The United Kingdom’s surprise vote last week to exit the European Union rattled financial markets around the world. Stocks, currencies and commodities felt the brunt of the emotional knee-jerk reaction to the news. Friday’s selloff erased gains from earlier in the week, when polls were suggesting a victory for the Remain alternative. U.S. stock markets finished the week down approximately 1.5-2%. As money flowed out of stocks, most of it landed in the safe havens of the U.S. dollar and Japanese Yen, in addition to gold, while demand for U.S. Government and other sovereign bonds rose dramatically. Fortunately, our financial portfolios’ diversification helped mitigate the stock market declines. Investments in bonds, managed futures and gold appreciated in value as money exited stocks.
On Friday, June 24, 2016, The Wall Street Journal aptly stated; “The implications of Britain’s vote to leave the European Union will reverberate through the Continent’s politics and economy for years.” The U.K. vote certainly caught investors off guard; as many analysts suggested a better than 80% probability of a Remain outcome. The Brexit, however, is really no different from many of the exogenous geopolitical events that have disrupted financial markets over the course of our 34 year history managing wealth. This is another example of an unexpected event that causes investors to react emotionally, and the result is a large amount of immediate market turmoil. The financial pain caused from this turmoil is real, unsettling and can stir those emotions of fear. However, over the long term, history has shown us time and time again, through world wars, revolutions and an extensive list of other types of disruptions, that markets are resilient and eventually right themselves to find equilibrium.
Pacific Wealth Management’s disciplined wealth preservation focus, proactively reduced stock market allocations in anticipation of an event like Brexit. We expect more uncertainty and market volatility as we move through the summer. We continue to plan and prepare for what lies ahead to help our client’s financial goals become reality.
This commentary contains forward looking statements and opinions. These opinions may not develop as predicted. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.