As you may be aware, the UK voted to leave the EU on Thursday. As recently as late Wednesday, most polls predicted that the UK would vote to remain in the EU. The result has, therefore, caused significant volatility in financial markets.
Your team of advisors at Baker Boyer has been closely monitoring the situation for weeks, and we believe that this bout of volatility will be transitory, but it could be with us for several weeks. It is likely that many of you are asking yourselves the following question: why would the withdrawal of the UK from the EU cause market disruption to the degree we are currently seeing? There are several reasons.
The first is that it was a surprise. Many financial market traders had made bets that the UK would remain in the EU. These bets had a positive effect on the market for several weeks. In the days and weeks ahead, those bets will be settled and will likely cause markets to give up the gains achieved in the run-up to the vote.
The second is that it comes at a time of slowing global economic growth. Many economists predict that the UK will enter a recession as a result of the vote. Against a backdrop of generally slow growth, a recession in the UK is not positive news for the markets, but it is also unlikely to have a dramatic impact on broad measures of global growth.
The final reason is the uncertainty it causes. The result raises a lot of unanswered questions, and markets generally decline on elevated levels of uncertainty. There are short term questions. How will central banks and markets react? And there are longer term questions. What will the UK’s relationship with EU look like in the future? Will this event embolden other secessionist movements in the EU and elsewhere? Clarity will come slowly, but will likely calm financial markets in the weeks to come.
Investment portfolios at Baker Boyer are built for just this kind of event. The safe assets in balanced portfolios are designed to buffer against volatility. And the financial plans that we design for clients take into account exactly this kind of a market correction.
The team of advisors at Baker Boyer remains vigilant. We will be in touch with you through this period of volatility. If you have any questions, please do not hesitate to reach out to a member of your team.