Did the Global Stock Market Learn Its Lesson from Brexit? - Cabot Wealth Network

Did the Global Stock Market Learn Its Lesson from Brexit?

Think back to late June, when the global stock market sold off in the wake of the surprise Brexit vote.

Markets from London to New York to Shanghai plummeted in the days following the United Kingdom’s shocking vote to exit the European Union. Within weeks, however, those same markets had not only bounced back—they were thriving. Since then, it appears markets around the world learned a sobering lesson.

In case you hadn’t heard, last week Donald Trump was elected 45th President of the United States—an even greater shock than Brexit. As it was happening, markets around the world tanked (Dow futures were down 800 points!), as did certain currencies (the peso hit an all-time low!). No doubt, average individual investors like you feared the worst when you woke up the next morning—regardless of who you voted for.

But then something extraordinary happened. The global stock market dusted itself off, quickly wrapped its head around what had just occurred, and finished the week on a very positive note.

Just look at how some of the largest markets in the world have performed since Donald Trump clinched the nomination early Wednesday morning:

Dow Jones Industrial: +2.3%

S&P 500: +0.8%

Shanghai Stock Exchange: +1.7%

London Stock Exchange: +2.6%

Nikkei Stock Exchange: +1.2%

There are some notable exceptions, of course. Mexico’s Stock Exchange, along with the peso, has been in freefall since Trump won—namely because of the things Trump has said about deporting Mexicans and his vow to “build a wall” along the U.S.-Mexico border. The Bombay Stock Exchange is also down sharply since last Tuesday. But for the most part, the global stock market has been resilient. Which brings me back to Brexit…

In the immediate aftermath of Brexit, investors everywhere panicked, and markets around the world sold off for a few days. Just look at how the same markets listed above performed in the first three trading days that followed the June 23 Brexit vote:

Dow Jones Industrial: -3.3%

S&P 500: -3.6%

Shanghai Stock Exchange: +0.7%

London Stock Exchange: -11.8%

Nikkei Stock Exchange: -5.5% 

You can see the panic, with the exception of the Shanghai Stock Exchange, which still underperformed these first three days since Trump’s election. This time, that panic was absent from global markets, or it at least subsided much quicker. In essence, markets resumed their pre-election trajectory—something we’ve been saying would happen, but historically doesn’t happen this quickly. U.S. markets, at least, typically take a week to settle after some initial post-election panic.

Shockingly—especially given the climate and the nature of who was just elected—that hasn’t happened this time. Perhaps other world markets are taking their cues from Wall Street’s surprising calm. The Nikkei, for example, nosedived last Wednesday, only to recover all its losses and then some by week’s end. It’s possible that Japanese investors saw that U.S. investors weren’t panicking about their new President and asked, “Why should we?”

There are a number of theories about the absence of a volatile market in the face of a Trump presidency—certainty of who will be our next President finally putting an end to this toxic election cycle; doubts that Trump will follow through on some of his more controversial stances against free trade; relief that the vote didn’t come down to another Bush-Gore “hanging chads” debacle, etc.

I think it’s more simple than that: investors learned a lesson. Just months removed from the needless Brexit panic, the global stock market refused to overreact this time. That’s a sign of a more mature market than many were expecting.

And a more mature market bodes well for the coming months as we enter a decidedly new—and uncertain—phase in America’s history.

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