Fasten your seat belts! That was going to be our advice as we approached summer and the Independence Day holiday weekend, however, keep them fastened for the entire summer. The markets are likely to continue to be volatile.
Global financial markets are still digesting the “Brexit” vote. The fallout has been most dramatic for U.K. and European markets. The U.S. markets will be affected significantly as well.
What is the Brexit? It is a fast way to say Britain is leaving the European Union (EU). The European Union started in 1952 after WWII and evolved in to its current state. In the early 2000s the EU opened up borders, added uniform trade regulations and a common currency (the Euro). Britain was uncomfortable with the common currency and held on to their currency and also held on to their border controls. Now, the EU is a mess (awful economy and crazy immigration issues). Britain wants out.
What’s going to happen long term with the Brexit vote? No one knows. We are in uncharted territory. We still do not know how this will unfold. Technically, the vote was non-binding referendum. It will take months (may be years) to work these changes out.
We don’t expect these developments to be enough to stop the U.S. economy; U.S. labor market from improving and wage gains should keep edging up. But, everything is on hold now pending more clarity to the situation.
These market developments are certainly negative. The anticipated swings in equities should be quite large for a single day. However, they are not appearing huge relative to fluctuations over time. As of this writing, the FTSE (London Stock Exchange) is down 3.73% (having started down 7%). The Dow is down 2.57% (the Dow futures were down over 5% pre-market).
Is this the start of a much bigger reaction? Or, will calm prevail? The pre-markets seem to have calmed since a few hours ago. The pattern can easily change again as the U.S. trading day proceeds.
Unlike in Europe, the Brexit vote of itself is not major news for the U.S. public outside of financial markets. But, as we remember from 2008 mortgage meltdown, a significant impact on Wall Street can impact Main Street.
What will central bankers do today? They will spend today coordinating and implementing short-term measures to address financial market stress. The immediate issue will be focus on stability in the financial markets. The immediate job of the central bankers today will be to ensure that this event does not explode into systemic failure of financial systems.
We are not advising any changes at this time. We may make changes in the near future as we get more clarity regarding this situation.
Please advise us promptly if there are ever any changes in your financial situation or investment objectives.
Feel free to give us a call at 888.797.9009 if you want to discuss anything further.
WH Cornerstone Investments, Inc.
A Massachusetts Corporation