Despite recent polls indicating a tight race, the British vote to exit the European Union proved a significant negative surprise for markets at home and abroad. Foreign markets and currencies, in particular, experienced significant volatility as a result. The British Pound declined 8% vs. the Dollar. The “safe-haven” U.S. Dollar and Japanese Yen increased 2% and 4%, respectively. Major currencies rarely move this much in a year, let alone, a single day. International stock markets headed lower (especially in peripheral Europe, i.e. Spain and Italy were down 12+%). The U.S. equity markets fell 4% today, although they are just back to where they were a month ago.
Why are Markets Down?
We highlighted the British vote in our April Market Commentary as one of several reasons for holding some cash entering the second quarter. While the actual British exit from the European Union will take at least 18–24 months to negotiate, the uncertainty will weigh further on an already tepid global growth outlook. Reflecting that view are U.S. Fed Funds futures, which are now suggesting the Federal Reserve will keep rates lower for longer than previously anticipated. The ten-year and thirty-year Treasury notes reacted accordingly now yielding just 1.6% and 2.4%, respectively.
What Is the Course from Here?
From experience, we expect the heightened uncertainty to persist for weeks or months (not days). As discussed in previous communications, current valuations will cause us to move slowly with our excess cash. With that said, continued volatility over the coming days and weeks may present attractive opportunities to deploy cash or rebalance portfolios (i.e. sell assets that have become relatively expensive in exchange for buying those that are cheaper). Events like this reinforce the value of broad diversification and maintaining the appropriate risk exposure in portfolios.
This document contains general information only and is not intended to be relied upon as a forecast, research, investment advice, or a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The information does not take into account any reader’s financial circumstances or risk tolerance. An assessment should be made as to whether the information is appropriate for you with regard to your objectives, financial situation, present and future needs.
The opinions expressed are of the date of publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Woodmont to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to fruition. Any investments named within this material may not necessarily be held in any accounts managed by Woodmont. Reliance upon information in this material is at the sole discretion of the reader. Past performance is no guarantee of future results.