Markets Hit New Highs As Terror Grips Globe

The week ended on upbeat in spite of the tragedies, which is an indication of the resiliency of the markets.

SCM Global Market Box Score

S&P 5002161.742.995.76
DJ Industrials18516.553.276.26
DJ Transports7985.176.686.35
DJ Utilities710.12-0.8322.85
NASDAQ Comp5029.583.850.45
Russell 20001205.314.636.10
FTSE 1006669.242.536.84
CAC 404372.513.18-5.70
Nikkei 22516497.855.91-13.31
Hang Seng21659.254.15-1.16

Markets End First Half on Upbeat

US equity market recovered nicely from Brexit to finish the second quarter mostly in the black. Also, markets end first half on similar gains The Dow Jones Industrial Average was up 1.4% while the S&P was up 1.9%.  Small caps were up even more in the quarter with Russell 2000 clocking an impressive 3.4% but the tech laden Nasdaq was off 0.6%.

The ten year Treasury finished near record low yields at 1.49%. Crude oil settled in at $48.33 / barrel and gold ended at $1,318/oz. The dollar bought 103 yen which has soared 14% YTD while the euro cost $1.11 which was also 2.2% higher against the dollar. The UK pound closed at $1.33 down 11% YTD.

For the first half of 2016, the Dow Jones Industrial Average was up 2.9% and the S&P 500 up 2.7%. The Russell 2000 was up 1.4% while the Nasdaq sunk 3.3%. Gold was up 24% and crude oil up even more at 31%.  Through the first half the euro climbed 2.3% and the yen was up 17%.  The UK pound was off almost 10%.

The results indicate the Brexit downdraft last week was not sustainable. The stock markets seem to be saying recession is still a few quarters out.

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Decisions Need To Be Made Before Smooth Brexit

After the Conservatives select a new prime minister sometime in September, several financial and structural issues will have be addressed before progress is made on a smooth Brexit.

The financial decisions include phase out of UK’s EU budget contributions and what to to with joint research projects slated to end after Brexit. What are they going to do about British subjects working in EU institutions and what is the status of UK nationals living in EU and EU nationals living in the UK?

Remaining EU leaders will need to set new policy priorities regarding economic growth and security.  Negotiations can’t formally Begin until Britain invokes Article 50, official notification of withdrawal, sometime in the fall.

Markets have stabilized somewhat but it will be at least six months before we get close anything resembling normal.

Brexit Outlook Lacks Coherence

Initial analysis on Britain’s exit from the EU has been all over the map and has more to do with the personal biases of the prognosticator than substance. I think we need to know who the next prime minister will be (Johnson, May or Gove?) and allow the other leaders time to hammer out positions.

Meanwhile, financial markets will have to simmer while political consensus is reached and corporate leaders can plan and execute under the new contours. The speed of departure is at issue with France demanding a quick and punitive exit while Germany wants to take time and get it right.

The US economy which remains healthy will do OK while waiting as it did through the Greek crisis.  Worries are strengthening dollar, sagging business confidence and tightening financials conditions. Households will enjoy cheaper imports, grander European vacations and lower mortgage rates.

Forecasting politics and economics is difficult even in the best of times. Best to relax and let things play out.

Scratching the Surface of Brexit

Seems hard to believe Britain actually voted to leave the European Union. It opens up a can of a hundred worms such as myriads of new political and financial accords to be renegotiated, new immigration policies established and opens new internal divisions among the nations of the UK.

Though ground zero was the UK and the plummeting pound, implications around the world were far reaching. Let’s start by examining what happened to global stock markets.

The first wave after the referendum results were in hit Asian markets which are mainly emerging with the exception of Australia, Japan and Hong Kong. Shanghai was down 1.3% (-19% YTD), India -2.2% (+1%), and South Korea -3.0% (-2%) respectively. Meanwhile, Japan swooned -7.9% (-21%), Australia -3.2% (-3%) and Hong Kong -2.9% (-8%).

When European markets opened the carnage continued: UK down -3.2% (-2% YTD), France -8% (-11%), Germany -6.8% (-11%) and Italy -12% (-27%). Apparently the EU markets and economic outlook suffered more than UK. Same story in the US with Dow plunging -3.4% (-0.1% YTD), S&P -3.6% (-3%), and Nasdaq -4.1% (-7%).

Looks like Fed hike is off the table until after the fall elections and the strong dollar caused by cratering currencies (except Japanese yen) will challenge US profits in the near term.  The only certainty to come from Brexit is there will be much more uncertainty.

UK Exit Roils Markets

Its early but UK vote to leave the European Union was unexpected and investors sent global markets into a tailspin.

In my thirty years of investment experience I put this event in the class of the Soviet Union breakup, 9-11, Iraqi war and Greek disturbance. Each event created golden buying opportunities.

Not confident this one follows suit.  Stay tuned right here for my interpretation of developments.  What a time to launch a new blog.

Fed Press Conference: Uncertainty

The Federal Open Market Committee (FOMC) of the Federal Reserve met today and held its target federal feds rate unchanged after their initial hike in December. Fed Chairman Janet Yellen’s press conference after the meeting can be be summed in one word: Uncertainty. I feel she is a very articulate individual but the gist of what she said was unhelpful to market participants.

