Britain has voted to leave the European Union. The historic vote is causing major fallout in global markets. The sell-offs will likely continue throughout the day if not longer. One of the biggest reasons for the plunge is uncertainty. The markets don't know what this means for the UK or for Europe. Or for the world, for that matter. We have always said that "certain uncertainty" is the biggest cause of market volatility. Many are saying nothing will likely happen for at least two years because of exit negotiations. This could be the bigger issue. A longer drawn out exit means a longer period of uncertainty about the future. In all honesty it is a bit of a mess and no one really knows right now what things will look like. We probably won't know for many years.
Over the coming days you can expect a lot of over reaction and over analysis. Part of the reasoning behind the sharper declines today may be related to the run up the markets had in the previous days based on an assumption the vote was going the other way. People who were already looking for a reason to sell out of the market will use this as a way to validate their choices. No disrespect to the UK but their economy may not be big enough to have a huge impact globally. The bigger concern is if the EU loses more members. Countries like Greece, Spain and Portugal are still dealing with extremely shaky economies and having other members leave would not bode well for them or anyone involved and could trigger defaults.
Europe will likely continue to have some economic struggles with the decision but we feel the global economy is much to large and global in nature for there to be widespread economic slowdown solely based on the UK's decision. Either way it is the new reality for the UK and for Europe. They will figure it out.
As always, don't hesitate to contact us if you have questions or want to talk this through.