Stock pro warns of Brexit complacency

Downplaying the Brexit fallout may be dangerous to your financial health.

That’s the message that David Joy, chief market strategist at Ameriprise Financial, is delivering to clients and journalists as markets continue to fluctuate more than a week after Britain shocked the world by voting to leave the European Union.

The U.S. stock market’s initial reaction to the Brexit vote was to tumble 5.3% in two days, only to rally back last week to erase nearly 90% of the losses. The Standard & Poor’s 500 stock index fell another 0.8% Tuesday. The fact that the FTSE 100 index in London is now more than 3% higher than it was the day before the Brexit vote is another reason why investors might think it is OK to ignore the unquantifiable economic and political Brexit fallout.

The market reaction could lead some to “conclude that fears of Brexit were overdone and life will simply go on as before the vote,” Joy wrote. “But such complacency may be a mistake. Brexit is not a financial crisis, nor a Lehman moment. But it is a political shock that will likely have significant economic implications, particularly in the U.K. and EU, which will become apparent over time.”

Signs of investor angst remain. Government bond prices are hitting record lows. Gold is rising. Defensive stocks such as utilities are leading the rally. The British pound is at a 31-year low vs. the dollar. “The operative word in the aftermath of Brexit is uncertainty,” Joy says.