Will Brexit Drag the Market Down Despite This Week's Bounce Back?
Brexit dragged stocks down around the world. This week, they're bouncing back.
They say that the stock market "anticipates." That means you can watch the price action and find out what's coming in the near future. So does that mean that when stocks fell it meant the world was going to hell in a hand basket? On the other hand, does this bounce mean that, upon further consideration, all's well. Likely it means neither.
First of all, stocks rose substantially before the British vote. That likely anticipated a "Remain" vote. So when "Leave" won, you were really looking at a correction of that incorrect assumption. And the bounce would likely be the natural reaction to a strong fall. Nothing heads straight down or straight up. At least that's true most of the time.
So where does this leave us? Let's look at what are the experts saying.
For the most part, we're hearing that we should all wait a while to see how things settle down. That means the experts don't really know whether Brexit started a bear market in stocks (or a resumption of a bear market, depending on your view), or whether coming talks between Britain and the EU will somehow turn uncertainty into the fabled "certainty" that experts say the stock market needs to behave well. A couple of thoughts about this.
First, check your experts. Most of the talkers are either Wall Street types, or economists. Wall Street types have one interest and one only: to sell you something. So whatever they say will be geared to reduce your fear. That's important because scaredy-cats hold on to their money. They're afraid to invest. That's not good for Wall Street. Maybe for you, but not for them. The economists who work for the Wall Street firms fall into the same category. As for economists not in the employ of the Street, few (or maybe none) of those ever get the direction of the economy right. So no need to heed them either.
Second, the stock market had already signaled its direction prior to Brexit. That would be "bear." At least that's how it looks, and has looked for quite a while, to the relatively reliable sources we consult. No one's talking "bull"; it's either "The bear is here," or "The bear is coming" - Brexit or no.
So Brexit didn't and won't drag the market down on its own. It may have pushed it back to its primary trend - down - but it's not the cause of that primary trend. If we see a few more days of stock rising, it would be no surprise. But unless you're a day trader, the focus should be on the longer, aka "primary," trend. And if that's the case, then any action you do or do not take would be driven by that focus.
None of this precludes or eliminates the emotional swings that come with violent market swings. When I've figured out how to eliminate emotions 100% when dealing with the markets, I'll let you know.
They say that the stock market "anticipates." That means you can watch the price action and find out what's coming in the near future. So does that mean that when stocks fell it meant the world was going to hell in a hand basket? On the other hand, does this bounce mean that, upon further consideration, all's well. Likely it means neither.
First of all, stocks rose substantially before the British vote. That likely anticipated a "Remain" vote. So when "Leave" won, you were really looking at a correction of that incorrect assumption. And the bounce would likely be the natural reaction to a strong fall. Nothing heads straight down or straight up. At least that's true most of the time.
So where does this leave us? Let's look at what are the experts saying.
For the most part, we're hearing that we should all wait a while to see how things settle down. That means the experts don't really know whether Brexit started a bear market in stocks (or a resumption of a bear market, depending on your view), or whether coming talks between Britain and the EU will somehow turn uncertainty into the fabled "certainty" that experts say the stock market needs to behave well. A couple of thoughts about this.
First, check your experts. Most of the talkers are either Wall Street types, or economists. Wall Street types have one interest and one only: to sell you something. So whatever they say will be geared to reduce your fear. That's important because scaredy-cats hold on to their money. They're afraid to invest. That's not good for Wall Street. Maybe for you, but not for them. The economists who work for the Wall Street firms fall into the same category. As for economists not in the employ of the Street, few (or maybe none) of those ever get the direction of the economy right. So no need to heed them either.
Second, the stock market had already signaled its direction prior to Brexit. That would be "bear." At least that's how it looks, and has looked for quite a while, to the relatively reliable sources we consult. No one's talking "bull"; it's either "The bear is here," or "The bear is coming" - Brexit or no.
So Brexit didn't and won't drag the market down on its own. It may have pushed it back to its primary trend - down - but it's not the cause of that primary trend. If we see a few more days of stock rising, it would be no surprise. But unless you're a day trader, the focus should be on the longer, aka "primary," trend. And if that's the case, then any action you do or do not take would be driven by that focus.
None of this precludes or eliminates the emotional swings that come with violent market swings. When I've figured out how to eliminate emotions 100% when dealing with the markets, I'll let you know.
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