Investors’ Comfort Appears to Be Growing
By Laif Meidell, CMT, President of American Wealth Management, and Portfolio Manager of the AdvisorShares Meidell Tactical Advantage ETF (NYSE Arca: MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (NASDAQ: MAUI)
These days when financial markets and economies are in trouble, investors look to central bankers to come a’ running to solve their problems and quiet their fears.
But now that most of the noise has died down over the Brexit vote, central bankers appear to have taken more of a wait and see approach, versus a proactive one, just as the Bank of England did on Thursday. Just three weeks after the Brexit vote, the Bank of England’s nine-member policy committee voted 8 to 1 to hold rates steady at 0.5 percent for another month, but said they expected to launch fresh stimulus following their meeting next month.
The financial markets appeared to take the BOE’s decision in stride as the British pound responded favorably to the news, gaining over 1.4 percent on the day. Here in the U.S. the major market averages gapped higher at the open then traded sideways for most of the day to close slightly off their highs; the Standard and Poor’s 500 gained 0.53 percent and the Nasdaq Composite rose 0.57 percent on the day.
Though the market averages appear poised to make higher highs in the near future, in the short term the advance seems to be in need of a rest. This was evident on Thursday, as smaller company stocks underperformed larger companies for the first time in several days.
Signs of inflationary pressure were welcomed by investors as they learned the Producer Price Index for June rose 0.5 percent. Even after food and energy costs were removed, the reading was higher by 0.4 percent for the month.
It was a generally favorable day for the stock market on Thursday with 9 out of 11 Dow Jones U.S. sectors finishing the day in the green. The two sectors that were down on the day were utilities and real estate. These two sectors tend to be more interest rate sensitive, such that when interest rates are rising, like they were on Thursday, they tend to underperform.
An indication that investors are feeling more comfortable taking on risk, this week’s top performing bonds were led by the Barclays U.S. Convertible Bond index up 3.13 percent over the past five trading days, followed by the S&P International Corporate Bonds index gaining 2.24 percent over the same period.