Markets Bounce Back Slightly Following "Brexit"-Induced Rout
Investors around the world received a slight reprieve on Tuesday following a historic market rout that wiped $3 trillion off of global stock values.
Following an unexpected "Brexit" result on Thursday night in the United Kingdom, global markets sold off harshly on Friday. Many investors across the world had been positioning themselves long ahead of an expected "Remain" vote, and this trapped many into positions that they did not want on Friday morning.
After a sea of red swamped the markets on Friday, many investors spent the weekend fretting, reading about the possibility of global recessions and severe bear markets. This caused many investors to sell even more of their holdings on Monday, which caused another leg down in the markets.
European banks were especially hard hit in the carnage, though the selling reached every corner of the globe.
On Tuesday, there was a small bounce in the markets as the two-day wave of selling ended. There wasn't too much of a reprieve, however, as the DJIA traded up 270 points and the NASDAQ finished roughly 2% higher.
Investors remain understandably wary about the markets, as there are still many, many unanswered questions. When will the United Kingdom actually leave the European Union? What will be the impact on North American companies? Will a fragile EU result in a stronger US dollar, and what impact will this have on North American companies? Are other countries going to follow the United Kingdom out the door? Will a "Brexit" cause a global recession?
It is worth noting that the major North American market indexes didn't hit bottom until 5 months after the global economy crashed in October of 2008.
Many smart money managers are warning that the "Brexit" situation is yet to play itself out fully in the markets. Some may be tempted to jump back in after two days of selling to "buy the dip", though history would tell us that this might prove to be foolish.
Filed under: General Knowledge