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Big Picture Market Perspectives 4/19/17

April 19, 2017
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Yesterday we talked about the snap election in the UK that will now officially take place on June 8.  

That has led to this breakdown in UK stocks.  

This trend break represents the run up following the Brexit vote back in June of last year — after the initial dust/fear settled.

And this chart was led by the breakdown in a very similar chart for U.S. stocks.  

As we’ve discussed the Trump trend has recently given way too.  And this surge in U.S. stocks following the November election looked very much like the Brexit trade going into the election, and it’s looked very much like the Brexit trade following “the vote.”

Like Brexit, the oddsmakers had a Trump win at about a 25% chance.

Here’s a look back at what I wrote on election day …

“Trump has always represented the vote that the unknown is better than the known.  

This vote for some time has looked very much like the Brexit vote (the UK’s vote to leave the European Union), and the Grexit vote (Greece’s vote against austerity). As with the Trump vote, the buildup to both Grexit andBrexit were accompanied by threats from trusted officials of draconian outcomes for the people.  But as we know, the Greek and British shocked the world by voting for the unknown, over the known.

Let’s take a look at how things looked going into those votes and how it compares to today’s election…

As we headed into the Greek vote in July of last year. It was thought to be a done deal that the Greek people would vote in favor of another bailout package from the European Union (and accept more austerity for fear of an apocalyptic outcome from voting no). The bookmakers put the “yes” vote at 71% chance of occurring. A UK bookmaker paid out those voting “yes” four days before the vote.  The “no” vote won, shocking the world with 61% of the vote.   

And then there was Brexit …

The UK vote was about trade, immigration, ability to work and live in other EU countries — perhaps mostly about control and politics.

The bookmakers had the chances of a “leave” vote as slim (at about 70/30 favoring the ‘stay’ camp).  When voting day arrived, the chances of a “leave” vote had dropped to just 25%.  But the British people shocked the world, voting to leave by 52% to 48%.

Going into today’s vote, the chances they’re giving Trump are spot on with the Brexit odds going into the day of the referendum.”

Brexit came first, but the clock has been moving faster on Trump’s Presidency.  With that, we’ve already seen the “buy the rumor, sell the fact” cycle run, and now it’s time to see execution on policy promises – the show me phase for markets.  

It looks like we’re entering that period for the Brexit trade now.  Where the optimism of the unknown (better than the known of the past decade) becomes replaced with a more cautious risk environment — a wait and see approach.  As I said yesterday, the negotiations between the UK and EU, which will begin following the June 8 snap election, will be ugly – at least in the early months. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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