Earlier this year we received the unprecedented news that the United Kingdom had voted to leave the European Union, which set the global markets and media into a panic. Although this result was entirely unexpected, it’s imperative that we remember how the markets recovered in both speed and strength. With the recent results of the Presidential Election, we encourage you to expect nothing less.
On June 23, 2016 the United Kingdom undertook an all-country referendum about whether the U.K. should stay in or exit the EU, which it has been a member of since 1975. This vote, referred to as the “Brexit” vote, was done by allowing all citizens to cast their ballot on whether to “remain” or “leave.” In a very close vote, “leave” brought in 51.9%
In the days immediately before the vote – although it was expected to be close – the polls suggested the U.K. would remain; financial markets reacted positively, with stocks around the globe rising in value. However, that subsequent Friday morning it became clear that, in fact, the U.K. had voted to leave, gains were reversed, and there were sharp declines in global markets. While the markets opened on June 27th to surprising lows, by July 1st the markets were back to pre-Brexit levels, recovering all of the loses from the 8- day span.
It’s important for us to recall these recent events when discussing the market’s reaction to last night’s Presidential Election. Historically, whenever something unexpected happens, the markets tend to react with volatility…. Or better put, the markets tend to overreact.
In terms of implications from this result, it is important to consider some of the following:
Has monetary policy changed?
Availability of credit?
What determines longer term market performance has virtually nothing to do with an election. Separating political views from investment decisions can be difficult, but the underlying fundamentals of the economy will remain more of a focus. We encourage you to recall that in the long-term, “Elections do not influence markets” rather “Markets influence elections”.
As investors, we must remember that our investments are for the long term. This is NOT a time for panic or overreaction. Although our emotions might be telling us to react, we must resist this urge and strive to maintain a patient, long-term focus on the future. The best course of action is to “stick to the plan” and to face short-term uncertainty with a steadfast commitment to discipline investing, and not let emotion drive our investment plan.
As always, we are here to help you understand these challenging times and will continue to keep you informed of all developments. Whatever questions you may have, we encourage you to contact us. Thank you for your continued trust and confidence.
Benjamin Beck, CFP®
Chief Investment Officer