This Chart Shows How Much Brexit Matters To The U.S. Stock Market

Many investors are getting excited about the Brexit deal.

Some excitement is warranted because it took years of wrangling for the U.K. and the European Union to reach a deal at the last minute. However, all is not clear. Northern Ireland’s Democratic Unionist Party does not support the deal. The opposition Labour Party is calling for the agreement to be rejected. As of this writing, there is no guarantee that the deal will be approved by the U.K. Parliament.

Investors ought to know the most important thing about Brexit.

To find out, please click here for an annotated chart of S&P 500 ETF SPY, +0.12%.

Note the following:

• The chart shows the trend line for the U.S. stock market.

• The chart shows the Arora call that Brexit might happen. This call came at a time when Wall Street consensus was that Brexit would not happen.

• Wall Street was proven wrong when U.K. residents voted for Brexit.

• Wall Street’s call was that stocks would fall. The Arora Report’s call was that stocks would rise and the dip was a buying opportunity.

• The European Union is the largest trading partner for the U.K. In 2017, 53% of all U.K. imports were from the EU and 44% of all U.K. exports went to the EU.

• The U.K. is a big trading nation. But investors ought to have the perspective that the U.K. is no longer the giant it once was in terms of its economic impact on the world. The United States’ gross domestic product (GDP) is about $21 trillion, China’s GDP is about $15 trillion and the U.K.’s is about $3 trillion. Still, London is the center of international banking.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

The all-important trend line

The most important point for investors is the trend line shown on the chart. The stock market did not fall below the trend line when Brexit was first announced. During all the wrangling over the years, the stock market did not fall due to Brexit issues. Now, isn’t it unreasonable to assume that the stock market would rise because of the Brexit deal?

The Brexit deal is positive and certainly creates positive sentiment. However, in the end, it is not material for most investors.

There may be certain isolated opportunities in U.K. stocks and our plan is to take advantage of such opportunities.

Instead of Brexit, investors ought to focus on price action in Netflix NFLX, +4.16% after the company reported third-quarter earnings. Overall, Netflix earnings are showing cracks. If the same earnings were reported almost any other time in the past, Netflix’s stock would have fallen. As of this writing, Netflix’s stock has jumped because earnings and subscriber numbers were better than the worst fears. Please see “Momentum investors are now buying shares of Apple, Amazon and Netflix.”

The smart money (professional investors) is not buying into the Netflix stock bounce so far. It is the momo (momentum) crowd and a short-squeeze causing the buying in Netflix stock.

Investors should also keep their eyes on the price action in mega-cap stocks such as Apple AAPL, -0.18%, Amazon AMZN, +0.52%, Facebook FB, -0.04% and Alphabet GOOG, +0.71% GOOGL, +0.70%.

Semiconductor stocks are often an early indicator in a change in direction for the stock market. Popular semiconductor stocks such as Intel INTC, -1.97%, AMD AMD, +0.50%, Micron Technology MU, +0.58%  and Nvidia NVDA, -0.77% are showing resilience.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

RECENT NEWS

Mitigating Risks In The Bond Market: Strategies For Uncertain Times

In today's volatile bond market, characterized by liquidity concerns and rising interest rates, effective risk managemen... Read more

UK High Street Banks Rake In £9.2 Billion In Interest On BoE Reserves: A Closer Look

In the intricate world of finance, where numbers often tell compelling stories, one recent figure stands out: £9.2 bill... Read more

Powell's Pledge: Federal Reserve Chair Signals Prolonged Period Of Higher Rates

Federal Reserve Chair Jerome Powell's recent statements have stirred significant interest in financial markets, particul... Read more

European Funds Body Throws Support Behind French Capital Markets Union: Implications For Brexit-Era Finance

In a significant development for European finance, a European funds body recently threw its support behind the French ca... Read more

Federal Reserve's Rate Decision: Navigating Economic Uncertainty

The recent decision by the Federal Reserve to adjust interest rates has sparked significant interest and speculation amo... Read more

Building Bridges: Strengthening Investor Confidence Through Enhanced Risk Data In Emerging Markets

In the dynamic landscape of emerging markets, investor confidence plays a pivotal role in driving economic growth and pr... Read more