Should the cold, hard data about Brexit change how we invest?
We here at the Motley Fool generally advise investors to ignore politics when it comes to making investments because the vast majority of historical data tells us that political decisions don't drastically move markets in one direction or the other. But, with both the Remain and Leave campaigns having painted Brexit as an event that will shape the UK's future for decades to come, it's worth examining the hard data and deciphering for ourselves whether the Referendum's outcome should be factored-into our investment decisions.
On this front the post-Brexit data has been largely reassuring. According to the Office for National Statistics (ONS), domestic GDP grew by 0.5% year-on-year between July and September. This goes some way to disproving the widely-held notion that the bottom would fall out of the economy immediately following the Brexit decision.
However, it doesn't mean we should be complacent. The latest GfK consumer confidence study found Britons growing more negative about the economic outlook over the coming year, which is bad news for an economy as dependent on consumer spending as ours.
Here the results are also mixed but mostly positive. The headline unemployment rate in the three months to August stayed level at 4.9%. 10,000 people did join the ranks of the unemployed but this was largely due to more people beginning to actively search for work, a positive sign.
On the downside, wages grew by only 2.3% year-on-year, slower growth than in the preceding month. Any wage growth is certainly a positive, but we will need to see this number increase alongside the rising inflation we're currently experiencing to ensure households aren't forced to significantly throttle spending or saving.
There's no way to sugar coat the fact that the pound is currently the worst performing major currency over the past year when compared to the US dollar. Broadly speaking, this represents negativity towards the future performance of the UK economy on the part of foreign investors (although the highly dollar-denominated FTSE 100 is performing admirably well).
The effects of slumping sterling on the real economy are mixed. For every manufacturer who receives more foreign orders for export, there's another suffering from paying higher prices for imported inputs. And as seen with the tussle over Marmite pricing between Unilever and Tesco, retailers will sooner or later be forced to pass on higher input costs to consumers or take the hit themselves and watch margins shrink.
The latest purchasing manager indices (PMI) from research outfit Markit paint an ambiguous picture of the domestic economy. October Manufacturing PMI fell month-on-month from 55.5 to 54.3, which indicates businesses are still highly positive but becoming less so, largely due to higher input costs thanks to the falling pound. Service sector businesses are also positive but becoming more tentative as month-on-month PMI results fell from 52.9 to 52.6 in September (Anything less than 50 is contraction, while above 50 is expansion), coinciding with increased talk of a 'hard' Brexit.
What do these data points signal in aggregate? Mainly that the economy is continuing to move along nicely but there are potential bumps in the road. That means the best course of action for retail investors is to continue searching for quality companies trading at reasonable valuations and not make rash decisions until we know what shape the post-Brexit EU deal will take.
Brexit also opens up opportunities though. Shares of many great, domestic-focused companies are now trading at rock bottom valuations they haven't touched in years.
For investors looking to profit from this rare opportunity the Motley Fool's Five Step Guide To Surviving Brexit is a must read full of great advice from the Fool's top analysts.
To read your free, no obligation copy of the report, simply follow this link.
Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.