As I’m sure you’re well aware, early this morning British citizens voted to leave the European Union (EU). As I write this, the benchmark indices are plunging on the news, so let’s review the details in today’s blog.
The final Brexit vote was 48.1% to stay in the EU vs. 51.9% to leave the EU. The vote was a shock to many, as polls earlier in the week implied that the U.K. would vote to stay in the EU. Those polls sparked a major rally earlier this week, with both the S&P 500 and Dow up nearly 2% through Thursday.
However, those gains were erased in trading today. Stock markets around the globe plunged on the Brexit vote, and the S&P 500 and Dow both plunged 3% at today’s open. (Both indices rebounded somewhat by mid-morning, but were still trading down 2% at the time of writing this.)
Also shocking was British Prime Minister David Cameron’s announcement that he would resign in three months, at which time there will be an election for a new PM. As a result of this news, the British pound also plunged 11% intraday to its lowest level against the U.S. dollar in over 30 years. The pound has since rebounded somewhat, but is still down 5% against the greenback. The euro is also down 2% against the dollar today.
So, amidst the turmoil, the U.S. dollar remains the primary currency oasis. This, of course, isn’t good news for multinationals that get paid in these weaker currencies. As I predicted, companies with a lot of European exposure are faring even worse. BorgWarner (BWA), a manufacturer of automotive systems and components, is down 8%. Owens Illinois Inc. (OI), Ford Motor Company (F) and Alcoa Inc. (AA) have fallen approximately 5%. If you remember back to a few days ago, I recommended that you sell these four stocks (among others) prior to the Brexit vote. The other six recommendations are also trading lower today.
The good news is that both the European Central Bank (ECB) and Bank of England (BOE) have pledged to stabilize their currencies, so I look for the currency chaos to diminish somewhat. In the meantime, I’d like to reiterate the recommendations I made in last week’s blog. Investors should be very selective with any new buys. Stick with companies that have minimal exposure to the U.K. and Europe. Avoid commodity-related stocks, which are also hurt by the strong dollar.
If you’re a member of any of my premium newsletters, continue to follow the recommendations I have on the Buy List and Portfolio pages. There are still a handful of excellent buying opportunities, but in this narrow market it pays to be selective.
That’s all I have for this week. I’ll be in touch this Monday with your weekly ratings changes. Given today’s volatility, there could be more than usual. So please stay tuned.