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Well, once again the unexpected happened. The majority of politicians, bankers, and economists had made their concerns known regarding the damage that could be done by a vote for the UK to leave the European Union (EU). UK citizens took little, if any, of such warnings to heart, voting to leave the EU and stand on their own economic legs. What drove the decision?
Heritage Foundation economist Steve Moore advised that the results were unexpected by most observers or politicians who had tried to make the point to the working class that such an exit would disrupt the economy even further. Moore put forth his expectation that part of the reason for the vote to exit the EU is the lack of confidence in the political machine and leadership, and citizens being tired of feeling that they are underwriting the economies of other EU countries through bailing out failing policies such as those that placed Greece in financial straits.
Whatever is behind the decision made by UK voters, the impact to market trends has been immediate and extends far beyond the borders of the British Isles. US markets including the S&P 500 experienced the largest single-day drop in nearly a year. US companies further anticipate that over the next few months or even a year or two, trade with UK interests could be impacted as new agreements are negotiated. Eyes are focused on US Federal Reserve Chair Janet Yellen for her interpretation on the Brexit impact on US interests and how the Feds may react.
This presents a not-so-rosy picture for workers whose retirement plans are based on performance of a 401K or other investment portfolio largely dependent on stocks. Dropping stock values may significantly impact many of those nest eggs and even delay retirement dates.
As is usually the case, there is a bright side to current economic trends.
Interest rates are expected to remain low to avoid further weakness to an already fragile economy. This could be an incentive for homebuyers and purchasers of other items that are typically financed for long periods of time, including new automobiles.
Tech stocks such as Facebook and Alphabet will likely remain somewhat untouched by the turbulence triggered by Brexit in large part due to their massive customer bases and increasing revenue stream from online advertisers. Another relatively new entry in the online relationship category is MeetMe (MEET) which is currently most saturated in the US, but is available in multiple languages making the ‘social discovery’ company poised for global reach. Not only is the company growing revenue and net income considerably, but its success may present a ripe target for acquisition by a prospective buyer that wants to enter the market segment. Traders may want to take special notice of this opportunity, as timing could be right for investing.
Communications companies that have a global reach and leading reputation for quality and reliable service should also fare well even in volatile periods. These would include such companies as Cisco and NetGear.
Another plus – with the increasing value of the US dollar vs. the British pound, a trip to the UK may now be an attractive consideration for travel plans in the near future. This could be beneficial to British economic conditions as well, as nearly 10% of visitors to the UK last year came from the US, with visitors spending more than those from any other nation.
Investors may be taking a short-term pause to evaluate the reaction of global and local market segments. It will take a period of months or even years for the full impact of new trade agreements and economic fallout to be felt, including any domino effect that could influence similar movement by other EU countries.
Investors are moving, at least temporarily, toward what are generally more safe havens in the markets such as government and municipal bonds and time-proven commodities such as gold and other precious metals. One of the most historically safe investments is that of US Treasuries, which will likely grow in demand. Traders may take a cautious eye in watching for stocks to bottom out and buy at rates that are extremely low compared to recent months. Selling as stocks drop only cements losses that may be reversed as markets turn around, although no one can predict with any certainty what the timing for such a recovery will be.
Whether your tendency is to wait and see what happens to market trends, or to jump in quickly and take advantage of stocks that have dropped to at least short-term low prices, information is your best tool in making investment decisions.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.