Memorial Day marked the unofficial start of summer with warm weather, friends and barbecues. We have long awaited clear, dry days after Portland surpassed its previous record rainfall by almost an inch this winter. We hope our newsletter finds you in good health and looking forward to the summer sunshine as much as all of us here at CGC.

This year has been a year of records. Just as Portland set records for rainfall, markets have left their marks on history as well. The S&P 500 posted the worst new-year start in recorded history and was down as much as 10% in the first quarter. Then, to reverse that trend, markets began rebounding and the S&P500 posted its best performance in the third month of the year since stocks began their bull market rally seven years ago in March of 2009. At the end of May, markets recovered losses from earlier in the year, but it has been anything but a smooth ride.

Global financial markets appear in better condition than they did a few months ago. Oil has recovered much of its 2015 losses but continues to remain volatile, and global growth remains low but appears to be stable. US consumers, and many consumers around the world, are in a good position and are one of the bright spots in the market. Investors remain jittery, however, and are focused on a number of near-term risks, including Federal Reserve policy, uncertain earnings and an unstable geopolitical backdrop.

“Brexit” has been perhaps the most pressing topic in media headlines as of late. We are quickly approaching a June 23rd vote where Britain will decide to stay or leave (or “Brexit”) the European Union (EU). If Britain votes to remain in the EU, we are likely to see more stability in the international developed markets, and we anticipate volatility will abate relative to today’s levels. However, the uncertainly over Britain’s long-term place in the EU is unlikely to be resolved, and this could have other ramifications down the road.

If Britain votes to leave the EU, we are likely to see more volatility in international markets and a negative impact from headline risk, given the considerable anxiety it will cause across Europe. Long term, we believe both the costs and the potential benefits of Brexit to the UK economy are probably exaggerated by commentators and campaigners on either side of the argument.

We see negative policy rate levels abroad and in the US are well below those that prevailed before the financial crisis. There is a risk that the global economy, not just the US economy, will be unable to grow and generate inflation at pre-crisis levels for many years to come, even if monetary policy remains at zero in nominal terms. This new landscape is characterized by low interest rates, low inflation, and low GDP around the globe and provides a challenging backdrop for all investors.

Market valuations in general look fair within this framework, but there are still pockets of value—especially following bouts of volatility. We view volatility as opportunity, not risk, and continue to position our clients’ portfolios to take advantage of these opportunities when prices do not fairly reflect fundamentals.

On the positive side, we do not expect a global or U.S. recession over the cyclical horizon, having seen encouraging signs from China, commodities and central banks. However, each of those three could surprise.

Our outlook remains unchanged for the year. We expect volatility to dominate the markets, driven by uncertainties across the globe. We continue to believe US equity markets will be a top performing asset class, and international markets remain attractive given their relative value and positioning in the business cycle in spite of the UK’s final decision to remain or exit the EU. US Corporate earnings should pick up in the second half of the year, and coupled with relatively easy year-over-year comparisons we expect stocks to show strength. Patience will be the key for the remainder of 2016 as we continue to focus on diversification of risk and investing for the long term.

We appreciate you and your business and take pride in servicing your financial needs. Thank you for the opportunity and we look forward to helping you meet your financial goals.