Red is the Theme Short-Term But Green is on the Way
After Friday’s big down day which historically has occurred less than 1% of the time, the model for Monday is another large red day of 1-3%. From there, stocks should attempt to form a low on Tuesday or Wednesday and rally for a few days to a week. This is right in line with the Playbook I offered here on Friday.
As you would expect, the financial sector has been hit the hardest, but I am a little surprised that technology has been so weak. Semis, specifically, saw new highs last Thursday and are now down 10% in two days. What has been leading, remains leading, namely defensive sectors like REITs, staples, utilities and precious metals. Long-term treasury bonds have exploded higher, sending yields close to all-time lows. That’s definitely a plus for the mortgage market!
Investors all over the country are wondering what to do now. While trying not to sound flippant, if people weren’t nimble enough to take action before the vote, personally, I wouldn’t overreact emotionally like investors usually do during major geopolitical events. We are in a period of short-term pain, but that should not dictate the long-term plan for gain.
What I found amazing from my weekend reading was how many pundits were now calling for recession within 9 months because of the vote. My head is still shaking, especially when it comes to the U.S. While we are long overdue for a mild recession, I absolutely do not believe it will be caused by the BREXIT vote.
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