The second quarter of 2016 had its fair share of financial drama. British voters narrowly voted to have their country leave the European Union, throwing financial markets into a state of hysteria. In the US, a weak May jobs report fanned fears of a recession. Yet the quarter ended up being a good one for most investors as both stocks and bonds recorded gains. Here are 5 graphs that explain the key movements in financial markets during the second quarter.
1. Brexit hammered European stocks
The British vote on June 23rd to leave the EU (the so-called “Brexit”) wreaked havoc in financial markets. UK stocks tanked and took other European stocks (and to a lesser extend stocks around the globe) with them. Much of the decline in UK stocks in US dollar terms was causing by the plunging British pound, which fell to its lowest level against the US dollar in more than 30 years. UK stocks did partially recover, however, and actually ended up with a slightly positive return for the quarter.
2. Commodities surged
Commodities were the quarter’s best-performing asset class. A sharp increase in the prices of energy-related commodities such as oil was the biggest cause of this surge, though all types of commodities posted sizable gains.
3. The energy sector rebounded
After being decimated in 2015, the energy sector showed signs of life. With the tailwind of rising oil prices giving it a boost, energy was the quarter’s best-performing sector of the stock market. Financial stocks, despite being battered by the post-Brexit market turmoil, managed to end the quarter in positive territory.
4. Brazil’s 2016 outperformance continued
Last year Brazilian stocks were hammered by a confluence of factors including a weak economy, commodity price declines, a political crisis, corruption allegations, and even the spread of the Zika virus. As commodity prices have risen, the fortunes of Brazil’s stock market have turned around. Brazilian stocks have returned almost 50% so far this year, dramatically outperforming emerging markets overall.
5. Bond yields fell even lower
Mediocre economic data (such as the May jobs report) and concerns about developments overseas (such as the British vote to leave the EU) have continued to push down long-term bond yields. When the Federal Reserve raised its benchmark interest rate in mid-December, the yield on 10-year treasury bonds was about 2.3%. It’s now below 1.5%.