As we all know, the stock market is influenced by major political and economic issues taking place around the world. Whenever anything happens of some great significance, its heat can be felt in the market, negatively or positively, depending on the event. Recently, people of Britain have taken a major decision to exit from the European Union. Many have called it the greatest change since the end of World War II. Around the world, economists are talking about its effect on the market.
If we look at the market, we notice as it became clear that Britain would leave the EU, the value of Pound sank 3.5% against the dollar, and it reached its lowest level of the last three decades. The Yen also experienced a big fall. The European and U.S. stock markets are under heavy pressure.
Goldman Sachs economists say that the UK’s economy might fall into recession by 2017. This is just their opinion, but if this happens it will have a big impact on almost every nation’s stock market.
Many EU leaders are requesting Britain to start the process of its exit from the Union early so the state of confusion can end. However, the Prime Minister, David Cameroon is not ready for the same. As per him, he will step down, some other leader will take the responsibility, and then that leader can make the decision.
This is overblown; Brexit’s effect on the real economy (whatever that is) is long-term in nature. Brexit will have a slightly negative effect (some believe it will have a positive effect) on the British and EU economies over a very long time. It will have even less impact on the U.S. economy and economies of other nations.
The only immediate effect will be indirect. This immediate effect will be the result of people losing faith, reigning in their spending, and slowing down the economies of the involved nations.
Trying to put even a rough number on this Loss-of-Faith effect is pure guess work. But it is probably safe to say that it does not justify a 5 % drop in the U.S. stock market.
In the words of Aaron Rodgers, relax. This event will affect the short-term volatility in the market much more than it will have long-term growth. And it is long-term growth that really matters.