What is the “Brexit”?
- It’s the nickname given to the British exit of the European Union.
- The European Union (EU) formed after World War II. It’s an union between 28 member states that ensures peace between European countries.
- It also has financial benefits. The EU works to support things such as economic growth, employment and affordable credit for all members of the union.
How could the “Brexit” affect America?
Stocks (Some of my thoughts)
- The Brexit took investors by surprise. Many thought the U.K. would remain in the EU, which made the impact even more severe. Stocks world wide saw more than $2 trillion dollars wiped of their value Friday morning. (Source: Yahoo)
- U.S. stocks fell as soon as doors opened. The Dow dropped more than 520 points immediately. It’s rebounded slightly, but is still down about 400 points. (Source: CNN Money)
- I caution my clients against any knee-jerk reactions to what happens in the stock market.
- Investments should be diversified and have appropriate risk for your age and how close you are to retirement.
Interest Rates (Some of my thoughts)
- Because of the Brexit the Federal Reserve has said it’s is unlikely to raise interest rates at its next meeting in July because of the stronger value of the dollar.
- An interest rate hike would affect the rates we pay for mortgages, auto loans, credit cards and the returns we get on CDs, money market accounts and savings accounts.
- Federal Reserve Chairwoman Janet Yellen testified that the Fed is also being cautious due to a slowdown in hiring, a weak global economy and inflation.
Tourism (Some of my thoughts)
- Americans will still be able to visit their favorite spots in Britain.
- However, a Brexit will probably make vacationing in the U.K. a bargain for Americans.
- This is because the British pound fell more than 10-percent immediately following the vote. This is the lowest it’s been since 1985. (Source: Washington Post Bloomberg)
Trade (Some of my thoughts)
- Because of the Brexit, the U.S. and U.K. will have to negotiate a new trade agreement.
- The U.K.’s membership in the EU was beneficial to the U.S. because the countries within it could export and import to each other without paying tariffs.
- Right now, the U.S. is the largest single investor in Britain, and the Brexit could threaten more than a trillion dollars in investments and trade. (Source: Washington Post)
Business (Some of my thoughts)
- Many American businesses have locations in the U.K.
- In fact, 12 cents of every dollar the U.S. invested overseas in recent years was spent in the U.K. (Source: US News)
- The Brexit could reduce revenues and force companies to consider relocating.
- The International Monetary Fund estimates a Brexit will reduce economic growth by 5.5% and plunge the U.K. into a recession. (Source: The Guardian)
What about the talk this could lead to a global recession?
- There is concern this could lead to a global recession similar to what we saw in 2008. (Source: CNNMoney)
- Many market experts are urging investors to take a breath.
- This may end up being more of a political crisis than a financial one.
- I do expect it will take time for the global markets to fully understand the impact of this vote.
- We will likely see more volatility, as many analysts are saying the markets were not prepared for this.
- Bottom line for investors, stick with your plan. Don’t make rash moves. If you have concerns, talk with a trusted financial professional.