By Anora Mahmudova and Wallace Witkowski, MarketWatch
Dow drops more than 500 points, worst 1-day drop since
August
U.S. stocks traded near session lows, plunging Friday after U.K.
citizens voted to end the country's membership in the European
Union--a historic rejection of Europe's political order.
Investors are fretting that the unprecedented decision could
destabilize the region's economy and slowing global growth and
threatening financial stability. The stunning moves come after
global markets rallied a day earlier on a bet that Britons would
vote to remain in the trading bloc.
On Friday, the main U.S. indexes were all down about 3%, hitting
one-month lows. The S&P 500 dropped 70 points, or 3.3% to
2,042, with nine of the 10 main sectors trading sharply lower.
Financials and materials stocks were leading the losses. Utilities
were trading higher due to heightened demand for safer, defensive
plays.
In a recent note, FactSet said the sectors with revenue most
exposed to the U.K. are energy at 6.4%, tech at 4%, and materials
at 3.7%.
The Dow plunged 570 points, or 3.2%, to 17,437, with 28 out of
30 blue-chip stocks trading lower, led by bank stocks. J.P. Morgan
Chase & Co., (JPM) dropped 6.2% and Goldman Sachs Group Inc.
(GS) dove 7%.
Meanwhile, the Nasdaq Composite Index tumbled 185 points, or
3.8%, to 4,725.
"The market was pricing in a different outcome yesterday even
when the odds were too close to call and within a margin of error.
The unexpected outcome is shaking up markets," said Ben Carlson,
money manager at Ritholtz Wealth Management.
The Brexit vote will have wide implications for monetary policy
round the globe, according to analysts.
"The vote will definitely make it very difficult for the
[Federal Reserve] to raise rates this year, and in fact the [Fed
fund] futures are currently giving better chances of a rate cut in
the U.S. than a rate increase. Lower for longer is what we continue
to expect--the global economy is going to face lower growth
prospects and rates are therefore going to be kept lower for
longer," said Chris Gaffney, president at EverBank World
Markets.
In the middle of the selloff, some veteran strategists were
urging calm.
"What is occurring is traders are rushing for the exits and
can't get out fast enough," said Robert Pavlik, chief market
strategist at Boston Private Wealth, in emailed comments. "As
investors we must not panic (I realize the argument comes across as
weak especially at this time) but keep in mind that the process for
the United Kingdom to exit the European Union will occur over a
period of two years and not weeks or months."
On Friday, the Fed said it was prepared to provide dollar
liquidity through its existing swap lines with central banks, as
necessary, to address pressures in global funding markets, which
could have adverse implications for the U.S. economy.
European stock-market indexes were being punished in the
aftermath of the vote, with the Stoxx Europe 600 skidding 7% to
321.98.
Read:Will the euro survive Brexit aftermath?
(http://www.marketwatch.com/story/how-brexit-triggers-new-worries-about-the-survival-of-the-euro-2016-06-24)
But moves in currencies, in particular, the British pound
(http://www.marketwatch.com/story/pound-bounces-sharply-as-brexit-results-come-in-2016-06-23)
were the most pronounced. Sterling hit a low of $1.3230, a more
than 12% plunge from $1.4871 late Thursday in New York. But it has
since recovered somewhat, trading most recently at $1.3687.
Read:Soros looks set to make a killing on Brexit result
(http://www.marketwatch.com/story/soros-looks-set-to-make-a-killing-on-brexit-result-2016-06-24)
The victory by the "leave" vote sets up global markets for the
most volatile and frightening trading day since the market sank
last August on fears about a slowdown in China's stock market.
Read:'Panic' and 'bloodbath'--analysts react to U.K.'s decision
to Brexit
(http://www.marketwatch.com/story/panic-and-bloodbath-analysts-react-to-uks-decision-to-brexit-2016-06-24)
In the wake of the shocking Brexit vote, U.K. Prime Minister
David Cameron said Friday morning he will resign
(http://www.marketwatch.com/story/uk-prime-minister-david-cameron-resigns-after-brexit-vote-2016-06-24).
Cameron has been campaigning for the "remain" camp.
In other assets:Gold
(http://www.marketwatch.com/story/brexit-result-sends-gold-futures-surging-to-2-year-high-2016-06-24),
which had surged more than $70, settled up $59.30, or 4.7%, to
$1,322.40, and yields on the benchmark 10-year U.S. Treasury fell
to 1.58% as investors flocked to safety.
Oil prices
(http://www.marketwatch.com/story/crude-oil-prices-walloped-as-uk-votes-in-favor-of-brexit-2016-06-24)
dropped more than 4% to under $48 a barrel as the U.S. Dollar Index
jumped nearly 2%.
"'Leave' opens a period of lasting uncertainty," said Torsten
Slock, chief international economist at Deutsche Bank, in a
research note late Thursday.
"We think it will be three years before a new UK-EU deal is
settled. Politics will determine the long-term cost. A 'leap
forward' for European integration is unlikely," he said.
On the data front: Economic releases in the U.S. have been
overshadowed by the Brexit vote. Market reaction to durable-goods
orders was muted. Consumer sentiment sank to 93.5 in June,
according to the University of Michigan.
Corporates:Newmont Mining Corp.(NEM) was up 5.8%, following a
historic jump in gold prices to the highest level in two years, and
despite the fact that it has the highest percentage revenue
exposure to the U.K
(http://www.marketwatch.com/story/brexit-fallout-may-be-more-about-fear-than-fundamentals-1-stocks-move-suggests-2016-06-24).
than any other company on the S&P 500.
More than nine-tenths of the S&P 500's stocks were tumbling,
however. Banking stocks were hit the hardest. Citigroup Inc. (C)
was down 8.7%, Morgan Stanley(MS) down 9.2%, Bank of America Corp.
(BAC) tumbled 7.3%.
Oil companies were among the biggest losers. Chesapeake Energy
Corp.(CHK) was down 6.6%, Transocean Ltd.(RIG) fell 5.3%.
The worst performers on the S&P 500 were Delphi Automotive
PLC(DLPH), Invesco Ltd., Charles Schwab Corp.(SCHW), Lincoln
National Corp.(LNC), and Priceline Group Inc.(PCLN), all down more
than 11%.
--Mark DeCambre in New York contributed to this article.
(END) Dow Jones Newswires
June 24, 2016 14:44 ET (18:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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