Brexit: The Week After

(Originally published June 30, 2016) Since our commentary on June 24, 2016, markets have rebounded modestly, with the S&P 500 closing yesterday (Wednesday) up almost 2%. The markets in London, Japan, Germany and Hong Kong were also up slightly. This underscores our message from last Friday on the importance of practicing patience in the midst of market volatility and the benefit of a balanced portfolio that helps investors weather market ups and downs.

Outside of the financial markets, the following are points of interest and bear watching:

• The decision to exit the EU is not final until Article 50 of the EU treaty is invoked. This will happen after a three-month handover period to a new Conservative government leadership in Britain.
• After invoking Article 50, Great Britain has two years to negotiate treaty obligations and benefits with other EU members. The process for doing so is very much up in the air and is causing additional uncertainty.
• Both George Osborne, Chancellor of the Exchequer and David Cameron, Prime Minister (who will officially resign in October) have said that financial decisions will have to wait until a new government in Great Britain is in place. This means any action dealing with public finances will be on hold until that time.
• Because other EU members may want to follow suit, we may expect to see EU members playing hardball with those who want to leave in order to keep the Union intact. Some EU member countries, including France, the Netherlands, Italy, Austria, Finland and Hungary have elections scheduled over the coming years with the possibility of additional exit votes looming large.
• Among the motivating factors for the exit is that the British majority want to take control over many aspects of their country from the EU. They are currently paying 10 billion Euros a year into the EU and would like to redirect that money to Great Britain rather than to the entire EU.
• Neither Norway nor Sweden is a member of the EU, yet they enjoy some EU benefits. There is some question as to whether Great Britain may be able to create a similar relationship with the EU.

We continue to stress that we believe that any long-term impact on the U.S. economy should be modest. Weaker economic growth across the Continent will be the main impact on our own economy.

A reminder: With uncertainties in play, we will not make immediate changes to our portfolios. As always, we believe a broadly diversified portfolio helps to provide protection during periods of increased volatility and see such volatility as an opportunity.

If you have any questions, please call me at 404-874-6244.

Sincerely,
Tim Agnew
Managing Director

All references in this publication referring to our average allocation or “typical portfolios” reflect those of the fully discretionary accounts of clients with moderate risk profiles. Actual client portfolios are tailored to individual client circumstances and asset allocations may vary. Any reference to returns reflect the performance of asset classes, are for illustration purposes only, and do not reflect the returns of any specific investment of Smith and Howard Wealth Management. No representation is made that any investment decisions discussed herein have been profitable in the past or will be in the future. Past performance is no guarantee of future results. A list of all recommended investments is available upon request.