Will Brexit Affect US Stocks?

Will Brexit prove to be the catalyst for a US bear market? Or will the UK voting to leave the EU affect stock prices much like Greece's financial crisis: a hiccup?

John Rekenthaler 29 June, 2016 | 10:32AM
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Stock market declines are always obvious in hindsight. When technology stocks reversed course in spring 2000 after years of gains, the New Era was over. Prudent investors exited. Several years later, the film The Big Short informs us, the smart money understood that the housing market was dangerously overheated. Most shareholders failed to perceive the problem, being caught up in the excitement, but those who viewed the situation dispassionately realised that the game was up.

Perhaps the Brexit vote will prove the same. Perhaps 2025's Best Picture Oscar will go to a sweeping satire on the collective foolishness of the nation's wealthy, who reaped huge profits on their post-2008 portfolios only to give back those gains during the global depression caused by Europe's breakup. The truth was directly in front of them, but they did not see it. The audience leaves satisfied; the rich got what was coming to them.

That could be. Or it could be that Brexit will affect U.S. stock prices much like Greece's financial crisis, Putin's aggressions, S&P's downgrade of U.S. debt, and Washington's budget brinkmanship. Those items splattered against the U.S. marketplace like a water balloon hitting an elephant. At the time, each seemed to be globally important, causing several weeks' worth of stock-market losses accompanied by anxious commentary, such as this excerpt from 2011:

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John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.