Stock market collapse has a close relationship with the important political or military events .But this is also a fact that market recovers very fast after these events. It was seen during World War II that stock market went down by 6% to 8% in a one-week period but it took just two weeks to get back to same level. Same was seen in stock Markets of Europe and Asia fell 2% to 8% after Brexit but they recovered nicely within three weeks.US stocks also declined about 2% immediately after the referendum vote. The Brexit vote was a hard-bitten for U.K, because it caused uncertainty in every part of the economy.
It is predicted by IHS Global Insight that UK’s economic growth rate will fall discernibly by 0.2% next year. There will be a marginal recession, low confidence of investors, limited buying and a sinking Pound Sterling.UK economy will move towards unemployment and inflation. It is quite possible that big companies may leave UK and move on to other European Countries. Despite of all U.S. economy may get benefit from the vote.
Keep Calm and Carry On
The U.S. stock market fell down immediately after the June 23 referendum. The S & P 500 index fell by 5.4 % immediately after the Brexit vote. It was the biggest decline in the stocks since November 2011 . But it recovered quickly. Within three weeks of the vote, the S&P 500 reached record peaks and Stoxx 600, (a broad Europe-wide index) made up all its 11% lost value . Britain’s FTSE 100 index reached a 52-week high within a month after the Brexit vote. It is strongly believed that this vote is creating pockets of opportunities. So it is suggested to keep an eye on geopolitical tensions but stay invested in the advanced countries markets.
Flight For U.S. Economy
The S&P 500 suggests that the political catastrophe in the U.K. has only enhanced the U.S. economy and U.S. stocks. American companies have little exposure to European economic shortcomings. The U.S. is actually a net importer from the European Union. Germany is the U.S.’s biggest trade partner but for only 4% of U.S. exports, while exports to the U.K. constitute just 0.6% of U.S. GDP. Given those numbers, the threat of Brexit vote to U.S. seems minimum for US economy.Still, the Brexit vote has encouraged the Federal Reserve to put interest rate increases on hold. That in turn could help boost corporate growth. Lower rates should continue to motivate consumer spending and encourage lending.
U.S Stock Market after Brexit
U.S. stock market recorded gains within weeks of the Brexit vote. The S&P 500 marked first week of July as their best week in last few months. This performance was showed within two weeks of the Brexit vote. Dow Jones Industrial Average DJIA, climbed up by 19.38 points, to reach 17,949.37 points. Home Depot Inc. shares rose by 1.5% and this good performance was mainly dominated by blue-chip stocks.
Meanwhile, the S&P 500 index SPX again touched the psychologically important 2,100 barrier to reach at 2,102.95. A 0.9% increase in consumer-discretionary stock was dominated by a 20 percent rise in share prices by Harley-Davidson Inc. HOG, +0.38%. The Nasdaq Composite Index COMP, also rose by +0.43% which was 19.89 points and it reached 4,862.57 points level. The Nasdaq gained 3.3% on the week for its best climb since the week ended.
Future Projections about U.S. Economy
It is projected that total U.S. economic output over the next year would be reduced by about 0.10 percentage point. Annual U.S. growth rate is projected to reach 2.2% and 2.5% for 2017.