I love waking up to overly sensationalized headlines like this on a Saturday morning:
USA Today headline: “U.S. stocks get absolutely crushed by ‘Brexit'”
Indeed, the somewhat unexpected outcome of the British vote to leave the European Union caused a significant decline in stock prices around the world — the global stock market index (ACWI) was down a significant 5.38% in one day.
And the S&P 500 hasn’t been this low since, well….about a month or so ago; and is still within a breath of the all-time high.
In other words, Friday’s decline fits well within what we consider normal market volatility, and certainly isn’t panic worthy. Nor did it create a great opportunity to buy at significantly reduced prices.
Whether or not this particular geopolitical event (“Brexit”) is the catalyst for a more significant market sell-off is yet to be seen. However, if a further decline does follow, Brexit will simply be the final straw — not the underlying reason.
Britain represents only 4% of the global economy (source: International Monetary Fund, 10/2015), and their departure from the EU will take a number of years to complete. By the time Britain has completed this transition and any impact on the U.S. or global economy is known, “Brexit” will likely be a distant memory — if not all but forgotten in the news cycle.
Now, as an investment manager, I still find all of this fascinating. I stayed up late on Thursday to watch the votes roll in, and monitored the market’s reaction throughout the day Friday. I will confess that the decline in stock prices had me smiling — I am a patient investor and willing to wait for attractive prices to show up. Friday’s decline helped.
Of greater interest to me were the assets that went up significantly on Friday:
- Core Bonds up 0.52% (AGG)
- Long U.S. Treasuries up 2.68% (TLT)
- Gold up 4.96% (GLD)
- Inflation-Protected Treasuries up 0.63% (TIP)
- Mining Stocks up 5.91% (GDX)
My core investment principles place a very high priority on managing our clients’ downside risk during periods of market turmoil, and Friday was a good day to ensure that the steps we have taken to preserve and position wealth for long-term growth are working.
Our firm-wide client portfolios had net returns on Friday of -0.23%, and a number of our strategies actually increased in value. While a one-day return is not terribly relevant in the context of our long-term objectives, it is, of course, good to know that Friday’s 5% plus global market decline had virtually no impact, and possibly even a positive impact, on our investments.