Brexit, Headlines, and Market Reactions: What’s Really Happening?

By now, most of us have heard about the Brexit vote—the UK’s decision to leave the European Union. Since then, global markets have experienced intense volatility, and the media has responded with dramatic headlines like:

• “Why Brexit Crisis is a Screaming Buy for Stock Investors”

• “Jim Rogers: Brexit Blowback ‘Worse Than Any Bear Market You’ve Ever Seen”

• “Cameron to Resign, Markets Tumble after Brexit Vote”

• “Why the U.S. is Freaked Out About Brexit”

• “Brexit’ in America: A Warning Shot Against Globalization”

• “Experts: Markets to Be Volatile After Brexit Bloodbath”

Sensational? Absolutely. Informative? Not always. These are all opinion pieces, yet they shape the public’s perception and often create more anxiety than clarity.

Let’s set aside the drama and focus on facts.

Market Performance Post-Brexit: A Snapshot

Here are some real, measurable data points from June 27, 2016—just days after the vote:

• S&P 500: Down 2.08% on the year, after being up 4.52%. (Reminder: It was down over 10% in February.)

• Russell 2000 (IWM): Down 3.49%.

• ACWI (All Country World Index): Down 4.5%.

• MSCI EFA (Developed International Markets): Down 10.37%.

• Japan (EWJ): Down 6.93%.

• China (FXI): Down 8.25%.

• Emerging Markets (EEM): Barely positive on the year at +0.12%, but down 4.81% over the previous 5 days.

These numbers certainly reflect stress in the markets, but do they justify words like bloodbath or crisis? That’s a stretch. No wonder articles about rising stress levels in America are popping up—this kind of fearmongering doesn’t help anyone make rational financial decisions.

What Happens Next? Possibilities, Not Predictions

So, what does Brexit actually mean for investors going forward?

It’s unlikely to be the spark that ignites the next financial crisis. But could it refocus investors’ attention on underlying weaknesses—such as a sluggish Chinese economy, ongoing struggles in Japan, high unemployment across Europe, slow domestic revenue growth, and the looming U.S. interest rate environment? Absolutely.

Could those factors eventually lead to a recession or a 30%+ market drop? Possibly. But remember: every 30% decline starts with a 5% dip. On the flip side, the markets could just as easily recover as they did earlier in 2016 when a 10% drop rebounded quickly once oil prices stabilized. Markets respond to data, and that data changes constantly.

Here’s another consideration: the S&P 500 is still trading at 17.5x forward earnings—with little to no earnings growth expected. That’s expensive. If valuations return to a more sustainable 15x earnings, we could see the index settle around 1750–1800, which represents a 10% drop from current levels. Brexit might not be the cause—but it could be the catalyst.

Gainplan’s Position: Neutral and Tactical

Since March 24, 2016, Gainplan has viewed the market through a neutral lens. This means we recognize the risk/reward ratio is extremely tight, and the market could break either way—with equal probability.

In this kind of environment, sector rotation becomes increasingly important, and we expect markets to continue trading in a range, rather than breaking out. As my colleague and Gainplan portfolio manager Dave often says: “Long-term planning clients should be content with sitting on a high cash position and expect more tactical trades until conditions favor a stronger, longer-term reward-to-risk opportunity.”

And don’t forget, once Brexit headlines fade, we have one of the most unusual U.S. elections in history on deck. Expect more media noise and market jitters as November approaches.

Final Thought

Stay informed, but don’t let the headlines make your decisions for you. Stay cool this summer—and stay focused on facts, not fear.

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