Broker Check



Week of June 20, 2016

Investors broadly stepped out of risk assets after a rocky week where almost all regions were down.

Europe was off for the week as the markets move into the last few days before the Brexit vote. Japanese equities, as measured by the Nikkei 225 Average, were down a staggering 6% following the Bank of Japan's decision to wait for additional monetary action until after the Britain's referendum. Domestically, all our major indices ended last week in negative territory with the NASDAQ Composite leading the way, down 1.92%. The S&P 500 and the Dow Jones Industrial Average were down 1.19% and 1.06%, respectively. This week's Brexit vote will dominate the news and market cycle over the next few days. We are keeping a close eye on the referendum and will provide updates in our next commentary.

Lowering the Outlook

In what was generally expected by the markets, the US Federal Reserve's voting members unanimously decided to keep rates steady, citing weaker economic growth projections and job markets. More specifically, the Federal Reserve lowered their expected rate of US economic growth in 2016 from 2.2% to 2% and slightly lowered 2017's forecast as well. While the central bank is still expecting two rate increases this year, they did lower their guidance on the path of future rate projections, cutting 2017's median rate to 1.6% and 2018's to 2.4%. This contrasts with the Federal Reserve's first quarter estimates of 1.9% and 3% for 2017 and 2018, respectively. Also weighing on the central bank is the US dollar. The Fed is in a unique position where it happens to be raising rates while the vast majority of the world is lowering theirs. This is putting upward pressure on the US dollar as investors flee low-yielding investments, increasing demand for the greenback. Unfortunately for the Fed, this creates a negative feedback loop where capital flight from other countries, especially emerging markets like China, impacts global growth and puts more pressure on the global economy.

 Chart 1 06.20.16

Negative Bund Rates

Germany's 10-year bond, or "bund," finally dipped into negative territory the middle of last week on growing concerns over the Brexit and what it means for the European Union and Europe as a whole. We would note, however, that Germany isn't new to the negative rate environment. Indeed, 2-year and 5-year bunds are already offering negative yields but this is the first time ever that the 10-year bund closed with a yield below zero. It is important to remember that price and yield move inversely. Everything else being equal, a bond's yield will go down when prices go up. In Germany's case, investors pushed prices up so high for the 10-year bund that the yield went negative to close at -0.008%. Even though the rate is marginally below zero, a negative yield carries significant psychological ramifications. This indicates investors are so risk averse that they are willing to receive a guaranteed loss. Albeit, the loss is a small one but it is a loss nonetheless and over a longer time frame than the 2-year and 5-year bond. We anticipate further market volatility and risk aversion in the days leading up to the Brexit vote later this week and will comment on the outcome once the results remain clear.

 Chart 2 06.20.16

Sources: Tradeweb (data); European Pressphoto Agenency/Sergio Garcia (photo)

Consumer Credit

A number of consumer credit firms have come out publicly to warn that credit cards, auto loans and student loans are weakening, citing consumers' deteriorating ability to repay their obligations. These same firms have increased their forecast for credit losses over the coming 12 months, possibly indicating the peak of a credit cycle as defaults on general-purpose credit cards have started to rise over the past few months. This is important because consumer consumption makes up nearly two thirds of the US economy's GDP and a slowdown in credit could indicate a sputtering economy. What's more, the creditworthiness of borrowers has been slowly declining at a time when consumer debt is hitting all-time highs. For example, the amount of auto-loan balances pushed past a record in the first quarter to hit more than $1 trillion all while the percentage of leases that were over 30 days late increased as well.

Fun Story of the Week

It's one thing to have a meal at a five-star restaurant but something wholly different to eat at the world's best restaurant. Osteria Francescana in Modena, Italy was just named the world's best restaurant by fellow chefs, restauranteurs and gourmets. Chef Massimo Bottura, recipient of three Michelin stars, won the award through his contemporary take on traditional Italian cuisine. Take the dish, Five Ages of Parmigiano Reggiano. It is a combination of the region's most famous cheese with different maturities combined in various forms, such as a soufflé, a wafer and a foam. His Caesar Salad in Emilia, at first glance, looks like simple pieces of lettuce. Upon closer inspection, it's an amalgamation of 15 typical ingredients from a Caesar salad painstakingly prepared in unique ways. If you like fine dining and happen to be in Modena, it would undoubtedly be quite the experience but it's recommended to plan far in advance. Restaurants like this typically don't take walk-ins!

Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC.Certain associates of Joseph W. Jacques, CPA, CFPTM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFPTM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC. 

This newsletter was written and prepared by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.


The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.


The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.


The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.


The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated.


Wall Street Journal, June 2016.

Wall Street Journal, June 2016.

Wall Street Journal, June 2016.

Wall Street Journal, June 2016.

Wall Street Journal, June 2016.

Wall Street Journal, June 2016.

Bloomberg, June 2016.