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VOL. 131 | NO. 128 | Tuesday, June 28, 2016

Memphis Financial Pros Brace for More Brexit Fallout

By Andy Meek

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Markets are a little like patients going in for a medical checkup. Neither one likes big surprises.

Nevertheless, that’s what everyone got at week’s end after the United Kingdom voted to pull out of the European Union. And the first phone call that First Tennessee Bank chief investment officer Jerry Laurain got on the morning after the unexpected vote result was the kind investment professionals always brace for after market-moving shocks.

It was also the kind there’s likely to be more of this week, as markets adjust on the heels of the so-called Brexit vote – potentially dinging portfolios, 401(k)s and even the share prices of companies based in Memphis.

The phone call, Laurain recalled, was from an investor lamenting how up until the result of the Brexit vote on Thursday, his investment portfolio was up for the year.

DAVID WADDELL

Investors – as well as corporate leaders and companies around Memphis – felt some spillover effect from voters in Britain deciding to leave the EU, rattling U.S. markets on Friday. And on the heels of Memphis-based public companies like FedEx Corp. and International Paper Co. getting caught up in the day’s sell-off – both companies ended the day down a little more than 4 percent – this week began with a question about whether the market has found a bottom yet and fully digested the news.

Memphis-based Red Door Wealth Management sent a note to clients the morning after the vote that included this cautionary note: “Until there is more certainty in the marketplace, we expect increased volatility in the markets; a weakening of the Euro, sterling and commodity prices; as well as a flight to safe-haven investments.”

“My general view is anything that stifles trade probably stifles growth, and that’s going to have a negative impact on capital markets going forward,” said Laurain, whose own company saw the stock of its corporate parent, First Horizon National Corp., end Friday down almost 7 percent.

That was in response to a flight away from financials. One reason for that: Laurain said the EU vote probably puts the U.S. Federal Reserve “on the sidelines for a while” and that there are some predictions that a rate cut could even be in the cards.

The world, explained the commentary from Red Door Wealth Management, “has to re-evaluate how the Eurozone and the global economy are going to operate now that the UK chose to leave the EU. Businesses, governments and investors must analyze how this decision will affect trade relations, currencies, business investments, monetary policy.”

When news like the EU vote hits, investment professionals in Memphis and elsewhere prepare themselves for worried phone calls from individual investors. Laurain says plenty of other investors, though, take the opportunity to do some selective buying.

“Analysts will run their models and come up with what it all means in terms of impact on global GDP,” Laurain said. “Assuming it doesn’t look like a train wreck, and I don’t think it should be, cooler heads should prevail, and you’ll start thinking about things like maybe this company down 10 percent looks pretty attractive. And people will selectively start shopping. I spoke with customers today – I think you’ll see more of that as time goes on.”

David Waddell, CEO and chief investment strategist at Waddell & Associates, boils it down to a simple equation – rising uncertainty equals lower markets for now.

“Earnings season will commence in mid-July, and that will provide the market something tangible to judge,” he said. “We could rally from there if reality exceeds expectations.

“In the end, the Brexit is predominately a currency event. I will be watching the U.S. dollar closely. The recovery we’ve had post-February hinged on a weaker dollar. Should the dollar resume its climb, it will sadly cap the upward potential for stocks.”

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