After the long holiday weekend, U.S. investors awoke on Tuesday to geopolitical news out of the U.K. as British Prime minister Theresa May laid out plans for avoiding a “Hard Brexit” from the European Union.
Investors around the globe appeared to take comfort in her speech where she said, “We are leaving the European Union but we are not leaving Europe.” In her plan she promised to put the final deal to vote in both Houses of Parliament, and said that she would be working toward a “bold and ambitious free-trade agreement” with the EU that would include partial membership in the EU customs union and continued tariff-free trade during the “implementation phase” of the new plan.
As May gave her speech the British pound rose roughly 2.9 percent against the U.S. dollar, the largest one day gain for the currency since 2008.
Here in the U.S., investors appear to be growing more cautious as the U.S. presidential inauguration gets closer, with the Standard & Poor’s 500 slipping 0.30 percent and the Nasdaq Composite falling 0.63 percent on Tuesday. Previously, the stock market has rallied into inauguration day, and this year the stock market still has a couple of days left if it chooses to push higher. It was clear that some investors were shifting to the safety of bonds and dividend-producing stocks on Tuesday with the ICE U.S. 20+ Year Treasury Bond index up 1.05 percent and the Dow Jones U.S. Real Estate index as higher by 0.67 percent on the day.
However, this presidential election has been anything but usual, so its probably wise not to assume that the stock market will behave the same way this time around. This would mean that the major market averages could go against tradition of falling off some once the inauguration is past, and potentially rally next week. Such a move higher next week would really catch a lot of investors off guard.
This week the top performing sectors showed the conservative mindset of investors led by the Dow Jones U.S. Utilities index up 1.90 percent over the past five trading days, followed by the Dow Jones U.S. Consumer Services index higher by 1.04 percent over the same period.