On June 24, many Americans woke up
to the surprising result that voters in the United Kingdom decided the
country should leave the European Union—a move dubbed “Brexit.”
Markets around the globe fell, including U.S. markets.
Barron, chief investment officer with Segal Rogerscasey, who is based
in Chicago, tells PLANSPONSOR world events like this affect U.S. markets
because it creates greater uncertainty among investors, and uncertainty
usually creates negative volatility in the markets.
might turn to cash and Treasury investments, feeling that if the
European Union (EU) melts down, this provides safety. He explains that
dollar strengthening can be bad for the economy because goods and
services that are sold overseas will be more expensive. “This event is a
good example of how global economies are interconnected,” Barron says.
reports say the divorce of the UK from the EU could take up to two
years. Barron says it’s hard to make a market call for what happens over
the next two years. For the UK itself, there will end up being
standalone traded agreements with countries deeply engaged and involved
in the EU, Barron speculates. “The precedent is for the UK to have a
vibrant relationship with the EU,” he says.
But, there are other
unknowns that may create additional market volatility. According to
Barron, there are other countries in the Eurozone that do not view the
EU favorably. “What about Spain and the Netherlands?” he queries. “It’s
not so much the two year period of figuring out trade agreements and
other details that will affect the market, but it’s the fact there could
be other substantive changes in the makeup of the EU.”
consideration is the response of the EU itself. “Brussels cannot be
happy with the UK. How will they deal with other nations that have
concerns? They need to have a policy response,” Barron says. NEXT: Implications for retirement plan investors