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A week after Brexit panic, investors are buying everything

Apparently the Brexit wasn't the end of the world after all.

Just a week after the United Kingdom shook up the world by voting to leave the European Union, market behavior has done a 180-degree turn. Major stock market averages have recouped much if not all of the post-Brexit panic, bond yields are tumbling and even currency markets have settled down.

"We've worried a lot about the euro zone through this recovery. Whenever the fear peaks, the right thing to do: buy," said Jim Paulsen, chief investment strategist at Wells Capital Management.

Paulsen considers the Brexit "a wimpy crisis" in that it jangled market nerves but showed little signs of being a fundamental disruption to markets.

"It might be a serious political problem, but the markets are rightly finding it's not going to be a major economic and financial hit," he added. "You can listen to the public rhetoric and you can listen to Mr. Market. Which side do you want to be on? I think the market message will be more accurate."

The message in recent days, indeed, has been to buy.

The S&P 500 is up about 5.5 percent since hitting a post-Brexit bottom Monday and looked to close the week out with modest gains Friday. Investors have been scooping up bonds, with the benchmark 10-year yield falling more than a quarter point from its pre-Brexit level. Yields and prices more in opposite directions.

Both bonds and stocks have gotten a bid from expectations for even looser central bank policies, said Aaron Kohli, fixed income analyst at BMO Capital Markets.

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"You could very well see much more aggressive action from a lot of central banks, which means it's not just about buying stocks or bonds," he said. "You try to buy everything you can."

There also are technical explanations for the recent market behavior. Since the bull market began in 2009, sharp sell-offs almost always have been met with aggressive buying.

In fact, in the nine times during that period when the S&P 500 fell by more than 5 percent in two days, markets have seen an average rebound of 4.7 percent, according to Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence.

Moreover, Bank of America Merrill Lynch said its own sentiment indicator is showing heightened fear levels, which in turn are flashing a contrarian buy sign. The indicator has never been wrong and points to a possible 12-month gain of 18 percent, though that is not the firm's forecast.

Wells Capital's Paulsen said he believes the market's reaction now to Brexit is the proper one.

"When the market was pushing on new highs the Thursday before the vote, everyone was betting on the market," he said. "The market might have been wrong about the vote, but they're not going to be wrong about the impact."