Stocks are tumbling on the United Kingdom’s historic “Brexit” vote, but that doesn’t mean the whole year is a washout – or investors should jump to the sidelines.
“Historically, when there have been market shocks since World War II, what you find is that the market goes down 6% to 8% in a one-week period and then only takes about two weeks to get back to breakeven,” Sam Stovall, stock market expert of S&P Global Market Intelligence, says in the video above. “This kind of market shock does not rebound in one day, but maybe we end up getting a pop after the drop.”
Stock markets in Europe and Asia fell 2% to 8% on the vote, with US stocks initially down about 2%. The vote will be toughest on the UK, because it casts a cloak of uncertainty over nearly every aspect of the economy. IHS Global Insight predicts the UK’s economic growth rate will fall sharply, hitting just 0.2% next year. That’s a borderline recession. Plunging confidence, restrained spending and the plummeting value of the British pound will push unemployment and inflation up and home prices down. Some big companies could leave the UK for other European nations.
Europe itself will suffer too, since it’s closely tied with the UK, and other nations may vote to follow Britain’s departure from the European Union. But the US economy may not be harmed at all, and parts of it could benefit as, say, British banks lose business to those in New York and other financial capitals.
The UK’s departure from the EU will take years, which means most of the process, unlike the startling vote itself, will be slow and fairly transparent. So while uncertainty could depress markets, the worst shock from Brexit is most likely over. It’s also possible the hit to the British economy might not be as bad as economists predict.
Stovall has some recommendations for investors willing to take the risk and play the turmoil: buy small- and mid-cap US stocks, dividend aristocrats and gold stocks. The most heartening message, however, may be the hunt for deals itself, which means the world didn’t end. It just got a bit more confusing.