After the stock market’s early-2016 plunge was largely recouped by the end of the first quarter, equity prices settled into a narrow trading range from April to early June. That relative calm was punctured on June 23 by the surprising vote by the UK electorate signaling its desire to leave the European Union. The unexpected victory by the “Leave” campaign sent markets into a tailspin, as investors fretted about the economic and political implications of a fracturing EU. But the panic selling lasted only two days, and US stocks recovered all of their losses over the next four. Despite the innumerable uncertainties surrounding the longer-term impact of Brexit, the “buy the dip” mentality was in full swing.
The other notable occurrence in the second quarter was the continuing plunge of interest rates across the globe. According to data from Bianco Research, at quarter’s end, more than one-third, or $12.7 trillion, of all sovereign (government) debt outstanding was yielding less than zero, and only 6% of sovereign debt carried a yield of more than 2%. In this upside-down environment, a yield of 1.4% on 10 year US treasury bonds looks attractive to some.
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