With the benefit of a month’s hindsight, market fallout from the Brexit campaign appears surprisingly short-lived, particularly in the U.S. Following a brief selloff in the few days following the June 23rd vote, the S&P 500 rallied over 8% in the next few weeks, hitting a fresh all-time high by early July. European equities, while still modestly negative for the year, also regained much of the ground lost after the Brexit vote.
On Thursday, British citizens voted in a national referendum on whether or not their country should remain a part of the European Union (E.U.), of which it has been a member since 1973. At stake was Britain’s relationship to a much disliked supranational institution, and what this means for trade, sovereignty, and security.
As our regular readers know, value stocks have underperformed the broader market for the past few years, while growth and momentum stocks have outperformed. In fact, this divergence has been so pronounced that it erased some very long-term records of outperformance among several well-respected value managers.
Following a steep correction over the first six weeks of 2016 (which saw the S&P 500 decline 12% from its recent peak, hitting a fresh 52-week low), equity markets rebounded in late February and March, with domestic market indexes finishing the quarter up nearly from where they had started.
2016 is off to a historically poor start, with the S&P 500 down 9% from its May 21 record of 2130.82 as we write this commentary. Although corrections of 10% are fairly common, below the surface, the picture looks even worse.
Amidst the backdrop of extreme partisanship in this year’s presidential primary–and prevailing negative talking points on the state of the union–Berkshire Hathaway’s 2015 letter to shareholders offered a more optimistic take on America’s future. Berkshire’s 85 year old CEO, Warren Buffett, reflected on the growth in living standards during his lifetime: