Britain’s decision to exit the European Union is quite easily the most visible head scratching event this year outside of Ryan Lochte’s Hollywood Style episode at a Rio gas station. While the exit matters greatly to Europe, does it matter to America and more importantly to investors in the US? We examine the fallout in this report.
Two things are likely to happen in the next 6-12 months:
- New trade agreements with the EU and UK will heighten business uncertainty and the overall impact of Brexit on corporate earnings is likely to be at least slightly negative over the intermediate term. But Europe had shown no signs of an economic recovery prior to Brexit and as such, there should be little to no impact to US companies and consequently to their stock prices.
- The Brexit referendum may spark other countries, such as France and Italy, to follow a similar path. This will bring more volatility to the region but again should have no impact on US companies.
Future Wealth’s View
While there are multiple possible outcomes to the Brexit resolution, we, at Future Wealth, see little reason to be concerned about any of those outcomes. U.S. corporations derive only 10-15% of earnings from Europe and most companies have already seen their corporate earnings suffer from years of anemic economic growth in Europe prior to Brexit. The earnings of S&P 500 companies have been weak year to date (see https://futurewealthllc.com/business-or-politics/) and, we believe, Brexit could at best likely detract modestly from the earnings recovery expected later in 2016 and 2017.
Bottom Line: We view that the ultimate impact of Brexit on the U.S. economy will be close to zero.
Future Wealth’s recommendation
We continue to recommend investors stay away from international markets including EU and UK and instead invest in sound companies in the US and rely on high quality dividend paying stocks and ETFs.
Jay Srivatsa, CEO, Future Wealth LLC
The information contained in the report does not constitute an offer, or a solicitation of an offer, to buy or sell any securities or other financial instruments, including the securities of companies listed in the report. Investors should not rely solely on the information in the report in making an investment decision.