Despite recent polls indicating a tight race, the British vote to exit the European Union proved a significant negative surprise for markets at home and abroad. Foreign markets and currencies, in particular, experienced significant volatility as a result. The British Pound declined 8% vs. the Dollar. The “safe-haven” U.S. Dollar and Japanese Yen increased 2% and 4%, respectively. Major currencies rarely move this much in a year, let alone, a single day. International stock markets headed lower (especially in peripheral Europe, i.e. Spain and Italy were down 12+%). The U.S. equity markets fell 4% today, although they are just back to where they were a month ago.
The Standard & Poor’s 500 Index had its worst ever start to a year falling 10% as of February 11. Subsequently climbing 13%, the Index managed to close the first quarter up 1%. Not since 1934 had the S&P 500 or its predecessor index begun the first quarter down 10% or more and managed to finish the quarter in positive territory. The drop and ensuing bounce were “insane” so said one market commentator.
In 2015, the S&P 500 increased 1%, the MSCI Global Index declined 2%, and the Barclays Aggregate Bond Index gained 1%. Emerging international and small-capitalization stocks struggled, declining 15% and 4%, respectively. Given the strong run in recent years, few may be surprised equity and bond markets took a pause, and in some segments, suffered significant declines. After all, markets have never gone straight up.