Following the announcement of Britain’s decision to leave the EU, the media had a field day with headlines like “Brexit turmoil deepens: Dow down nearly 900 points in 2 days” and “ World stocks tumble as Britain votes for EU Exit.”
But it took less than a week for the FTSE 100 index (London’s stock exchange) to bounce back, specifically it rose 3.6% on Wednesday when it was up by 219.67 points. This was the highest closing level since April 21 of this year.
“The contrarian nature of markets has never been more apparent than in the past few days. We could all understand the selloff seen on Friday and then again at the beginning of this week, but the storming rally on the FTSE 100, which has seen the index rally over 7% from Monday’s low, is much harder to explain, other than via the usual combination of short-covering and bargain hunting,” said Chris Beauchamp, senior market analyst at IG Group.
“The market has certainly been quite sanguine in its assessment of the situation, noting that, technically, nothing has really changed in the UK’s relationship with the EU, and that even negotiations about negotiations have yet to start. It is safe to say that, of all the post Brexit outcomes discussed across the City over the past few months, ‘buying frenzy’ was not one that was viewed as very likely. Today’s list of top risers is somewhat more diverse than yesterday, with miners enjoying healthy gains, although once again UK-focused names like house builders and insurers predominate.”
Although the FTSE 250 is taking more time to recover, it still ended up 3.22% higher on Wednesday than last Thursday. It is still down by 7.6% since the referendum vote.
Nonetheless, the “Brexit scare” is fading. Sam Stovall had previously stated to USA Today: “I don’t think this is the big one,” referring to the dip in both US and British stock markets last week. Evidently, he was right.
“Stovall compiled data from 20 “market shock events” dating back to the attack on Pearl Harbor in 1941. So far the Brexit scare has caused no more than the normal havoc or market drop seen in past shocks. Stovall’s shock list includes more recent events, such as Greece’s near-ouster from the eurozone last summer, the U.S. debt downgrade in the summer of 2011, and the “Flash Crash” in 2010 when the stock market went haywire due to a computer malfunction,” writes USA Today.
According, to MarketWatch, US Stocks are on track to post a 4th consecutive gain following the Brexit event.
Eidtor’s note: The initial panic was caused by the inaccuracy of the polls which indicated Britain would stay in the EU. It was said the majority of speculators bet according to the polls, the polls were wrong so some scrambling occurred. I expected a certain amoung of oscillation will continue through the next few weeks, but no permanent losses.