With the Dow Jones Industrial Average (DJIA) crossing the 20,000 level we realize what a difference a year can make in domestic capital markets. At this time last year the domestic equity markets were off to one of their worst yearly starts ever. The S&P 500 corrected almost 15 percent between the first of January and mid-February before reversing and gradually moving higher through mid-year. The correction culprit was investors’ fears of a global slowdown. That fear of a slowdown was the result of weak economic growth numbers coming out of China and the U.S., as well as crude oil prices declining into the mid-$20 range and general fragility in the energy sector. As crude oil and commodity prices reversed and more favorable U.S. economic releases occurred, markets stabilized and moved higher. By mid-2016 most domestic equity markets had slightly positive returns.
In late June the Brexit vote signaling the U.K.’s intention to leave the European Union took world markets by surprise. Most importantly, the benchmark 10-year U.S. Treasury bond yield declined to 1.36 percent, reflecting general uncertainty about implications of the vote. The yield on the 10-year had commenced 2016 at 2.27 percent and most pundits had projected higher levels by year-end 2016. Domestic equity markets were initially down on the news but recovered quickly. Through the end of the second quarter of 2016, S&P 500 earnings had declined on a year-over-year basis for six consecutive quarters.