Brexit Bad News for U.S. Market?
The Brexit will affect markets everywhere. The bookies in London got it wrong and the markets got it wrong. The Brexit will impact the U.S. market; make no mistake about that. Analysts and investors had optimistic expectations until the very last minute. The U.S. market will also have to confront the fact that ahead of optimistic expectations of a U.K. vote in favor of staying in the European Union (EU), raised optimism, and risk-taking in the last days ahead of the vote, polls were indicating the “remain” scenario.
But a small majority of Britons have voted to leave the EU. What is the stock market forecast post-Brexit? While citizens and politicians ponder what they’ve done—some announcing resignations, others fear or joy—the markets have wasted no time expressing their sentiments over the Brexit. They hate it. In fact, the market reaction may have surpassed the most pessimistic expectations.
You may ask yourself, “should I invest in the stock market today, given the surging pessimism?” Amid the worldwide stock market collapse, responding to the fact the U.K. has chosen to leave the European Union, there are still some opportunities.
Indeed, if you’re wondering “should you invest in the stock market today,” there are enough compelling reasons to do so—if you choose wisely. The Brexit will affect the U.S. market. Yes, that has already happened, but not all stocks will be bearish. The Brexit has acted as an afterburner to the uncertainty that had been plaguing the U.S. stock market since the start of 2016.
A glance at the numbers from the markets today will turn away most investors. This is not a day for the risk-averse. The Brexit will be traumatic for many British citizens and for Europeans, since the British capital, London, is also the financial capital of Europe. Americans face a threat from the Brexit, as the wave of pessimism has wasted no time traveling across the Atlantic.
The Federal Reserve has already expressed adding dollar liquidity through existing channels with the central banks to deal with the bearish pressure on the global market. Indeed, those pressures could have adverse consequences for the American economy. The Fed has already considered the stock market forecast post-Brexit months ahead of yesterday’s vote.
Volatility will be king. Expert investors can play on the fact that the U.K. has chosen to leave the European Union by shorting airline stocks. For example, American Airlines, part of AMR Corporation (NYSE:AAR), is down over 16%! Indeed, the fear, not the fact, that the Brexit will reduce demand for U.S. to European travel has proven to be one of the most dramatic ways the Brexit could impact the U.S. stock market.
Naturally, gold has soared to touch the highest ceiling of the year, rising by five percent to hit $1,320 an ounce, while oil dropped by a similar percentage decreasing to $47.70 a barrel. Fear is also collapsing the yields of bonds considered safe havens. In addition to the German bund that has gone back to being negative, the American T-bond has sunk from 1.71% on the night of June 23 to 1.53%, after having touched 1.45% in the morning as the Asian markets reacted with their usual panache.
But bearish investing is more perilous. It is the stuff that financiers like George Soros enjoy. You need to be a real expert to read the stock market forecast post-Brexit. There are, however, some no-brainer stocks, in light of the volatility and uncertainty of a stock market collapse, promoted by political decisions. Two words: defense stocks.
At Profit Confidential, we’ve promoted defense stocks as a hedge against a stock market collapse. Indeed, Lockheed Martin Corporation (NYSE:LMT) has gained over one percent so far today, trading at around $242.00, just below its all-time record-high. Northrop Grumman Corporation (NYSE:NOC) has neither increased nor decreased significantly, remaining at around $213.00–$214.00, which is in the range of its all-time high of $218.00. NOC stock dropped to $209.00 per share as the Brexit news hit Wall Street this morning, but it promptly bounced back. In uncertainty, play defensively.
Only at the end of the evening will we know to what extent the U.S. market will feel the Brexit effect. In the midst of global panic, the more mature American investors and U.S. markets have often shown greater resilience than the rest of the world. Traditionally, Wall Street is much more rational in its trend. Surely, on this day, the U.S. market sentiment will be negative.