The June 2016 Insight 

Adam E Bray CFP®
Chief Investment Officer

Summer's Hot Issues 

On May 21, 2015, the S&P 500 Index closed at 2,130.82, an all-time closing high for this broad measure of 500 large U.S. companies (St. Louis Federal Reserve).

In the year since, it has failed to recapture that level.

On April 20 of this year, we finished at 2,102.40 and we closed out May at 2,096.96, but there hasn’t been a new high in over a year (St. Louis Federal Reserve).

It’s not uncommon for the major indexes to go through periods where gains are elusive or we experience unwanted volatility.

That leads us to the next question, “Why have the markets seemingly been taking an extended nap?”

There are a number of reasons, but let’s hit on the major ones

1. S&P 500 profits have declined for three straight quarters (Thomson Reuters).
2. The oil industry has rippled through manufacturing, which has also hampered profits.
3. The stronger dollar has hurt earnings of U.S. multinationals, because sales incurred overseas must be translated back into the stronger dollar.
4. Lingering worries about global economic growth hamper overall sentiment.

On the flipside

1. The earnings recession is expected to run its course during the current quarter (Thomson Reuters).
2. Oil prices are well off the lows, which loosens the tight screws around the industry.
3. The dollar has stabilized.
4. Leading indicators are not pointing to a recession.

Table 1: Key Index Returns

Source: Wall Street Journal, MSCI.com

MTD Returns: April 29, 2016 - May 31, 2016

YTD Returns: December 31, 2015 - May 31, 2016

*Annualized

Summertime blues: Brexit

At this juncture, let’s take a look ahead and spend some time on a couple of issues that have the potential to create short-term volatility in stocks. This won't be all-inclusive, but hits on the high points.

The first is the potential “Brexit,” the possibility that Britain will choose to exit the 28-nation European Union (E.U.) in a June 23 yes-or-no referendum.

 A vote to leave would spike heightened uncertainty that could easily produce short-term volatility for U.S. stocks.

Summertime blues: the Fed

While the Fed is taking a very slow approach to raising interest rates, several Federal Reserve officials, including Fed Chief Janet Yellen, are seriously eyeing another rate hike this summer.

Let’s take a longer view. Historically, data from the St. Louis Federal Reserve suggests that, by itself, higher interest rates do not lead to bear markets (recessions do). But a second rate hike by the Fed has the potential to create short-term volatility for investors.

Bottom line

You and I cannot control the stock market, interest rates, or the economy. Clearly, these variables are outside our control.

What we do control is the investment plan. So I encourage you to adhere to the one we’ve agreed upon, unless you’ve experienced a change in circumstances that means we need to adjust the plan.

Thank you very much for the trust and confidence you’ve placed in our team. 

_{These are the opinions of Chief Investment Officer Adam E Bray CFP® and not necessarily those of Cambridge. The views expressed herein are for
informational purposes only and should not be construed or acted upon as individualized investment advice. Indices mentioned are unmanaged and cannot be invested
into directly. Past performance is not a guarantee of future results.}