Brexit: The UK Leaves the EU. What to expect.
On June 23, 2016, in contrast to polling prior to the vote, citizens of the UK voted to leave the European Union. The passage of Brexit (an abbreviation of British Exit) will create a period of uncertainty that shows markets reacting negatively and the political climate equally uncertain, with the resignation of David Cameron, who was a proponent of staying in the EU. Cameron will remain until October, at which time a successor can be elected.
The Pound Sterling dropped 30%(1), to its lowest level against the dollar since 1985, and dropped more than 6% against the Euro(2). The FTSE 100 dropped almost 9% but has since recovered somewhat with a +/- 4% upward swing.
Negotiations for the exit from the EU will be complicated and drawn out, with estimates around two years for the exit to be completed.
In the U.S., at the close of business yesterday, the Dow Jones Industrial Average gained 250 points on optimism that the vote was leaning towards the “Remain” camp. We expect that to be reversed plus some at market open today.
The results create uncertainties outside of the markets as well. For example other EU member countries may choose to leave, political change is afoot in Britain with the resignation of PM Cameron and London’s future role as the financial capital of Europe may be in question.
Amidst all of this upheaval and uncertainty, we believe that the concrete and long-term impact on the U.S. economy should be modest. Weaker economic growth across the Continent will be the main impact on our own economy.
A reminder to our clients: With uncertainties in play, we will not make immediate changes to our portfolios. As always, we believe a broadly diversified portfolio helps to provide protection during periods of increased volatility and see such volatility as an opportunity.
Thank you for your confidence in our stewardship of your family’s wealth. If you have any questions, please call me at 404-874-6244.
This commentary was originally published and provided to clients of SHWM on June 24, 2016.
(1) The Telegraph 6/24
(2) Manchester Evening News 6/24
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