We’ve never had an event exactly like Brexit before, but Oppenheimer analysts found that the markets have survived quite a few other seemingly catastrophic events.
There is of course the Y2K computer bug, back at the turn of the century, which some believed would completely end society as we know it. Instead, there were no major computer problems once the calendar changed from 1999 to 2000.
“A global computer meltdown was averted,” Oppenheimer’s John Stoltzfus said. “Planes didn’t fall from the sky, electronic grids did not grow dark and a New Year turned the calendar page uneventfully.”
Stoltzfus identified four more recent events, all of which were supposed to have major impacts to the financial markets, but didn’t.
Four times it felt like the end of the world was upon us
Back in 2011, there were major fears that the US losing its triple AAA credit rating would be very disruptive to the financial markets, potentially raising borrowing costs and reducing the allure of US debt. Instead, demand for US debt remained and borrowing costs are lower today than they were back in 2011. Despite this, turmoil across the global markets, from China to Europe, has kept US debt as attractive as ever.
Another two fiscal crises, the fiscal cliff in 2012 and the US debt default risk in 2013 ended up being completely averted, by last minute deals. The former was when tax increases and spending cuts were both set to automatically activate, and the latter was when the US debt ceiling had to be raised to pay back debt. These two options are most similar to scenario where the UK votes to stay in the European Union, or as Oppenheimer puts it, “Bremain.”
The last situation Oppenheimer compares the upcoming referendum to is the sequestration back in 2013. This was similar to the fiscal cliff in that spending cuts were set to automatically go in place. The difference here is that there was no last minute deal, making the situation more comparable to the UK voting to leave. The biggest worries were that sectors reliant on government expenditures, such as the defense industry, were going to be heavily impacted by the sequestration. This fear didn’t come through either, with defence sector darling, Lockheed Martin (LMT) being up nearly 100% since 2013.
“In hindsight the respective concerns raised ahead of the aforementioned events (or non-events as they turned out to be) served at least in part to vet issues ahead of a crisis, mustered preparations in case the negative outcomes projected were realized and ultimately left markets and society intact and in good enough condition to move on unencumbered by what had been so feared to face whatever crisis perceived or otherwise lay around the corner waiting,” Stoltzfus concluded.
Essentially, all of this discourse on Brexit may actually serve as a wake-up call for policymakers, companies, and voters who may have gotten complacent amid rising troubles. In other words, this whole exercise may be a good thing.