Are the Markets Getting a Little too Cozy?

October 19, 2016 7:11AM CDT

The markets seem too comfortable at current levels, which seems reminiscent of the Brexit Vote. One scenario that has repeated more and more over the last couple of years has been “Buying the Rumor and selling the Fast” the first instance was the Scottish Referendum of 2014. The markets were bought up in anticipation of Scotland staying in the EU and with the UK. And the day after Equities sold off.

Vote was – September 18 th , 2014

Chart

The Greek Referendum of 2015 was similar but had a delayed market reaction after the vote. The Greek people voted to not abide with bailout conditions, but somehow stayed in the EU because their government still abided. Market reaction drifted sideways until things were ironed out.  The market sold off right after.

Greek Bailout Referendum Vote July, 5 th 2015 & Cabinet shuffle June, 27 th 2015

Chart

Brexit is the most recent “buy the rumor and sell the fact”. Again, the markets were bought up ahead of the vote and sold off immediately after.

Brexit June 26 th 2016

Chart

In all three examples, we see the market sell off after then get bought up again. I think we may see a similar set up in equities ahead of the US election.

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