If you have yet to hear the news, last Thursday the United Kingdom (U.K.) voted to leave the European Union (EU) in a somewhat surprising move. The volatility we witnessed immediately after the vote reflects the fact that financial markets participants, who had largely factored in a “remain victory,” were caught leaning in the wrong direction. In a matter of 2 trading days the Dow Jones Industrial Average dropped nearly 1000 points, wiping out $3 trillion in world markets over its course.
As I noted to clients on Monday, “this isn’t a Lehman-type event.” “It’s a response to a surprise, not an outright panic, and markets should settle down soon.” And by Wednesday stock markets around the world continued to rebound as fear about the vote eased and investors wagered central banks would ultimately run to the rescue with more stimulus.
Reiterating what our Chief Investment Strategist, Jeff Saut, wrote on Monday, the fact that this entire scenario is really unprecedented means we should all probably step back and not rush to conclusions considering the opinions I've seen out there so far, which have widely ranged on the spectrum from "it doesn't matter at all" to "it's going to bring about a complete global economic meltdown." Odds are it will ultimately finish somewhere in between those outcomes, so instead of speculating on what we don't know and what all this will mean two years down the road from now, I have focused my attention on what I do know:
The U.K. and EU are not going to stop trading with each other or the rest of the world.
If the U.K. does leave, it will be a long, gradual process taken in steps.
The U.K. accounts for less than 4% of U.S. exports and less than 3% of U.S. imports (per Chief Economist Scott Brown)
It increases the odds of lower interest rates for longer, keeping the U.S. economy (and most of the world) in stimulus mode.
The reaction has been harsh, but the S&P 500 remains about where it was at the lows of last month.
The S&P 500's long-term trend won't be damaged unless it drops below the February low (it's still a bull market)
Supporting England's soccer team is frustrating
So, without further ado, here is where we stand three sessions into this "brave new world.”
What does Brexit Mean for Investors? Chief Portfolio Strategist, Nick Lacy, discusses his thoughts on Brexit and what it means for investors. … Watch Here
Brexit - A Shock but not a Crisis Commentary from our fixed income department Read On
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