Many people have been asking me for a couple of days now, What will happen if the Brits vote themselves out of the European Union? I must admit that I was not in the Brexit camp at all and was stunned as I watched the votes line up. When I woke up this morning at 4 am and saw the news that British Prime Minister David Cameron will resign, I thought: Can this really be happening? No, this must be a mistake! How could I have so misjudged the mood and the market psyche?
Well, overnight we realized that the majority of Britons are fed up. They are disgusted with a range of issues. They feel like they have lost control of their country and they want it back. The news caused massive devastation to European markets, with some market centers off 8 percent to 10 percent overnight. The pound got pummeled, while the usual suspects were benefiting from the panic: The dollar, yen, gold and Treasurys all surged on the news.
Immediately I phoned a couple of clients in the U.K. to get a sense of the mood — What I got was shock and disbelief as well. Markets there were already imploding. And so I asked myself again, How could we have gotten this so wrong? I mean, the polls were always saying it was close, but the bookies were skewed to a "remain." Market action — around the world — was not indicating a Brexit at all, so what happened?
Well, in the end, I think that the voice of the people, the citizens who live outside of the city of London, were not being heard as loudly prior to the vote. I also think that we (the world) misunderstood the level of angst and frustration felt by so many British citizens and that now — the people got a chance to speak, to cast their vote and the result has been heard around the world.
So, this morning on my way to work, my phone was going off like crazy — calls from friends, clients, relatives and reporters.....that all had questions, concerns, some were fearful, while others smelled opportunity. What was going to happen?
Well, the mood on the New York Stock Exchange floor pre-opening this morning was certainly one of concern. Futures were testing the long-term support down at 2000 on the S&P 500, a 5-percent move lower from Thursday's close.
So the question was: Could we have another Aug. 24 event? Would the market become so dislocated that we would hit the circuit breakers? Would ETF's not be able to price correctly, What are the circuit breakers and what happens if we hit them? Is the NYSE prepared?
Now, while we were prepared for a tough opening, the mood on the floor was not panic at all. Concern? Sure, but panic, No. And, yes, the NYSE was more than prepared for what could have been a difficult day.
Once the market opened, we found support immediately and rallied — that then set the mood. The tone changed within minutes and stocks stabilized a bit higher. The sense of doom and gloom dissipated as the markets settled in.
What is important for so many to understand is that this was an event, not a trend. So, the reaction can be violent (as we saw in Europe) for a day or two — and less so for the other parts of the world. In the end, however, the U.S. is OK. The economy, though not as strong as we might like, is making slow progress, the Federal Reserve remains accommodative and WILL remain accommodative until such time that our economy is ready for a change.
In the end, the U.S. will be seen as a safe haven and this "sale" will be seen as an opportunity for so many.
The men and women, who have thriving businesses on the NYSE remain committed to helping U.S. markets function fairly and perform as expected. In the end, events like this create opportunity and that is where the human factor plays an important role. Humans have the ability to assess and re-assess in real time based on the tone, mood and market action. As I have said so many times: The floor of the NYSE represents the very core of the US capital markets system. It is a vibrant and exciting place and, in the end, the humans make it happen.