Brexit Panic Ensues as Uncertainty Grows
If there’s one thing the market hates it’s uncertainty. So when the United Kingdom surprisingly voted to leave the European Union (the first time a country has chosen to do so) their currency fell off a cliff, their Prime Minster offered his resignation, and markets around the world descended into chaos. Stateside this meant the Dow shedding more than 600 points, while worldwide it’s estimated that over $2 trillion in value was lost just on Friday, June 24th alone.
So what does this mean for the American economy long term? No one knows exactly — and that’s the problem. While there’s some enthusiasm that the Brexit will mean that the United States can become a stronger safe haven for foreign money, American companies that do big business overseas (especially in the United Kingdom) probably aren’t taking much solace in that theory at the moment.
With the British Pound falling from about $1.47 to as low as $1.34 overnight some immediate fears were that tourism in the States would be hurt by Brits cancelling their summer voyages across the pond. As a result airlines like United and American are down over 9% and nearly 11% respectively on Friday. Meanwhile Disney (which has tourism to worry about as well as being part of the media sector that was also hit) fell more than 3% — which was about in line with the Dow’s overall drop. Elsewhere on the market it seems that just about every business with international ties is being affected, while the price of gold is soaring with prices as high as $1,362 an ounce.
On Monday the Dow continued to slide leaving many wondering when the bleeding will stop. While the general consensus is that the U.K.’s decision likely won’t lead to a recession in the U.S., even Janet Yellen doesn’t sound too confident about that position. The Los Angeles Times quotes the Fed Chairwoman on the topic of a possible American recession, saying, “I don’t think that’s the most likely case, but we just don’t really know what will happen, and we’ll have to watch very carefully.”
Of course investors and average Americans aren’t the only ones who have no clue what happens now. As has been widely reported, inquiries for the “what does it mean to leave the E.U.?” and “what is the E.U.?” were among the top searches on Google in the United Kingdom on Friday — the day after the historic referendum vote. This is all to say that we are certainly in uncharted territory and the market’s panic is a pure reflection of that. So where do stocks head from here? Your guess is as good as anyone’s.