U.S. Markets Could Open Higher As Futures Rally

Douglas A. McIntyre

The effects of the Brexit on U.S. markets could be short lived. Futures have rallied off bottoms set just after the vote was announced. What the event will do to the American financial world and economy won’t be determined for months, or longer. The investor bet may be that low interest rates will persist in America until the end of the year, unemployment will stay low, and GDP will sputter along at 2%. Those things together, won’t be so bad, as the long term effects of the Brexit take form.

Dow futures dropped at low at 17,184, but has rallied back to 17,442, off 2.7%. On several occasions in January, sell offs were much more vicious. If futures recovery for the next four hours, at the current rate, they could be back to even.

Why the change of heart among investors in just a few hours before the markets open? First, although in theory, Brexit could affect trade between the U.K. and EU with the U.S., there are economic reasons that may not happen, at least for years. As the negotiations of trade treaties between the U.K. and EU progress, there is no reason American trade of goods and services will not seek a level unaffected by a realignment of trading partners.

There is a worry that U.S. jobs in London might be lost, as financial firms relocate to places like Paris. Those U.S. jobs may move as well.

Finally, several large U.S. companies have revenue exposure in the U.K. and EU. Will people really stop buying software, services, and goods from America because it has a new relationship, the effects of which are unknown with the EU and U.K.