The vote by the U.K to exit the European Union (BREXIT) came as a shock on Friday simply because it went against expectations. The S&P500 closed Thursday within a decent trading day of a new high and the DJIA was up over 230 points betting on a stay vote. Traders and speculators have to unwind trades and find liquidity to cover margin calls creating a lot of short term volatility.
This was an event not a trend. Though short term volatility will test resolve, patience will be rewarded in time. Consider these statistics: From 1946 until now there have been 76 declines of 5-10% and 27 declines of 10-20%. The average time for a full recovery was just one month and four months respectively. We expect the market to stabilize and recover just as it did last August and earlier this year. We encourage our clients to avoid emotional decisions based on this single event and the short term volatility and uncertainty that it will cause.
We will be watching closely to determine if we need to make any changes to our outlook. For now we remain bullish intermediate to longer term and believe the overall bull market remains intact. Again, it is important to note that the market was near an all-time high just last Thursday and this situation should be considered an opportunity rather than a reason to panic.