As Brexit is having ripples across international economies and European policy, it can be easy to sit in central Pennsylvania and wonder, really, what kind of impact does it really have on me?
The United Kingdom’s historic referendum vote to sever itself from the European Union resulted in immediate impacts as world markets reacted sharply.
But William Hayes, CEO of Kish Bank in State College, says that people need to be more careful with their own responses.
“I think that like most market reaction, there’s a connection to what’s going on in the global market,” he said. “Just like a lot of ups and downs, we try to encourage people to be calm and not overreact. There is no reason for this to be a great negative.”
The rationale is simple. If your stock drops dramatically and you sell it off, you are getting the bad price. Wait a while, and as the questions around what will happen with the relationship between England and its European neighbors are answered, prices could climb back where they should be.
“Overreacting can make this worse on the U.S. economy,” Hayes said. “I think everyone should understand that the equity market is only part of the financial market. The bond market actually went up dramatically overnight.”
Still, Standard & Poor’s, a 150-year-old financial services company that provides information to investors, downgraded its assessment of the U.K.’s credit worthiness Monday, dropping the nation’s credit rating from AAA, “extremely strong capacity to meet financial commitments,” to AA, a “very strong” capacity.
That sounds bad. But how bad can it be?
Well, it’s not like the queen will be turned down for a credit card anytime soon, but according to The Associated Press, S&P is prepared to downgrade the country again as the situation develops if warranted.
Does all this sound familiar?
Penn State went through the same responses and speculation in 2012 after the Jerry Sandusky conviction and the NCAA’s sanctions (including a $60 million fine). Moody’s, another credit rating organization, knocked the university down from AA1 to AA2, and noted it as negative rather than stable.
Penn State’s credit rating has improved. In September, Moody’s noted the university was still an AA2, but had a positive projection.
Hayes said that the best way to handle the instability of the marketplace is through not keeping all of your nest eggs in one investment basket.
“We always encourage everyone to have a diversified portfolio,” he said. “We will look back on this the way we did the reaction to the Chinese markets earlier this year. It was quickly in the rearview mirror.”