Financial experts in Grand Forks are recommending investors take a deep breath after political turmoil across the pond caused stocks to drop in recent days.
The United Kingdom shockingly voted to leave the 28-member European Union last week, and stocks plunged in the following days. That affected everything from retirement to college savings plans, said Derrick Johnson, a financial planner at Johnson Wealth Management in Grand Forks.
But Johnson and others said investors should take a longer view of the economy rather than making knee-jerk decisions based on the fallout of the so-called Brexit.
"I think that the reaction on Friday and Monday, in terms of the global stock markets, really had to do with the surprise of the fact that most experts and most of the polls indicated that Britain was going to vote to stay," he said. "The stock markets just don't like uncertainty or unknowns."
Johnson said he recommends having a diversified portfolio and acknowledged there will be inevitable swings in the market.
ADVERTISEMENT
The three main U.S. stock indexes fell at least 1.5 percent after the June 23 vote, Reuters reported. But the major indexes were recovering by Wednesday morning, the news agency said.
Johnson said the situation may be a chance for investors to buy low and add "to their equity holdings."
Sunil Swami, the chief investment officer at Grand Forks-based Alerus, said they haven't received many anxious calls since the Brexit referendum. He said many clients have government bonds in their portfolio, which helps cushion the blow.
"I think people realize there is volatility in the market, and they have long-term investments that they have held with us for a long time," he said. "A lot of the selling that you initially see is people exiting their positions that they got surprised by."
Still, Swami said the United Kingdom's departure would negatively affect the European Union economy, given the trade deals involved in their partnership. He noted the dollar typically strengthens in an event such as Brexit, which hampers U.S. corporate profits.
"The stock is somewhat reflecting the positioning, but it's also somewhat reflecting the fact that there could be a recession in the U.K, there could be a slowdown in the EU, and there could be a slowdown or a drag on U.S. corporate profits," Swami said. "And stocks always tend to react before those events actually happen."
The political fallout has also been swift.
Britain's Prime Minister, David Cameron, announced after the referendum he would step down. It was unclear as of earlier this week who would succeed him. Meanwhile, the Labour Party's leader Jeremy Corbyn said he would not resign after losing a no-confidence vote this week, Reuters reported.
ADVERTISEMENT
David Flynn, the director of the Bureau of Business and Economic Research at UND, said the best word to describe the aftermath of the Brexit vote is "volatility," given the uncertainty over Britain's leadership and how the departure from the European Union would be handled. He noted there's even some push for a Brexit "redo."
"It's a very weird situation," Flynn said. "There's a huge mess there and nobody really knows what direction this is going to go."
