Brexit Mandate: 4 Sectors & Their Stocks Under Pressure
Zacks Investment Research | Jun 23, 2016 10:40PM ET
U.K. surprised the world by voting in favor of leaving the EU, albeit the votes showed a narrow margin between ‘leave’ and ‘stay’ votes. While 51.9% people voted for Brexit, 48.1% voted to stay, making it the biggest strategic decision in decades. Polls showed a neck-and-neck race between Brexit and Bremain in the run up to the referendum.
Impact on the U.S.
Currently, U.S.-based companies are allowed to operate anywhere in the EU as long as they establish a branch or subsidiary in any one of its 28 member states. As per a research report by Deloitte, London is home to 40% of the European headquarters of the world's 250 top companies. Brexit casts a dark shadow over the future of these companies and their trade ties.
There is no historic precedent to Brexit. It could have a negative impact on Britain’s GDP and the country might as well sink into recession. As things stand now, it will certainly result in turbulence in the U.S., which has already been reeling under pressure due to uneven domestic growth, weak corporate earnings, Fed’s policy uncertainty, sluggishness in emerging markets and global growth fears.
In fact, Federal Reserve Chair Janet Yellen sees it as having "significant economic repercussions". Although, she stated that Britain's departure from the EU is not likely to trigger a recession in the U.S., she took a cautious stance and warned of considerable uncertainty.
Earlier this month, the Fed announced its decision not to raise interest rates and hinted that further increases would most likely occur at a slower pace than expected previously. Yellen even stated that a Brexit vote was one of the factors behind the Fed holding rates constant apart from mixed readings on the labor market and economic growth.
Market Impact
In the last trading session (on Jun 23, 2016), U.S. stocks were buoyed by speculations that U.K. will choose to remain in the EU. As a result, most U.S. stocks closed more than 1% higher and the pound touching near year-to-date highs against the dollar
However, following the outcome of Britain’s vote, U.S. stock index futures sank lower. As per a report by Zacks Investment Research
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