The hot news is the Brexit impact (The British exit from the European Union) on the US markets. The market traded back last week on the news that the vote was leaning towards Britain leaving the EU. Today’s polls show it leaning towards staying so the markets are trading up. We will continue to see volatility in the markets until the big vote on Thursday.
The Brexit polls
If you look at the breakdown of the Brexit polls you will see that most people in London are for staying and people outside want to leave. Also, the wealthier and higher educated want to stay and the less wealthy and not well educated want to leave. The question is if the British leave the EU, will other countries follow? Ireland and Portugal, in particular, will be impacted by a vote to leave.
Not only do we have the Brexit going on this week but we also have two other European events that have the potential to impact the markets and your portfolio. The first is the national election in Spain, which could have a major impact on the euro. Second is the German High Court, which will meet this week to determine how restrictive or freeing the stimulus mechanics will be. One could argue for the ECB (European Central Bank) that this is a very big week.
The Brexit impact on your portfolio
The Brexit impact has been felt more in our markets than the impact from the Fed. Last week the Fed met to discuss raising interest rates. After that meeting the likelihood of rates being raised went from 50% to below 20%. Typically when this happens our markets would shoot up, but because of the Brexit issue our market traded down. It’s surprising to see that the Brexit impact is greater than the Fed even thought it is happening across the ocean.
Europe affects only about 9% of the sales in the S&P 500. This would lead us to think the Brexit wouldn’t have that much of an impact. The big impact will come from what it will do to foreign exchange. The pound and the euro will weaken and the dollar will rise. That’s a problem because company profits are already lower and this will hurt them further. Also, oil is priced in dollars. If the dollar gets stronger, gas prices will go lower. As we saw last year, lower prices at the gas pump had a negative impact on the US stock market and general economy.
We will be watching things carefully as this big Brexit week unfolds. Please contact us should you have any questions or concerns.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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