Quarter Two 2016 Commentary

The second quarter of 2016 would have been an otherwise routine quarter with the Dow Jones Industrial Average returning a respectable +1.4% and the S&P 500 returning a solid +1.9% if it weren’t for what would become a seismic vote at the end of the quarter in Britain. The Brexit (short for British Exit) vote was a referendum on whether Britain should stay in the European Union or leave. The vote was widely expected to be in favor of staying but much of the world woke up to a surprise vote in favor of exiting.

The world stock markets overreacted to the surprise, as is so often the case, with a precipitous sell-off only to be followed a few short days later with an equally strong buy-back. The true implications of Brexit can’t be measured in days, it will take years for the full ramifications, good and bad, to be realized. All of the players will still be in the game, the game will just be played differently.

With the British exit the US will once again be the world’s largest economy as measured by the World Bank’s Gross Domestic Product (GDP) measure. GDP is the total of all finished goods and services produced by a given entity in a set period of time (usually a year).

US GDP is measured at $17.4 trillion, with the new post British EU second at $15.5 trillion, followed by China at $10.35 trillion, Japan fourth at $4.6 trillion and Britain fifth with $3 trillion. While being the world’s largest economy doesn’t assure fiscal success it does show that we are productive like no other country on earth and that productivity is central to the fiscal barometer better known as the stock market.