When thinking about my 2016 forecast last December, I was aware of the inverse relationship between uncertainty and the stock market, i.e., as uncertainty increases, the stock market goes down. In addition, history tells us that the market is quite choppy the first half in years having a Presidential election but usually ends the year with stocks higher. I reasoned, since it had been almost six months since the last market high and since the market was slowly grinding downward as 2015 ended and since commodity prices were weak, reflecting either over-supply or under-demand, that an overlay of increased uncertainty from the election would make the first half of the year quite choppy indeed. (Admittedly, it was more choppy than anticipated.)
But, we may have a date when the bulls will start to trot, if not run - June 23rd -- put it on your calendar. That is the date England will hold a referendum on leaving the European Union, which would be a really foolish mistake. It is called the "Brexit" for Britain exiting the EU and would be a triumph of nationalism over good sense. A Gordian Knot of treaties and agreements would have to be renegotiated quickly, which has been described as "unscrambling an egg." Half of the UK international trade is with EU members. How do you buy or sell to companies in other EU countries, if the rules are sure to change? Three million people are living in England who immigrated from the EU. What happens to them? If the referendum passes and the UK must leave the EU, European stocks will drag down American stocks. Conversely, if the English vote to remain in the EU, stocks will surge.
When the votes are counted, the U.S. will be close enough to the partisan conventions that nominees are likely to be known, which also reduces uncertainty and helps stock. Plus, oil prices will be closer to stable by then.
So, how does one invest around this? They don't! Let the day-traders make "all-or-nothing" bets, not investors. The value to investors is simply to help manage your expectations and to understand if your portfolio takes a dip ahead of the referendum.
But, we may have a date when the bulls will start to trot, if not run - June 23rd -- put it on your calendar. That is the date England will hold a referendum on leaving the European Union, which would be a really foolish mistake. It is called the "Brexit" for Britain exiting the EU and would be a triumph of nationalism over good sense. A Gordian Knot of treaties and agreements would have to be renegotiated quickly, which has been described as "unscrambling an egg." Half of the UK international trade is with EU members. How do you buy or sell to companies in other EU countries, if the rules are sure to change? Three million people are living in England who immigrated from the EU. What happens to them? If the referendum passes and the UK must leave the EU, European stocks will drag down American stocks. Conversely, if the English vote to remain in the EU, stocks will surge.
When the votes are counted, the U.S. will be close enough to the partisan conventions that nominees are likely to be known, which also reduces uncertainty and helps stock. Plus, oil prices will be closer to stable by then.
So, how does one invest around this? They don't! Let the day-traders make "all-or-nothing" bets, not investors. The value to investors is simply to help manage your expectations and to understand if your portfolio takes a dip ahead of the referendum.
