Brexit becomes a reality with 51.9% of the voters opting for the United Kingdom to not remain a member of the European Union. The votes were extremely close – the country was clearly divided in the middle, on whether or not if they should leave the European Union.
The markets, according to the Economist, indicated that the probability of a “Remain a member of the European Union” was 90%. On the trading day before the Brexit, the Toronto Stock Exchange – TSX Composite Index was up 0.91%, Dow Jones, S&P 500, and NASDAQ Composite also gained more than 1%. However, the results of the Brexit sent the stock markets and currencies in the opposite direction.
Brexit is a pretty big deal, as everyone around the world kept a close eye on the results, especially investors betting on a certain result. World stocks took a huge downfall after the results, with some large cap stocks such as Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL), and Microsoft Corporation (NASDAQ: MSFT) shedding at least 3% of their value in pre-market.
Brexit also resulted an 8% decline for Europe’s biggest bourses (stock markets), and a record decline for sterling (Reuters). The sell off is a result of many fearful investors fleeing towards cash, or other conservative investment options, such as government bonds. This can potentially create a perfect buying opportunity for the medium/long term. As Warren Buffet said, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” In other words, take advantage of market sell offs – buy low, and sell high.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
The British pound made the largest drop in history, collapsing 10% against the USD. This was also due to investor worries over the global macroeconomic conditions, and uncertainty with other nations eyeing their own exit, such as Scotland and N. Ireland.
After the sharp drop, the British Pound created base between around 1.37USD. The Canadian Dollar went down one penny against the US Dollar, to approximately .77 USD. Regardless of this decline, the Canadian Dollar has been steadily recovering from its January low of .68 USD. The decline in oil prices, and uncertainty over the Canadian Economy were the major factors causing the Canadian Dollar to plummet during 2015.
The aftermath of the Brexit sent North American Markets, and World Markets in the red. TSX closed down 240 points (-1.70%), Dow Jones sheds 610 points (-3.39%), and the S&P 500 also went down 76 points (-3.59%).
Looking at the big picture – it was a normal week for the North American Markets. In the past 5 trading days, the TSX has been relatively flat, taking Friday’s selloff into consideration. The Dow Jones and S&P 500 are down -2.65% and -1.64% respectively (in the past 5 days).
Although the Brexit is a huge deal, these are relatively normal declines that happen throughout the year in the stock markets. The occurrence of the Brexit basically erased the gains prior to the Brexit, as many investors believed there was only a 10% probability of this occurring (Economist).
It’s no surprise the European Stock Markets had the largest declines on June 24th, 2016. FTSE 100 declined 199 points 199 points (-3.15%), CAC 40 declined 359 points (-8.04%), and the DAX declined 700 points (-6.82%). Within the past 5 trading days, FTSE 100 gained 2.36%, regardless of the sell off. CAC 40, and DAX lost 1.97%, and 0.77% of their market value respectively, within the past 5 trading days.
Clearly there is a lot of uncertainty within the markets, from the potential Fed Rate hikes to the concerns over the global economy. These uncertainties were clearly expressed in the global stock markets, and foreign currencies. In today’s current market conditions, its best to keep up to date on the news, and keep an eye out for certain fundamentals before selecting a stock to invest in.
You may also be interested in: Brexit: The EU’s Worst Nightmare and a Global Bloodbath
Writer: Jelani Smith
Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.