Earlier this week in our newsletter, we mentioned an upcoming vote in which Britons would decide to remain with or leave the European Union.
Thursday marked that historic day, with Britain voting to leave the European Union after more than four decades of membership. The economic reaction to the decision was felt immediately across the globe. Markets were volatile on the first trading day after the decision, and we saw a flight-to-quality across all asset classes. Leading up to the vote, stock markets had rallied with misplaced confidence in a UK “remain” victory. However, these gains were swiftly reversed, with global equity markets selling off, bond yields falling, and the pound significantly weaker.
In the coming days, we expect to see continued volatility in the markets stemming from the Brexit fallout. In reality, it will take years for the UK to disentangle itself from the EU, and the fundamental impacts on trade and economic growth are likely to take a long time before they are apparent.
Central banks are likely to respond with renewed measures aimed at supporting financial markets. Additionally, we may see the Fed remain in a dovish stance leaving rates unchanged for the remainder of 2016.
The bottom line is that we won’t know the extent of the real impact of Brexit for years. Headline predictions tend to be quite dire, yet rarely come to pass. Essentially, the vote confirmed the worst fears of investors this year–namely, that some type of unforeseen event would come along to derail an already fragile global economy.
We continue to stress the importance of diversification in your portfolios and remaining invested for the long term. Please feel free to reach out to us with any questions or concerns.