Markets around the world on Friday are reeling from the historic vote that will launch the U.K. back into independence from the European Union, and saw British PM David Cameron resign his position. In a tightly contested vote, having originally been projected as a “Stay” outcome, currencies and stock markets across Europe and all over the world are opening sharply down this morning. The vote was followed by the single worst crash of the British Pound against the U.S. Dollar in history.
In pre-market trading, U.S. stock market futures were down across the board over 3%, with 10-year Treasury yields down nearly 8%. European markets are all across the board, with the German DAX Index down over 8%.
Not unlike many short-term market setbacks, what is driving the currency and market drops worldwide is the intense level of uncertainty surrounding the British exit. Separation from the European Union would take years to accomplish, and could face many hurdles along the way. It is quite possible that British leaders could renegotiate terms of the deal, and even present a new vote, which could cause citizens to switch their vote.
The short to mid-term implications for the markets are increased volatility, on a significant scale. However, there is no indication that this is any reason to panic or begin selling positions in response to the vote. While there may be tremendous uncertainty and volatility in the short-term, this is unlikely to have long-lasting implications for the global economy.
This morning we are looking closely at cash positions in portfolios, eyeing opportunities to enter quality stock positions at very good prices. In addition, this is a great opportunity for adjusting stock/bond allocations, as the substantial drop in Treasury yields will precipitate a rise in bond prices. This could potentially set up a situation allowing us to sell bonds at high prices, and enter quality stock positions at distressed prices. Much will depend on how markets behave throughout the day.
We will keep you updated as the Euro situation unfolds.
About Robert Henderson and Lansdowne Wealth Management
Robert Henderson is the President of Lansdowne Wealth Management, an independent, fee-only advisory firm in Mystic, CT. His firm specializes in financial planning and investment management for retirement, with a special focus on the particular needs of women that are divorced or widowed. He is an Accredited Asset Management Specialist and a Certified Divorce Financial Analyst. Mr. Henderson can be reached at 860-245-5078 or firstname.lastname@example.org. You can also view his personal finance blog, The Retirement Workshop at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.
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