Special Bulletin on Brexit
The UK has voted to leave the European Union, and while the details of the separation will take years to figure out, markets are responding in typical knee-jerk fashion this morning.
The British Pound has fallen sharply against the dollar, euro and yen. Global stock markets are declining and U.S. markets are expected to open sharply lower. The main winners today, if there are any, are “risk off” assets like gold and treasury bonds. Yields of 10-year U.S. treasury bonds have fallen to multi-year lows around 1.5% due to high demand for ultra-safe assets.
In the short term, expect to see some sharp declines in our portfolio. Amgen (AMGN), Costco (COST), CVS Health (CVS), Reynolds American (RAI) and Home Depot (HD) are all quoted between 2% and 3% lower pre-market, while General Motors (GM) is expected to open between 3% and 4% lower.
Our biggest losers look like US Bancorp (USB) and Wynn Resorts (WYNN), which are quoted between 4% and 5% lower as I write. All the financials have sold off sharply—Britain has a large financial sector and disruptions there could affect global financial institutions broadly. In addition, the market turmoil and economic uncertainty created by Brexit are likely to further delay the Fed’s next rate hike, maintaining pressure on bank profitability.
(Xcel Energy (XEL) is also trading 4% lower pre-market, but I suspect the selloff is due to confusion of the U.S.-only utility with an unrelated British gas company also named Xcel Energy. Utilities generally are holding up well since they outperform when interest rates are falling and investor fear is high.)
I don’t plan on doing any selling immediately. If any of our stocks—USB and WYNN being the most likely candidates—break down definitively in coming days, we’ll cut them loose. And if you have a big loss in any positions or feel generally overinvested, you could raise some cash.
But I don’t recommend doing any major housecleaning at what are likely to be panic lows today. Big declines and breaks through support have less meaning during panicky trading, so we’ll wait to see how stocks react over a slightly longer time frame before making any major decisions. Likewise for the broad market.