OPINION: Brexit Kicks Off Busy Trading Summer

Terry Flanagan

There are two components to the old market adage ‘sell in May and go away’.

Sell in May on the theory that April through November stock returns are historically subpar.

Go away because the market is quiet in the summer.

The former may still prove reasonable, as who knows what the market will do over the next few months.

But as for going away — not this year. I don’t recommend it. Mmmkay?

There are lots of things in the works that should keep markets interesting in terms of volume and volatility.

To kick things off, the unexpected Brexit vote — on just the fourth full day of summer –roiled markets around the globe. Trading volume was more than double the average daily volume in equities even before the day was over, and credit volume was up in the order of 75%. The CBOE Volatility Index spiked by more than 50% at one point.

And Brexit is hardly a one-day deal. There’s lots for market participants to consider going forward, including the process of the UK actually leaving the EU, the ramifications of a UK-less EU, and whether other EU nations will look to effect their own exit.

Brexit also holds ramifications for the upcoming US election, as the vote to close ranks and step back from globalism is a boost to Donald Trump, who’s running for president on a similar premise. Hillary Clinton was leading Trump by 12 percentage points in some recent polls — a narrowing of that gap would boost uncertainty which translates into more trading volume and volatility.

Brexit has pushed aside expectations for Federal Reserve (in)action as the biggest market driver, at least temporarily, but the Fed will be back in the headlines before long. The FOMC meets July 26-27, and even if a rate increase is not indicated at that time, the statement will offer clues as to the timing of subsequent hikes.

On a micro level, IEX is meant to go live as an equity exchange in August, the latest development in a very well-chronicled story. Market participants can choose to trade there or not, but even those who aren’t involved can expect to be affected by changes in the overall market structure brought about by the order-delaying venue.

And just note, this list of upcoming market events is just what’s known. Surely there will be stuff that crops up that’s unknown to us now, that may or may not be more significant than Brexit, the Fed, the Presidential race, or IEX.  

Perhaps stay close to home this summer…


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