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The Impact of Brexit on the U.S.

On Thursday, Britons took to the polls to decide whether to remain in the European Union or leave it. By a vote of 51.9% to 48.1%, Britain decided to leave the 28-nation economic and political union, marking the first time a country opted to leave since the E.U.’s founding in 1957. The announcement, and Prime Minister David Cameron’s subsequent decision to step down in October, have rocked global markets.

On this side of the pond, everyone is left wondering what effect the Brexit will have on the U.S., specifically the financial markets. If there is one thing we know, it’s that the markets hate uncertainty. The market has been fluctuating in recent weeks, closely tracking polls that swung in either the “stay” or “leave” direction.

Britain’s departure is sure to weaken the E.U., our largest trade partner. In 2015, the U.S. exported more than $271 billion in goods to the E.U.

According to the Washington Post, American businesses employ more than a million people in Britain and many consider it “the gateway to free trade with the 28 nations that make up the E.U. A Brexit would jeopardize their access to those markets, potentially reducing revenue and forcing some firms to consider relocating their European operations elsewhere.” It’s that uncertainty that will have a negative effect on risk assets such as stocks.

More stable investments, such as government bonds in the U.S. and Germany and gold will likely see more demand as investors look to pull their money out of stocks.

Bloomberg’s Brexit Tracker confirms it’s pretty much a given that a Brexit will hurt the British pound, but the U.S. dollar will strengthen. That’s good news for U.S. vacationers in London, but bad news for American exports.

U.S. borrowers can continue to enjoy low interest rates. Interest rates were expected to raise interest rates steadily in 2016, but the Fed delayed any further increase in U.S. interest rates due to the Brexit vote. The latest rates from Freddie Mac show the average rate on a 30-year fixed mortgage at just 3.56%, compared to 4.02% one year ago.

Volatility is certain in the short term, but many experts agree that the initial market losses are an overreaction from investors. In an email to USA Today, University of Michigan business professor pointed out that companies in continental Europe “still want to export to Britain’s large, wealthy market.”

Investors looking for long-term gains, especially in retirement accounts, may come to see the Brexit as an opportunity to capitalize on the gyrating stock market’s lower entry points.

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