Brexit damage in the US markets is over as S&P 500 takes a U-turn
Britain leaving the European Union sent rippled effects in the whole global economic system. S&P 500 Index, a quite common yet important indicator, dropped 3.65% in two days, plunging most since August last year. However, the capital markets seem to rebalance themselves as S&P 500 index rebounded 1.78% on Tuesday.
The EU is undoubtedly considered one of the largest trading regions, but US companies do not depend too much on the European markets and it should not be an alarming situation for them. According to Bloomberg data, technology has the highest revenue from Europe amongst other sectors from the S&P 500 companies. Technology has less than 7% of revenue from Europe, while Financials has around 1.6%.
The investors had to come back to stocks, as bonds were not as attractive even though investors were looking for a safe haven to go to. Comparing stocks and bond, US 10-year treasury yield plunged to three-year low to 1.44%, while S&P 500 had dividend yield of 2.26%, according to Bloomberg. Therefore, investors’ lust will still be for dividend paying stocks rather than bonds.
A buy program that started in the middle of the day took the index back to session high. The stock closed on Tuesday at 2,036.09 which has been amongst the low range since March 2016. However, at the current price, the next resistance level will at 2,040 and support level at 2025. According to the DeMark method, the high pivot point for S&P 500 Index is 2015.995, and for low pivot its 1976.225. Generally, analysts believe that when the price breaks out above the pivot high, the index is bullish. Vice versa, when price breaks down below the pivot low, it is considered bearish.
Similarly, Financial Select Sector SPDR Fund (XLF) has also followed a similar pattern recovering almost half of the sell-off since Brexit. The financials are on an uptrend as almost all banks and financial institutions were in green. Bank of America and Citigroup had the most gains amongst the major banks of 4.27% and 5.09%, respectively.