Last week the United Kingdom (UK) and the European Union (EU) finally agreed to the details of ‘Brexit’. The process has been covered extensively in the press since the announcement in 2016 of a referendum for the British public to vote on.
After the vote, the S&P 500 fell over 3.5% the next day. Many analysts and commentators were making remarks concerning the negative impact on the economies in the UK, the EU, and the rest of the world to include the US. Listed below is just a sampling of some of the remarks and commentaries from 2016:
- Goldman Sachs issued a report on “Trade contagion” and “The risk of financial spillovers” after the referendum vote. ¹
-
Washington Post headline on June 24, 2016: “Dow drops more than 600 points as Brexit raises risk of global recession.” ²
- BMO Private Bank Chief Investment Officer on June 24, 2016: “We’re going to see more days like today as the collective wisdom may prove wrong in others cases, too.” ³
- CNN Money Headline on June 27, 2016: “Brexit turmoil deepens: Dow down nearly 900 points in 2 days.” ⁴
There will be ongoing economic impacts to both the UK and EU with the separation between the two. But what has the impact been to investors in the US? The chart below shows the S&P 500 since January 1, 2016.
Showing the total percentage change of the S&P 500 from January 1, 2016 through December 23, 2020 with the area highlighted by the yellow circle being the period of the Brexit vote, it doesn’t look very significant to investors. Initially, the S&P 500 dropped 5.2%. But just 2 weeks later, the S&P 500 returned to pre-Brexit levels and then continued its bull market climb. The total return of the S&P 500 during these 5 years was over 80%, about 16% annually.
Maybe all the talk over the past 5 years about the potential impact of Brexit on investors has been mostly noise from the financial media and major brokerage firms. Investors could have been better served listening to our often-said advice – “Tune out the noise”.
¹ https://www.cnbc.com/2016/06/29/brexit-contagion-poses-risk-to-us-says-goldman-sachs.html
² https://www.washingtonpost.com/news/wonk/wp/2016/06/24/brexit-raises-risk-of-global-recession-as-financial-markets-plunge-worldwide/
³ https://www.bbc.com/news/business-36626085
⁴ https://money.cnn.com/2016/06/26/investing/markets-brexit-reaction-monday/
