men are willing and able to work, thus participating in the labor force.

The male labor force participation rate peaked at 98% in 1954, and has fallen to 62.6% in May of this year. It is of particular concern since workers are at their peak productivity and earnings from ages 25 to 54.

Gender Participation Rates 7-5

Part of the reason behind the fall in demand for lower-skilled labor is the drop in manufacturing jobs, resulting in technological change.

The World Bank also tracks the participation rate for men and women worldwide. Its data reveals that women throughout the world are working more. Opposite of the gloomy male statistics, the participation rate for females has steadily increased worldwide. We attribute a significant portion of the recent increase to advancements in technology, enabling many new jobs to be gender neutral.

Sources: The World Bank, OECD, Council of Economic Advisors


11 Million Spend Half Of Income On Rent – Housing Update

As banks and financial institutions are mandated to increase their loan qualifications for home mortgages due to government regulations, more and more families are forced to rent rather than own. As the demand for rentals has increased, the level of home ownership has fallen. Some attribute this dynamic to a low inventory of homes on the market, while others blame excessive government requirements imposed on mortgage lenders.

Nationally, a lack of available rentals along with the increased demand for rentals has propelled rental costs upward. The number of individuals dedicating at least half of their income towards rent hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies.

As rental prices have risen faster than wages, losing such a significant portion of a paycheck to cover housing has meant cutting back on essentials such as food, clothing and health care. This scenario is draining on young families saving for a down payment on a home purchase – especially not knowing whether a mortgage approval awaits them or not.

Last year saw the biggest surge in new renters in history, bringing the number of people living in rental units to around 110 million people, accounting for about 36% of households. Middle-aged renters made up a substantial portion of the new demand, with 40% of renters aged 30-49.

More affluent tenants are staying in the rental market longer and driving up the demand for housing. Traditionally, the wealthy move on to become homeowners, but tight inventory in the housing market is keeping them in rentals longer. The median rent on a new apartment was $1,381 in 2015, which equates to a renter having to earn at least $55,000 a year before taxes to afford the rent.

Homeownership Rates Chart

Sources: Joint Center For Housing Studies



Navigating these markets with their high volatility and diverse performance in a period when there are a number of uncertainties – Brexit is just one example – requires close monitoring and in-depth analysis of a wide range of economic, financial, technical, and geopolitical developments. At Wanderlust Wealth Management, we have maintained a cash reserve during the quarter, a significant portion of which we have used to take advantage of several trading opportunities. Longer term, the very low interest rates globally should be positive for equities, and there is potential for more positive market performance in the second half as the economic pace quickens in both the US and globally.