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Message of the Market, Brexit was overblow

Thursday, June 30, 2016  
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USA Today – 7:57 a.m. EDT / June 30, 2016

By: Adam Shell

When the market first spoke, it gave a thumbs down vote on Brexit. But four trading days after Britain said it wants out of the European Union, the market is sending a much different message: Brexit, it turns out, isn’t such a big deal after all.

"Mr. Market," says Jim Paulsen, chief investment strategist at Wells Capital Management, "is implying that Brexit will likely prove to be a fairly wimpy economic crisis. Mr. Market says there are little signs of panic or stress in ... markets."

The bounce-back performance of the Dow Jones industrial average on Tuesday and Wednesday illustrates the market’s shifting view on the risk Brexit poses. In a clear sign investors are downgrading the potential Brexit fallout, the Dow has put together back-to-back 200-plus point gains totaling 554 points — its best two days since August. The Dow was eyeing a third straight day of gains today, and was up 51 points in pre-market trading.

While the big rebound hasn’t wiped out all of the 871-point — or nearly 5% — slide suffered Friday and Monday, it’s clear Wall Street is less concerned about the economic, financial and political happenings in Britain and Europe than they were last Thursday when the once-unthinkable Brexit vote hit.

The stock market rebound rally, however, wasn’t totally unexpected. Since 1990, the Standard & Poor’s 500 stock index has declined 5% or more in consecutive sessions 17 times, Schaeffer’s Investment Research says. Stocks were nearly 3% higher, on average, a week later, up 7.1% three months later and nearly 12% higher six months out.


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