"Kee" Points with Jim Kee, Ph.D.

What a remarkable rebound in global equities, which basically took a round trip last week - falling and then rising - following the British referendum vote to leave the European Union on June 23rd. Plausible reasons for the rebound include the following: (1) Many believe that the rebound was due to a widespread recognition of interdependence among the EU community, with some arguing that the UK may not even invoke Article 50 of the Lisbon Treaty to leave the EU (Westpac Group). (2) Others feel that reassurances and advance preparation on the part of the world’s central bankers reduced the perceived risk to financial markets. (3) Safe haven assets also surged in value last week (dollar, yen, government bonds, gold, etc.), driving bond prices up and interest rates down. (4) There is also the case for “TINA” (There Is No Alternative to stocks) propping up equities (Barron’s). (5) Former Fed Chairman Ben Bernanke argued in his blog at the Brookings Institute that the economic effects of uncertainty (reduced hiring/spending) will take time, impacting the UK the most, the rest of Europe second, Japan (because of the strong yen hurting exports) third, with the US affected the least. (6) Finally, there is the case that after an initial reaction to a shock, markets tend to look beyond the present to the future.

I think there is something to be said for all of the above, and as Jeanie Wyatt mentioned in her email to clients the day after the referendum vote; these are the circumstances that can create opportunity for diligent investors. As for this week, the US employment report (for June) on Friday is more important than usual, because May’s number (38,000) was so weak. Expectations are for about 190,000, and I suspect all eyes will be on that release from the Bureau of Labor Statistics (BLS).