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Market's message: Brexit was overblown

Adam Shell
USA TODAY

When the market first spoke, it gave a thumbs down vote on Brexit. But four trading days after Britain said it wants out of the European Union, the market is sending a much different message: Brexit, it turns out, isn’t such a big deal after all.

“Mr. Market,” says Jim Paulsen, chief investment strategist at Wells Capital Management, “is implying that Brexit will likely prove to be a fairly wimpy economic crisis. Mr. Market says there are little signs of panic or stress in . . . markets.”

Traders on the floor of the New York Stock Exchange.

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The bounce-back performance of the Dow Jones industrial average on Tuesday and Wednesday illustrates the market’s shifting view on the risk Brexit poses. In a clear sign investors fear the Brexit fallout less, the Dow has put together back-to-back 200-plus- point gains totaling 554 points — its best two days since August.

While the big rebound hasn’t wiped out all of the 871-point — or nearly 5% — slide suffered Friday and Monday, it’s clear Wall Street is less concerned about the economic, financial and political happenings in Britain and Europe than they were last Thursday when the once-unthinkable Brexit vote hit.

The rebound rally, however, wasn’t totally unexpected. Since 1990, the Standard & Poor’s 500 stock index has declined 5% or more in consecutive sessions 17 times, Schaeffer’s Investment Research says. Stocks were nearly 3% higher, on average, a week later, up 7.1% three months later and nearly 12% higher six months out.

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