Brexit’s Inevitable Impact: Lower Equity Valuations—Searching for Alpha for July 2016

Last week’s decision by the U.K. to leave the European Union is the first real step away from globalization since the end of World War II. It will have significant ramifications across the pond. Fortunately, it shouldn’t be enough to push the U.S. into a recession.  

Nonetheless, it is inevitable that Brexit will result in lower equity valuations. 

Notice that I didn’t say lower stock prices. Earnings could conceivably increase enough to offset the global disorder created by Brexit. But I can’t see how stocks will be able to maintain their lofty valuations. Increased uncertainty – both politically and economically – lie at the heart of my view. 

We’re in uncharted waters, which make earnings harder than usual to predict.