Portfolio Review
The stock market performed quite well in the second quarter, earning 2.5%. This is surprising, because had the quarter ended two days earlier, the market would have been down 2.9%. The much-ballyhooed Brexit event wreaked havoc with the stock market late in June, and drove the Dow Jones Industrial Average down roughly 900 points over two days.
Overblown Brexit
Most pundits warned that a breakup in the EU could have calamitous political and economic implications. Indeed, even Alan Greenspan has called the Brexit vote the “worst period I recall since I’ve been in public service.” However, just a few trading sessions after the two-day market slide, virtually all of the losses had been recouped. How is it possible that impending global economic meltdown could have such a muted response from the stock market? Probably because it was all hyperbole.
British Prime Minister David Cameron is resigning because of the “Brexit” decision. He has stated that the actual withdrawal from the EU will be done under the watch of his successor. The new Prime Minister will likely take office in October, and he or she will then have to decide on when to invoke Article 50 to formally pull out of the EU. Article 50 begins the process of withdrawal but apparently takes two years to complete. So even if the new Prime Minister begins the process immediately upon taking office, an actual British exit from the EU is more than 28 months away.
A lot can happen in a dynamic global economy over the course of 28 months. It may be that Britain goes into a recession for reasons completely unrelated to “Brexit”. It certainly has plenty of other economic concerns currently. Conversely, it may be that the recent drop in the British Pound that occurred as a result of the “Brexit” vote makes British exports more competitive and thus helps boost the economy. Or, it may be that events we can’t even begin to imagine will transpire that impact the British economy in unforeseeable ways.
The point is, there is absolutely no way to forecast what will happen, positive or negative, and any potential impact will not be felt for over two years. Thus, the impact from the “Brexit” for most of us on this side of the pond is immaterial.
Mixed Bag Overseas
The impact on international stocks has been more pronounced, and developed world international stocks again finished the quarter in negative territory. International stocks have languished for the past several years as economic problems continue to confront most of Europe…
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