US stock markets were rocked again on Monday by the aftershocks of the UK’s referendum decision to quit the European Union.
Since the results became known on Thursday, the major US markets have suffered their biggest two-day fall in 10 months. Monday’s dips came as the pound collapsed to its lowest point since 1985 and the UK lost its triple-A credit rating.
The Dow Jones Industrial Average finished the day down 260 points, or 1.5%, the S&P 500 dropped 1.8%, and the technology-heavy Nasdaq ended the day 2.5% down as the sell-off sparked by the Brexit vote in the UK continued to reverberate through the American market.
While many Americans have had trouble wrapping their heads around Brexit, the term is now dominating headlines in the US as it is in the UK and the impact of the vote has been affecting US assets. US government-issued bonds and gold both continued to climb: the online gold sales website BullionVault said it had liquidated a quarter-ton of gold since the vote went through.
Ryan Sweet of Moody’s Analytics said that the trouble in the US markets would probably continue in the short term, though it would not necessarily cause any real damage to the economy. “US equities are likely going to have a rough few days,” Sweet said. “Yet daily stock price movements affect the economy less than it may appear from headlines or cable financial news. Indeed, stock prices can frequently appear out of step with growth trends, and when stocks fall, the economy doesn’t always bend.”
Ultimately, Sweet predicts some long-term effects on the US economy, though not drastic ones. “The US economy is in the seventh year of the economic expansion and the expansion is ageing well,” Sweet said. “Also, the economy has weathered larger shocks this year.” For comparison, the tightening in the US that most experts blamed on Chinese market conditions shaved about 0.5% off the firm’s GDP predictions for the year; Brexit has only caused Moody’s estimate to drop by 0.1%.
The UK, by contrast, will feel the full force of the decision, and only the extent to which it is able to negotiate favorable terms with the EU will ameliorate the sudden barriers to trade with continental Europe and Ireland. “The drag on US GDP growth assumes UK GDP would be cut by approximately one percentage point in a year and more than three percentage points in five years,” said Sweet. “This is dependent on what kind of relationship the British can negotiate with the EU.”
The White House deputy press secretary Eric Schultz acknowledged the turmoil the vote had triggered. “There’s no question this has promoted volatility in the immediate term in the financial markets,” he told journalists Monday. But he added that the US administration was “confident that UK policymakers have the tools necessary to promote financial stability”.
“I dispute the suggestion that our relationship with Britain is going to be altered from where it is now,” said Schultz.
He added: “I can tell you, broadly speaking, the president has said our relationship is not only special but unique and enduring. We believe the links and ties between our two countries transcend any politicians.”
