MarketLine Blog

Uncertainty over political events trumps fundamentals as markets fall

On Thursday June 23, 2016 the UK went to the polls to decide on its future as a member of the European Union (EU). By a small margin, the country opted to leave and despite the fact that no steps to enact Article 50 have yet been taken by Theresa May and her government, speculation about an imminent implosion of the British economy has been rife, damaging the value of the Pound and serving as a rather convenient scapegoat for everything from companies’ poor performance to increased prices, to political chaos.

The outcome of any election is always uncertain to some degree and this is definitely the case in the US with its two party system. The 2016 election due to take place in November has spawned one of the most controversial and vitriolic contests in living memory as Republican firebrand Donald Trump fights it out with Democrat Hilary Clinton for the presidency. Trump’s outbursts concerning a wall around Mexico, defeating ISIS and isolationist policies have some worried that a Republican win may lead to the US retreating somewhat from global trade. After one poll seemed to put Trump in the lead with less than a week to go, markets across the globe appeared to enter the early stages of panic.

The need for headlines every minute in a world of 24/7, wall-to-wall news coverage has fueled this fear in the cases of Brexit and the US election and this has, in turn, caused markets to react in a hypersensitive manner to news stories that are often only speculation, with the outcomes often undetermined. This has led to disastrous performances, particularly where the pound is concerned, as people react to feeling and emotion over facts more than ever before. This behavior is impossible to stop, but a more considered approach to such matters may reduce volatility and create a more stable trading environment.

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