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Shock and recovery cycles: how does Brexit compare?

By: Tom Goodwin, Sr. Research Director

While history does not exactly repeat itself, it can rhyme sometimes. Historically, there have been many times when an unexpected news story shocks the global market resulting in a significant sell-off only to eventually recover. On June 23, 2016 a referendum was held on whether the United Kingdom should remain in or leave the European Union—known as the “Brexit” vote. The resulting decision to leave the EU triggered the “Brexit shock.”  The global market, as measured by the FTSE Developed All-Cap Index in USD, dropped over 7% in the following two trading days. On July 12, the index recovered to its pre-Brexit levels.  

With the Brexit vote now receding into the recent past, I thought it would be interesting to compare the Brexit shock-and-recovery with previous episodes. I limited my survey of past market shocks to those that occurred since the 2008-2009 global financial crisis with the assumption that recent markets are the most reflective of the current. I defined “market shocks” as significant downturns in the market, precipitated by an identifiable event, and “recovery” as simply the index returning to its pre-shock level for at least one trading day’s close. 

The table and chart below summarize six of these market shocks and recovery cycles that have occurred since the global financial crisis, in addition to Brexit. A brief description of each episode follows at the end of this analysis.

Market Shocks and Recoveries Since the Global Financial Crisis 

By examining the table above, the first thing that strikes me is the wide range of trading days to recovery, from five to 64. This indicates that each episode occurred in economic and financial conditions that had an element of uniqueness to them.  Note that three of the cycles occurred months apart in the same turbulent year of 2011. In other words, we have to be careful about drawing any firm conclusions as we may be comparing apples to oranges to bananas.

The second thing I noticed, especially when looking at the chart above, was that the Brexit cycle looks relatively mild compared to the other episodes, with the index back to where it began 13 trading days after the referendum. But here, again, we have to be very cautious about drawing any conclusions. This is a snapshot of when the index recovered its previous level for the close of one trading day. It does not indicate whether the recovery was sustained. In fact, the Flash Crash cycle “recovered” for one trading day five days after the shock and then fell back again, not to sustain a recovery until 33 trading days out.

Perhaps all that we can safely say from this “shock” comparison is that it is unwise to draw parallels between events of this type. There is, in fact, no general pattern to shock-and-recovery cycles—each is different in its own way. This provides us with all the more reason to follow the markets closely in the coming days and weeks to see how Brexit plays out.

Follow the FTSE Russell Blog for more on how Brexit and other events affect the markets going forward.

Episode Definitions:

Treasury Downgrade. A deadlocked US Congress refused to raise the debt ceiling to allow the Federal Government to service its debt. This led Standard & Poor’s to downgrade US sovereign debt from AAA to AA+. The next trading day, August 8, 2011, is sometimes referred to as “Black Monday 2011,” when the FTSE Developed All-Cap Index value fell by over 5%.[1] 

Operation Twist. On September 22, 2011, the US Federal Reserve launched a program to spur the weak economy by lowering interest rates on long term and mortgage-backed debt. Skepticism about the potential success of this program along with a pessimistic analysis of the economy by the Fed sent stocks sharply lower.[2]

Greek Referendum. On Monday, October 31, 2011, Greece announced a voter referendum that would be held to determine the country’s participation in a proposed European debt plan. Many market participants feared that a “No” vote could force Greece out of the EU and precipitate unknown effects in the global financial system.[3] 

Taper Tantrum. In May of 2013, the Fed announced that it would begin tapering back its bond and mortgage purchasing program. This especially impacted emerging markets, but caused a selloff in developed markets as well.[4]

Flash Crash. This shock was actually attributable to a number of things, including China’s “Black Monday,” new uncertainty over Greece, and concerns about when the Fed might begin raising rates. On August 24, 2015 there was a sharp intraday drop driven by technical trading, dubbed the “Flash Crash”.[5]

Brexit. On Thursday June 23, 2016 a referendum was held on whether the United Kingdom should leave the European Union or remain. The resulting decision to leave the EU was unexpected by most polls, and introduced a new level of uncertainty regarding the future of the UK economy.


[1] “The Debt Crisis, as it Happened” The Telegraph, August 12, 2011 .

[2] Walter Hamilton, “Stocks Plunge, Bonds Soar After Fed Unveils Plan to Boost Economy,” Los Angeles Times, September 22, 2011.

[3] Hibah Yousuf, “Stocks Fall Hard on Greece Fears”, CNN Money, November 1, 2011.

[4] Kenneth Rapoza, “Happy Anniversary to Market’s Taper Tantrum”, Forbes May 23, 2014.

[5] Bob Pisani, “What Happened During the Aug 24 ‘Flash Crash’”. CNBC website August 25, 2015.



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