Is the Brexit Storm Over Already?

When the British people voted to leave the EU, some people painted it out to be the next coming of the apocalypse. And as much as economic nihilists might have wished that to be true, it wasn’t. The only thing that’s happened is a vote — that’s it. Britain is still part of the European Union (EU). And they will continue to abide by the laws of the EU.

The process for Britain to actually leave the EU might take a number of years. Why so long? This sort of thing has never happened before. And this was exactly the reason why share markets around the globe fell by so much. It was because of uncertainty.

European banks were hit the hardest, some dropping as much as 30% two days after the vote. Investors rushed to gold, sparking a 6.4% rally in the spot gold price, to US$1,336.66 an ounce. But right now the carnage seems to be settling.

Have the clouds parted already? Is the Brexit storm over?

Overnight rally

Overnight, stocks worldwide rose. Bargain hunters flooded into the market to buy up the oversold equity markets. European shares were up 2.4%. And while this isn’t a complete recovery, they’re climbing their way back from a 10% loss. US markets also rallied, with banking shares recovering some of what they had lost.

And now all eyes are on Australia’s share market. Will our market be up at the end of trade today? Can we create a three peat? Even the pound enjoyed gains overnight. The GBP rose 0.7% against the US dollar; each pound is exchanging hands for US$1.3122.

Even gold is starting to show signs that the Brexit storm is over. Spot gold fell 0.8%, to US$1,314.21 an ounce, last night.

But back to the original question, will Aussie markets close higher today? I believe they will. However, whether it does or doesn’t is trivial. The daily fluctuations of the market should be ignored by most investors.

I say this because the more you fixate on the volatility of your position, the more likely you’ll make dumb decisions. This, of course, isn’t a hard and fast rule. But if you’re in the market for the medium/long term, daily fluctuations shouldn’t faze you.

The only thing you should be worried about is your initial decisions to invest in companies. It sounds obvious, but you want to pick profitable companies who have the potential to grow for years to come.

And right now is one of the best times to invest. Share markets are still down from their pre-vote levels, which means you can pick up great companies for cheap. But be careful not to have the mindset that every company is cheap. You still need to research and fact check all potential companies you wish to invest in.

Too many times bargain hunters fall into the trap of buying shares that have dropped the most. Once they buy in, shares climb slightly. However, before long, traders with enormous capital at their disposal start to sell down the same shares. They’ve seen an opportunity — many small orders have flooded into the stock — and, with their influence, they can force many small investors out of the stock simply by selling. This is sometimes referred to as a second push.

I don’t want to scare you out of the market. It’s potentially a great time to get into the market. But beware of bargain traps. Again, it all comes back to researching the stocks you are thinking of investing in.

Härje Ronngard,

Junior Analyst, Money Morning

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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