After panic hit the global markets following the “Brexit” to start the week, stocks began to recover Wednesday morning. The NASDAQ was the biggest gainer, up about 1.7% on the day, while the S&P 500 and the DOW gained 1.5% and 1.3%, respectively.
While the reason for the recovery isn’t entirely clear, today’s trading activity probably stems from investors anticipating that earlier concerns about the Brexit may have been overblown. While the UK leaving the European Union will certainly have global economic consequences, many around the world are realizing that we may have misjudged the severity and timeline of those consequences.
First of all, it is becoming clear that the UK still has some time left in the EU. David Cameron, the outgoing prime minister, has appointed Oliver Letwin to oversee the process of withdrawal, but it’s somewhat obvious that the administration does not yet have a detailed plan for leaving.
It also appears that many in the UK are having a little bit of “buyer’s remorse” after Brexit leaders immediately started to scale back their promises following the referendum. The campaign was marred with lavish promises, and now that these promises are changing, many Brits actually wish they could change their vote.
In fact, the growing tide of regret has many UK and EU leaders searching for ways to reverse the decision. The UK’s next prime minister, who will take over withdrawal duties after Cameron leaves office, will have to face a UK parliament that is overwhelmingly against the decision to leave the EU. The country’s unelected House of Lords, which would reject a Brexit by a margin of six to one, could attempt to delay the withdrawal process as it moves through parliament.
Of course, the Brexit remains a concern for U.S. stocks that do business in Europe as uncertainty still looms. For example, travel stocks were hit the hardest because of concerns that the Brexit will damage travel in Europe. Even still, Expedia (EXPE - Free Report) , Priceline , and TripAdvisor (TRIP - Free Report) all bounced back today.
These stocks are probably bouncing back because people are realizing that it is likely that the UK stays within or associated with the EU’s “single market,” which allows goods and people to move around Europe freely. Regardless, British passports are not affected, and most EU countries allow travelers to stay for up to 90 days without a visa, meaning that tourism on the continent doesn’t have to change much.
Other companies like Netflix (NFLX - Free Report) , which gets about 5% of its revenue from the UK and 20% from the rest of Europe, also took hits this week. We are also seeing Netflix bounce back today, as investors realize that even if the Brexit triggers a recession in the UK or Europe, Netflix is well-established in the area already and could be seen as a low-cost option either way.
Today’s trading is certainly not a full-blown recovery, and I’m sure the Brexit will continue to fuel volatility for some time. Investors are always able to check out our 7 Ultra Safe Stocks to Wait Out Brexit Results and keep an eye on the news for the latest on how the UK is handling the withdrawal.
As for now, it looks like the more that Brexit promises get scaled back and the more the UK stays intertwined with the EU, in whatever shape or form that may take, the better the markets will respond.
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