Brexit and the US Stock Market

Brexit and the US Stock Market

To evaluate the reaction of the US stock market to Brexit remember that stock prices reflect the discounted present value of expected future cash flows at the proper risk adjusted discount rate.  When the market drops sharply, it must be because the marginal investor has either reduced expectations for future cash flow or increased the discount rate.  While stories can be told about how the British action will depress American business, they seem farfetched.  In fact, it is even possible that turmoil in Europe could help American companies.  It is hard, therefore, for me to see how Brexit reduces expected cash flow for US companies.  The discount rate is a more likely culprit.  The fact that credit spreads widened indicates that investors were demanding greater expected return in light of what they thought was the enhanced risk of holding US equities.  That would explain the drop.  However, it is also hard for me to see how Brexit makes US equities riskier on a long-term basis and it is the long-term risk that ultimately determines the value of equity securities.   The bottom line is that Friday I did what I consistently recommend one should not do – try to time the market.  Because I see the drop as short-term, I piled into US equities with the hope of profiting in the next few weeks.  Bad decision?  Quite possibly.  Stay tuned.

 

 

Why There Is No Bitcoin ETF In The U.S. Yet

Digital Payment SystemShould you invest in cryptocurrencies? As with all investments, it depends on many factors. At the Morningstar Investment Conference on Thursday, Matthew Hougan of Bitwise, Tyrone Ross, Jr. of Onramp Invest and Annemarie Tierney of Liquid Advisors joined Morningstar's Ben Johnson to talk about portfolio allocations to cryptocurrencies. Q2 2021 hedge fund letters, conferences and Read More

brexit cameron

Updated on

Previous article Hedge Funds which are really Money Managers have become Dumb Money (Video)
Next article A Global Macro View of Brexit Implications
Bradford Cornell is an emeritus Professor of Financial Economics at the Anderson School of Management at UCLA. Prof. Cornell has taught courses on Applied Corporate Finance, Investment Banking, and Corporate Valuation. He is currently developing a new course on Climate Change, Energy and Finance. Professor Cornell has published more than 125 articles and four books on a wide variety of topics in applied finance. Professor Cornell is also a managing director at BRG where he heads the practice on Climate Change, Energy and Finance. In addition, he is a senior advisor to the Cornell Capital Group and to Rayliant Global Advisors. In both capacities, he provides advice on fundamental investment valuation.

No posts to display