The market had meandered all week long, and while it was off the bottom of trading range, it clearly was looking for a catalyst. Instead of waiting for the outcome of the British EU exit vote, investors jumped the gun, especially late in the session.
While much was been made of the back and forth polls, and even the bets at bookies, for me the surge in the British Pound Sterling was the biggest single “remain” would win.
Of course, today it’s a completely different story as Leave won and David Cameron announced his resignation.
Now What?
This morning I saw this tweet from CNN:
This is what Brexit looks like: Dow futures are trading more than 500 points lower as Europe stocks get pummeled.
My immediate reaction and tweet:
This is what knee jerk reaction by Bankers that didn't get their way looks like.
Interestingly, the UK stock market is down the least among its European peers, but the UK Pound Sterling is now at 30-year lows. Not sure this hurts the UK from a trade perspective, but with the global currency race to the bottom, it’s unsettling.
European Markets Getting Slammed
- FTSE -4.6%
- CAC -8.0%
- DAX -6.7%
- Spain -11.4%
- Portugal -7.5%
That said, the market is going to be under a lot of pressure this morning. The flight to safety means lower bond yields and higher prices for gold. (Even Bitcoin is surging, and in many ways, it could be the biggest winner of the fall of the EU and eventual demise of the Euro.)
The big issues for investors are the strong dollar and toothless Federal Reserve. Central bank policy hasn’t worked anywhere around the world, and in Japan, it seems to have completely backfired.
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But now, these banks are going to have to be more aggressive with currency intervention (Overnight Switzerland took action to mitigate strength in their Franc).
Broad Picture
The S&P 500 must hold 2,040 on a closing basis or would be vulnerable to at least 2,000 or even lower.
S&P 500
Subscribers are already in GLD and TLT mostly as hedges (but I’ve been reiterating gold exposure especially for the longer term), but those without a position in the former should consider chasing today.
I know many have said they waited out the entire rally for a pullback. I don’t see this as a Black Swan event, it’s not a declaration of war, but it does leave uncertainty and the notion of retaliation by Germany and others that makes exiting the European Union much more painful than voting to exit the European Union.
I’m looking into domestic ideas but not forcing anything this morning. Our Portfolio Approach has 15% cash, and I’m eager to buy weakness, just not sure it’s wise on a summer Friday when Britain shocked the world.
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