Investors worldwide are concerned about the possibility of a “Brexit”: the potential exit of “Britain” (to be precise, the United Kingdom) from the European Union.
A Brexit would represent a significant crack in the foundation of the EU. Economists believe it might produce a recession in the U.K., and when one economy slumps, there are always regional and international consequences.1
Right now, Wall Street has its eyes on a date: June 23. On that day, U.K. voters will head to the polls for a referendum on whether or not to leave the EU. A June 15 poll in The Times showed 46% of respondents intending to vote “leave,” 39% intending to vote “remain,” and 15% either undecided or not voting. In a new Guardian/ICM poll, 53% of respondents indicated they would vote for a Brexit.2,3
If approved, a Brexit would not happen for at least two years – but if the U.K. electorate does approve it, global markets will undoubtedly see some turbulence. Reassuringly, the European Central Bank and the Bank of England have pledged to provide additional liquidity to European financial markets if a “leave” vote rattles investor confidence.4,5
The effect on Wall Street may be short-lived. For the past several months, American investors have focused their attention on earnings, oil prices, the Federal Reserve’s possible policy decisions, and fundamental economic indicators like consumer spending and hiring. While a Brexit would be major news, it may prove to be only a temporary distraction for U.S. investors. 5
So be prepared for volatility, but avoid making rash decisions. If U.K. voters call for a Brexit, Wall Street might suffer a short-term hiccup – but you are investing for the long term, and short-term phenomena should not lead you to make hasty or ill-advised investment decisions. At moments like these, staying the course is often the best course.
Paul Lewis can be reached at 217-337-5584, firstname.lastname@example.org, or www.paullewis.com.
1 – bloomberg.com/news/articles/2016-05-23/brexit-may-spark-yearlong-recession-cost-jobs-treasury-says [5/23/16]
2 – reuters.com/article/us-britain-eu-poll-idUSKCN0YZ2FY [6/15/16]
3 – cnbc.com/2016/06/13/short-term-fears-aside-brexit-wont-have-big-impact-on-us-market-experts.html [6/13/16]
4 – bbc.com/news/uk-politics-32810887 [6/14/16]
5 – reuters.com/article/us-britain-eu-ecb-idUSKCN0Z01NP [6/14/16]