From her answers to reporter’s questions, it was clear the FOMC has no plan going forward to rev things up, sounding more like a subjective process reacting to immediate events such as Brexit, Orlando and weak jobs.  FOMC’s critics, including myself, feel the time has passed to raise rates while the listless economy and overvalued stock market is dangerously drifting toward the rocks with no means to steer it away.

The Fed should have raised rates a year ago even if symbolic when the economy could have handled it and given them a cushion to make adjustments to set-backs. Now the stock market has been distorted, commodity-based emerging markets wallowing and developed trade partners weakened.

Yellen couldn’t explain why the Fed’s forecasts and expected policies have constantly changed over the last three years and what their plan was to fix the lack luster GDP growth after nine years of recovery. Mostly likely the economy has lost confidence in the Fed after their policies or lack of have caused lending to shut down, business not wanting to invest. job seekers not motivated and leaving fixed income retirees in the lurch.

While Yellen said otherwise, I’m afraid the presidential elections are going to come into play and will blunt any further credibility the Fed may have left.

2Q Industrial Sector Review and Outlook

Sector Summary

S&P Wgt%NameTiltComment
6.60EnergyMarketDeclining U.S. oil production over the next several quarters will help reduce global oversupply, but won’t fix the imbalance before 2017. Reduced investment translates to output declines and helps markets rebalance. Energy sector valuations are high.
2.80MaterialsMarketOptimism continues to reign in Materials year to date, but investors are overestimating the sustainability of recent commodity price rallies, leaving the sector severely overvalued. The reasons for rallies differ, but won't stick.
10.10IndustrialsMarketIndustrials outperformed the broader market since early February but remains undervalued. U.S. manufacturing data has turned slightly positive in recent months, while manufacturing across the rest of the world has been challenged.
12.90Consumer DiscretionaryMarketThe market seems to be underestimating longer-term revenue growth and margin expansion opportunities in this volatile group as measured by relative PEs, especially with its healthy high-end consumer sentiment.
10.70Consumer StaplesMarketConsumer Staples valuations have continued to trend higher over the past several months, leaving the sector slightly overvalued. In light of slowing growth prospects around the world, sluggish revenue growth are expected.
14.70Health CareMarketMarket valuations in healthcare have improved over the last quarter. Strong drug launches and excellent rapidly progressing clinical data in specialty-care areas are supporting increased productivity at drug and biotech companies.
15.60FinancialsOverBrexit effects on interest rates, currency exchange rates, asset price levels, and capital market volatility will likely be more material to earnings than problems caused by relocating operations out of the UK to EU countries.
20.40Information TechnologyOverOverall, we view the tech sector as fairly valued though we continue to see opportunities in smartphone related vendors. Microsoft’s evolution will yield long-term success. When the chips are down, bet on capital equipment firms.
2.80Telecom ServicesUnderBrexit fears have pushed down most European Telecom stocks which is an overreaction. Telecom is somewhat immune to geopolitical changes and Brexit will have little effect on cross-border transfers of voice or data.
3.40UtilitiesUnderUtilities have kept its foot on the gas during the second quarter. The spread between U.S. utilities’ 3.6% average dividend yield and 1.6% 10-year U.S. Treasuries suggests utilities have a long way to run.

Analyst Says Latest FASB Decision’s Effects ‘will be Minimal’

 Simpson Capital Management, Inc






David Simpson, CFA

Simpson Capital Management, Inc

31 Flamingo Court

Laguna Niguel, 92677

(949) 495-7922;


Analyst Says Latest FASB Decision’s Effects ‘will be Minimal’


Laguna Niguel, CA, Friday, December 8, 2000– Chartered financial analyst David Simpson, president and chief investment officer of Simpson Capital Management Inc., expressed optimism for investors through his remarks quoted in a CBS MarketWatch story yesterday.  The online article discussed the implications of the Financial Accounting Standards Board’s (FASB) recent decision in the reporting of goodwill from acquisitions on financial statements.


As part of a multiyear project, FASB is phasing out the ‘pooling of interests’ method of acquisition accounting while proposing a major modification to the remaining ‘purchase’ method.  “The Board is suggesting a new approach, the impairment approach,” Simpson said in the article. “This approach does away with the long-term schedules after an initial charge-off on the purchase date.”


The heightened uncertainty surrounding the decision has made investors wary of short-term market reaction after analysts registered unfavorable reaction to earlier rejected Board proposals. “In the long run, material effects will be minimal,” reassures Simpson.  He believes the standards will be applied evenly and analyst comparisons will be adjusted accordingly.


Simpson Capital Management, based in Laguna Niguel, California, provides investment management services for individualized portfolios of personal and corporate clients.  It is a registered investment adviser with the state of California.  Mr. Simpson is also an investment instructor in UCLA Extension’s Personal Financial Planning program. He holds a CFA designation, a bachelor’s degree in Economics from Bethany College in West Virginia, and an MBA from Arizona State University.


For complete text of the CBS MarketWatch article and background interview or more information on Simpson Capital Management, please contact David Simpson at (949) 495-7922 or email; or visit the website at