The day after British voters decided to leave the European Union, we were barraged with media stories about how the sky was falling. And nowhere did they turn to support their case more so than the plunging financial markets.
The drop in the markets surprised no one. Markets have a natural inclination to like stability, and when there’s a big change it’s common to see markets react negatively. What’s also common is that markets gather themselves quickly and make corrections in response to impulsive movements. So a big sell-off brought on by widespread panic on one day means the opportunity to buy low the next day. And people buy low. And markets rise again.
You won’t really hear much about this in the media, but that’s exactly what has happened with markets since the Brexit vote. Both the Dow Jones Industrial Averages and the Standard & Poors 500 Index have recovered most of their post-Brexit losses. The Dow, the S&P 500 and the Nasdaq all did exceedingly well during the latter part of last week as trader realized the sky wasn’t falling.
And that’s exactly what’s going to happen on the international stage. Britain and the EU will work out their divorce, which may not be entirely pretty and might involve some emotion and hard feelings – but it will get done. And once it does, Britain’s major trading partners in Europe will work out new trade deals with the UK, as will the United States – which will decide quite rationally that it’s worth the time and effort to have a bilateral deal with its most important ally in the world.
In the meantime, British voters get what they want, which is that their own government will make the decisions when it comes to their border security and other measures that are usually the sole discretion of a sovereign nation.
There is a lot of uncertainty about what’s going to happen next, but where did people get the idea that uncertainty is necessarily such a bad thing? No one knows who the next British prime minister will be. No one knows how Britain’s relationship with the continent will change. No one knows how existing systems that governed international trade will be impacted.
But just because certainty and stability feels comfortable doesn’t mean it’s always good. It felt normal for Britain to be part of the EU, and its politicians and media became comfortable operating under its framework. And sometimes comfort is the enemy of progress. Sometimes because we’re comfortable with something, we’re too afraid to let that something to and pursue a direction or an opportunity that might be better.
Did you ever believe that you absolutely could not handle it if a certain thing happened? Then it happened, and you realized that while it was a blow, you could handle it after all and maybe you could even make the best of it?
The market freaked out after the Brexit vote because people had it in their heads that this would be a disaster they could not handle. Then after a few days they realized that the sun would rise again, and that new ways of doing business would emerge to replace the old – and maybe they would just fine after all.
Financial markets can be impulsive, but over the long term they’re usually pretty rational. Maybe that’s why they’ve figured out sooner than a lot of other people that the brave new post-Brexit world will really be just fine – and that there was never any reason for the panic.
The day after British voters decided to leave the European Union, we were barraged with media stories about how the sky was falling. And nowhere did they turn to support their case more so than the plunging financial markets.
The drop in the markets surprised no one. Markets have a natural inclination to like stability, and when there’s a big change it’s common to see markets react negatively. What’s also common is that markets gather themselves quickly and make corrections in response to impulsive movements. So a big sell-off brought on by widespread panic on one day means the opportunity to buy low the next day. And people buy low. And markets rise again.
