This evening we learned that the citizens of the United Kingdom voted to exit the European Union–a move that represents a significant crack in the foundation of the EU.
The final results of the U.K.’s referendum (known as Brexit) came as a shock to much of Wall Street. A June 15 poll in The Times showed 46% of respondents intending to vote “leave,” 39% intending to vote “remain,” and 15% either undecided or not voting. But in the days that followed, polls were indicating that the UK would likely remain in the European Union.
As late as last week I attended a 2-day investment conference where we discussed the referendum at length and its impact on the stock market in the short and long term. The economists and analysts there believed the referendum would not pass, and that the United Kingdom would remain in the European Union. Solid stock market returns over the past few days seemed to validate that belief as investors around the world seemed to doubt the British exit, too.
Whenever drastic global events arise, we can expect regional and international consequences.
The U.K.’s exit from the European Union would not happen for at least two years but global markets will undoubtedly see some turbulence. Reassuringly, the European Central Bank and the Bank of England have pledged to provide additional liquidity to European financial markets if a “leave” vote rattles investor confidence.1,2
The effect on Wall Street may be short-lived. For the past several months, American investors have focused their attention on earnings, oil prices, the Federal Reserve’s possible policy decisions, and fundamental economic indicators like consumer spending and hiring. While a Brexit would be major news, it may prove to be only a temporary distraction for U.S. investors.
So be prepared for volatility, but avoid making rash decisions. It’s likely that by the time you are reading this post, Wall Street may be suffering a short-term hiccup-but you are investing for the long term, and short term phenomena should not lead you to make hasty investment decisions.
I can assure you that I am watching this situation closely. If you have any questions please don’t hesitate to email me, or call my office at (800) 236-9549.
Account Executive / Managing Partner