Brexit…what Brexit? When I started planning this blog several weeks ago, the markets were in deep turmoil. British voters had just unexpectedly voted to leave the European Union and the U.S. stock markets had a severe reaction. The Dow Jones Industrial Average dropped over 600 points the day the news broke and fell more than 250 points the following Monday, after a weekend where commentators obsessed over what this meant for the economy.
At the time, I planned to write that there was no real cause for the reaction the stock market had. Britain will still be able to manufacture and export goods whether or not they are part of the European Union or not. Sure, higher tariffs and less open borders might have some impact on the British economy, but how much of the U.S. economy is truly dependent on what happens in Britain? The reaction of the stock market in subsequent weeks, where the Dow Jones has reached new record highs day after day has proven this point.
The real cause of the market turmoil a month ago was uncertainty in the wake of this unexpected news. No one knew that first weekend what the results of that vote meant for the world or how far the impact would spread. Once investors had time to digest the points above and could put it in perspective with a U.S. economy that remains fundamentally strong, the markets quickly settled down and started climbing again.
This will likely not be the last time we see uncertainty on the Brexit issue, as we wait to see if, or how it actually rolls out. And there are lots of other uncertainties which could have negative short-term impacts on the stock market. The whole upcoming presidential election is rife with potential uncertainties. The markets do not like uncertainty and usually do not react well to it in the short-term. Like Brexit, they often pop up unexpectedly, giving us little time to prepare beforehand. But if Brexit has taught us anything, it is that if we do not panic during these times of uncertainty, ultimately equilibrium will be restored.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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