For Now, the Freak Out over Brexit was Short-lived

Wednesday, April 5, 2017 |

Markets sold off after the Brexit vote, but 8 months later that early drop is another in the long history of market blips. 

Brexit, if you’re unfamiliar, was the term used to describe Britain’s planned exit from the European Union.  The referendum/vote to make such a move was on June 23rd of last year.  Brexit was back in the news this past week as the UK parliament started the withdrawal procedure, which puts them on the path to leave the EU in Spring 2019.

At the time, the world was ending again: populism on the rise, new trade treaties will have to be enacted, businesses will move out of the UK, new labor restrictions will result, travel will be tough, increasing inflation from falling Pound, global instability, etc.  Stocks reacted accordingly and moved down.

However, less than a year later what was the lasting damage?  There was none.  US Stocks are up about 13% from that day and UK stocks are up around 20%.  This is about flat when priced back into USD.


Source: Morningstar Direct.  iShares MSCI United Kingdom (EWU).  SPDR S&P 500 ETF (SPY)

This doesn’t mean Brexit is a good thing or it won’t have long run implications.  What it does mean is that markets likely don’t price events two years down the road and even if they do a lot can change in that time.  People aren’t static.  Any negative consequences will ultimately funnel through the macro data and essentially earnings. 

There is always risk in the market, but it’s better to manage it than avoid it.

 

The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the UK market.

S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. 

Investors cannot invest directly in an index.

EWU is an ETF which seeks to track the investment results of the MSCI United Kingdom Index. The fund will at all times invest at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The fund is non-diversified.

SPY is an ETF which seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.

An exchange-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.

When purchasing ETF shares, the investor will incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

There is no assurance that the Fund will achieve its investment objective.  The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline, and, therefore, the value of the Fund shares may be less than what you paid for them.  Accordingly, you can lose money investing this Fund.

Past performance is no guarantee of future results.

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