If you had been off the grid for the past week and came back on line today, you would be excused if you weren’t able to reconcile all you saw happening out there in world markets.

You would have found that the British people, in their infinite wisdom, decided to break away from the European Union (EU). To be sure, there was always some probability that might happen. What would seem far more bizarre is the post-Brexit disconnect among various financial markets: Global equities were modestly lower, interest rates rallied strongly on a global basis, gold moved higher, and credit and commodities remained within their three-month range.

You might ask yourself, what on earth is going on? How do you reconcile all of that with the dread you may have felt when you first found out that Brexit was a reality? Even more importantly, the key question in your mind is what can we expect over the next few quarters?

While you might find it all quite bewildering, you would be able to take comfort in knowing that the rest of the world, which was fully plugged in while you weren’t, is equally perplexed and trying to figure out what to do next.

In my view, if you take a step back, the markets are not as disconnected as they may seem at first blush. Furthermore, the post-Brexit story is not even close to being fully played out.

Brexit’s Bite Out of Global Growth

Here is my take on what is going on and what to expect next.

First and foremost, Brexit is a bad economic outcome for the world. In a slow-growth world, such potential demand shocks take their toll. The real question is the magnitude of the shock and where the impact is likely to be felt. My expectation is that global growth will slow down by somewhere between 0.2% and 0.5%. That may not seem like a lot under normal circumstances, but when the growth rate is only around 3% to begin with, it is a significant impact.

From a shorter term perspective, the regions likely to be impacted, in order of the severity of the impact, are the UK, the Eurozone, the U.S., and emerging markets (EM). However, given the internal economic dynamics of the U.S. and EM, the impact on both is likely to be modest. From a longer term perspective, the net impact on the rest of the world may end up being modest due to central bank policy support; however, the impact on the UK and Eurozone is likely to be quite substantial for some time to come.

Second, the markets are correctly expecting monetary support on a global basis. Rates are rallying globally because central banks have no choice but to try to cushion the impact of Brexit. Even the Federal Reserve (Fed) will have no choice but to hold off on any potential tightening for the foreseeable future, no matter if the net impact on U.S. growth is modest at best. If the Fed doesn’t hold off, the dollar will rally, financial conditions will tighten, and the result will be a much lower level of growth for the U.S. economy. Central banks in other developed markets were already in an easing mode before the Brexit vote and certainly have no rational reason to change direction now.

Credit May Outperform Equities

The initial reaction of global equity markets after the initial post-Brexit sell-off has been relief. While one can justify an equity relief rally on a cross-asset basis based on the new lower level of rates, it is difficult to see how higher equity prices are justified if the economic outlook is likely to worsen rather than improve.

Further, any buildup of risk premiums, as political and economic uncertainties persist, will probably move equity markets lower rather than higher. It’s not a Lehman moment in the sense that we may be on the brink of a global financial crisis similar to what occurred in 2008, but a 5%-10% drawdown in U.S. equities is quite possible.

While there are unlikely to be any absolute winners in equities, for U.S. dollar-based investors, the relative loser markets are quite obvious―the UK and EU, in that order. However, the U.S. may prove to be a safe haven for equities, rates and currency.

The potential relative winner may end up being emerging markets as lower global rates provide the policy cover they need to restructure their individual economies while market valuations are quite attractive. However, this view on EM is contingent on global growth declining by only a modest amount.

From a performance standpoint, credit may end up being a surprising winner relative to equities. In an environment of low interest rates and flat yield curves, the extra income from credit risk ends up being extraordinarily attractive. Financial conditions are still quite loose.

Further, global growth may be slowing, and while the probability of a recession may have gone up some, a high level of expected monetary support―including direct bond purchases by central banks―will probably keep investors pouring their money into bonds. Clearly, the flow story helps credit markets, but from a longer term perspective, it is also undeniably raising the credit market risk level.

Watch the Dollar

If you agree with all of this, the next question then is what should we monitor to see if this economic view is playing out or not? The near-term data, unfortunately, will tell us very little. The underlying momentum in the various economies will probably overwhelm nascent Brexit-related impacts.

Interest-rate markets, at the moment, are all about policy support and therefore don’t foretell much. In my view the only true indicator of market health is the dollar, which has been quite well behaved since the Brexit vote. However, if it strengthens meaningfully, it will foretell bad things to come down the road for all markets.

The bottom line is that it is too early to breathe a sigh of relief. While the economic and market impacts are likely to be modest, they probably will be negative. I believe the dollar―not gold, not interest rates―is the only metric for market health.