Tahoe-Truckee Market Beat: Britons vote in favor of Brexit
June 28, 2016
British voters approved the Brexit vote by a narrow margin, as it passed with about 52% approval. This means that Britain will be leaving the European Union, but the details will still have to be worked out.
After the vote results were announced, the British Pound fell sharply and U.S. stock markets sold off as well. The Dow closed down 610 points or over 3%. The S&P 500 and the NASDAQ also dropped over 3%. Global stock markets fell too; one of the hardest hit was the FTSE which fell over 12%. Precious metals rallied, with gold closing up over 4% for the day.
Stock markets don't like uncertainty and it will take time to sort out the consequences of Brexit. One possibility is that more countries will follow suit and also leave the European Union.
It will take some time to determine the long term economic impact. The United States does not export much product to Great Britain, so that aspect won't have much impact on our manufacturers.
One thing we're likely to see is the central banks continuing with accommodative monetary policy. Many observers were expecting the Federal Reserve to raise U.S. interest rates in July.
After Brexit and the recent market turmoil, now we may not see an interest rate hike until September or December. The European economy was already sluggish before Brexit, with GDP growing just over 1 percent.
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Investors should be prepared for more market turmoil in the near term as the details of Britain's exit get worked out. The stock market spends about 85% of the time rising with low volatility and about 15% of the time falling with relatively high volatility. News driven events like Brexit will create some high volatility.
The British Pound is likely to stay low, so if you've ever wanted to travel to Great Britain, now may be a good time as the exchange rate is the best it has been in over thirty years.
Your dollars will stretch pretty far. The weak pound will have an effect on U.S. companies that do business in Britain and we'll have to see how London will try to maintain its status as a financial center.
Now that the news is on the table we'll just have to wait and see how the details work out. Maybe it will turn out fine, like the famous Trexit vote in 1992, when Truckee residents voted to become our own town and control our destiny.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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