With the announcement of the United Kingdom (UK) leaving the European Union (EU), markets around the world lost $2 trillion in value, instantly. The question that everyone is asking, what does it really mean? How does the UK divorce from the EU really affect me?
One thing is for certain, in the short term, volatility will reign. The longer term view requires a little more understanding on how trade actually exists between America, Europe and now standing alone, the United Kingdom.
Trade with the US and the UK is not much when measured against our Gross Domestic Product (GDP). It is a mere .31% of our overall economy, less than ½ of a percent. One advantage Americans might have from the EU divorce is the strengthening of the dollar against the Euro, of course the downside might also be less trade with the EU. Less trade could mean less American jobs, and the ripple will begin.
Trade with the UK and the EU is more substantial, almost 5% of all EU GDP. Concern is great in the EU in regards to a stampede, how many more exits from the EU might there be. For years, Germany has been rattling sabers in that direction and an exit of more EU members would certainly lead to economic chaos.
When you consider the market situation and whether it can be monitored in a manner that might be meaningful, that seems a stretch. The wind blowing across the Atlantic might make thoughts of a “bull” market look exactly like a “bear” market. Still a four legged animal but each so different from the other.
Fortunately, we offer our clients safety and freedom from market risk.