Just How 'Safe' Are U.S. Stocks Post-Brexit?
The Brexit vote caught U.S. investors completely off guard and threatens to be a drag on corporate earnings for years to come. Yet, after an initial steep selloff, the SPDR S&P 500 ETF Trust (NYSE: SPY) has rebounded and is now down less than 1 percent since the news.
What’s going on here? Argus analyst Jim Kelleher believes the relative strength in U.S. stocks is due to the limited options global investors have at the moment.
“The stock returns for U.S. major indices noted above are not great, but they are certainly better than returns for most major economy indexes,” Kelleher explained, calling U.S. stocks “a relative safe haven.”
Only 22 percent of U.S. stocks currently trade above their 20-day simple moving averages (SMAs), down from 71 percent a month ago. Only 33 percent are trading above their 50-day SMA compared to 63 percent a month ago.
Outside of all the Brexit speculation, Kelleher noted that the U.S. economic fundamentals remain solid. The United States recorded 1.1 percent GDP growth in Q1, trade deficits were narrower than expected, pre-tax corporate profits were up 1.8 percent and the U.S. housing market is firing on all cylinders.
For now, Argus expects the Federal Reserve to hold off on its next interest rate hike, which gives investors yet another reason to opt for stocks instead. Argus doubts that the Fed will be aggressive enough to raise interest rates at least through September.
Disclosure: The author holds no position in the stocks mentioned.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.