Major market indices have been locked in a trading range for most of the second quarter, following on the heels of a dismal first quarter.  How will the quarter close out?

The Big Picture

Having revisited support as the price of crude oil fell, indices rallied as crude recovered.  Crude now has a solid floor of support at $37/bbl but faces tough resistance at $50/bbl.

The dollar played some part in the recent volatility as investors continue to guess when the Federal Reserve will again raise rates.  Those hoping for a June rate hike may be rethinking that bet as Friday’s Employment Situation Report for May showed the least number of jobs created (38,000) in five years.  Rate hike speculation now moves to the July FOMC meeting.

Speculation is also rife regarding “Brexit”, the referendum vote on Britain leaving the European Union, and its impact on the UK and the rest of Europe’s economies.  Eligible voters of Britain, Ireland and Commonwealth citizens (former British subjects) will decide on June 23rd whether to stay or to go it alone.

Voters on this side of the pond have been treated to a presidential campaign season like no other in recent memory.  As both parties prepare for their respective conventions, investors are weighing the good, the bad and the ugly of all candidates, not just on the national level but state and local offices as well.

This uncertainty has made the current investment environment very challenging and volatile.   Year-to-date the major indices are mixed;  the Dow Industrials up 1.95%, the S&P 500 better by 2.5% while the NASDAQ is off 1.3%.

Last quarter saw defensive positions perform best.  Investors in telecoms and utilities were rewarded.  Punished were those in financials and healthcare.  High quality beat low; value bested growth; large caps outpaced small caps.

I, Investor

Uncertainty about the economy will continue to dog investors while the slowdown in earnings per share and price momentum will put hamper any breakout to the upside.  The search for yield may have some swinging for the fences only to whiff.  That won’t stop the search for home runs and, given the cyclical nature of active/passive investing, active investing may have the edge this year, something we haven’t seen since the run of 2000-2009.

On the other hand, we could be repeating 2011, when the S&P finished virtually unchanged after a volatile year.  We’re still plagued with the same worries of 2011: terrorism and global political unrest, natural disasters, Europe swamped with immigrants and awash in debt while gridlock in Washington D.C shows no signs of easing.

As we test the upper band of trading ranges, be alert and nimble.


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