By a narrow margin, British voters surprised markets overnight by voting ‘yes’ on a referendum to leave the European Union (EU). The highly charged debate on this issue largely centered on both the economic costs and benefits of being a part of the single market, as well as the open border policies that membership requires.
By voting to leave the European Union, an unprecedented process has begun that may take years to complete. During this transitional period, trade agreements will need to be rewritten, immigration regulations will need to be solidified, and relationships between members of the EU and the UK will need to be mended to successfully move forward.
Since the result of the referendum was contrary to widely held global expectations that Britons would vote to stay a part of the EU, markets quickly adjusted to the challenges that the outcome will bring. Global stock markets finished the day down sharply while the Euro and Pound depreciated against the Dollar and Yen. While volatility stole most of the headlines, US bonds remained a global safe haven and their values moved higher.
One point to keep in mind is that the media is focusing on the impact on the markets today, and are neglecting to place that impact into the full context of the week. In anticipation of a “remain in the EU” vote, global markets significantly rose Monday through Thursday, and Friday’s performance merely brought us back close to Monday’s level in many markets, and still well above the February lows.
While this decision certainly creates a variety of drama and excitement for global markets and European governments and economies, investors can step back and realize that this too will pass. Investors consistently have a variety of curve balls tossed their way. Recently it was events in China, before that it was Greece, and now, Brexit. While Brexit will permanently impact the Britons in many ways, a few years from now it will be another footnote in stock market history.
For some additional reading, consistent with how we recommend responding to the current market conditions, we suggest this article “UK’s EU Referendum Result,” from one of our partners – Dimensional Fund Advisors.
We continue to believe that the time-tested strategies of diversification and tax-optimization that are built into your portfolio, and remaining disciplined during volatile markets, will serve you well. Do not hesitate to call us or schedule an appointment to talk about any concerns you may have. Your peace of mind, and attainment of your financial goals are our priorities.
Diversification does not protect against loss in declining markets. Past performance is no guarantee of future results. Investing involves risk and the possible loss of principal. There is no guarantee strategies will be successful.