In just four trading days, beginning Tuesday, world equity markets recovered most of the ground lost following the June 23 Brexit vote. U.S. major stock indexes, which at one point had fallen 6% after the United Kingdom’s surprising decision to leave the European Union, finished near levels reached just before the referendum.

On the week, the Dow Jones Industrial Average soared 549 points to 17,949.37, up 3%, while the Standard & Poor’s 500 index jumped 66 to 2102.95. The Nasdaq Composite increased 3.3% to 4862.57.

After heavy selling the previous Friday and Monday, the market reversed course Tuesday, as further reflection allowed investors to revise their view of Brexit’s implications to “Let’s wait and see” from “Let’s dump stocks.” In the U.K. Thursday, the Bank of England signaled that further monetary stimulus is on the way, and some believe the European Central Bank will follow suit. Brexit means expected U.S. rate hikes are on hold, perhaps until 2017. High trading volume characterized the tumultuous week. By the lows Monday, the U.S. market had fallen nearly 6% before rebounding roughly the same amount. Financial stocks took the brunt of the uncertainty, falling 8% after the vote. Afterwards, the sector rebounded but still remains 2.6% below its pre-Brexit level.

Kevin Kelly, Recon Capital’s chief investment officer, says investors went from “feeling like they were walking on broken glass” to the view that it will take two years for the U.K. to leave the EU, so nothing has really fundamentally changed.

Near-term, the market will look for any potential Europe-derived fallout in U.S. corporate earnings, says David Donabedian, chief investment officer at Atlantic Trust. There’s an expectation that second-half U.S. profits will rebound, but that could be called into question if the European economy tanks, he says.

(Source: Barrons Online)