Brexit Causes Uneasy Time in Global Markets but Don’t Panic!
History is made!
May we live in interesting times – for sure! The citizens of Great Britain surprised the financial markets with their vote to exit the European Union (EU).
Polls closed at 10 p.m. London-time (5 p.m. Eastern) June 23rd, and the official results were called about 9 hours later. Eligible voters were “British, Irish and Commonwealth citizens over 18. Anyone who was a resident in the U.K., along with U.K. nationals living abroad and Commonwealth citizens like those in Gibraltar were also eligible, unlike in a general election
Leave won by 51.9% to 48.1%. That’s not a landslide for Leave but it is enough.
The referendum turnout was 71.8%, with more than 30 million people voting. It was the highest turnout in a UK-wide vote since the 1992 general election.
Upon hearing the results of the vote, Prime Minister, David Cameron announced he will step down in October. Boris Johnson, the leader of the Brexit movement, will likely take his place.
For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty.
Cameron or his successor needs to decide when to invoke this – that will then set in motion the formal legal process of withdrawing from the EU, and give the UK two years to negotiate its withdrawal. The article has only been in force since late 2009, and it hasn’t been tested yet. No-one really knows how the Brexit process will work.
The global markets fell sharply upon the news. The DOW in the US opened with an immediate 400 point decline and then quickly fell another 100 points. The media has more drama to sell. They will use words like “plummet”, “disaster” and “free-fall” and phrases like “the decision sent shockwaves through the financial markets”.
This a normal reaction as markets don’t like uncertainty, and the media loves to sell drama. To put it in perspective though, the markets opened at the levels that earlier this month were not a big deal. In fact 9 days ago the DOW was within 80 points of where it “fell” to upon the news. This week the financial markets priced in a “remain” and now have to reprice for a “leave”.
The message at times such as these is, “Don’t panic.” In fact, with eyes open and a steady breath this is the time to look for attractive buying opportunities.
We at MFC will continue to research and review today’s news, and we will evaluate potential buying or rebalancing opportunities. The bond or fixed income part of your accounts will likely see a positive response. This financial instability will suggest a “waiting period” for the Feds to announce interest rate hikes. A vacation to Europe just got cheaper.
Uncertainty will continue in the weeks to come following yesterday’s vote. But it won’t lead to cataclysmic movement. Your portfolio is well-structured; and you have exposure to an array of asset classes. Investments are purchased for the long-run. Short-term volatility is normal and expected. History suggests, market pull-backs most often lead to more positive, long term results.
My personal cloudy crystal ball believes that this may be more like Oct 19, 1986, Black Monday. There was a sharp decline, and then within months a quick rebound. We are here for you if you need us, and I may be writing more next week as I learn more about Brexit. Stay tuned – and have a great weekend!