Markets Right Now: US stocks plunge after British vote

Banks were hit particularly hard on Friday morning on fears that trading would dry up because of the uncertainty caused by Great Britain’s vote on Thursday to leave the European Union. The referendum result stunned investors, who reacted by rushing to the safety of gold and US government bonds as they wondered what’s next for Britain, Europe and the global economy. Utility companies and phone companies pay big dividends compared to most other kinds of stocks.

The Dow Jones Industrial Average was down around 460 points, or 2.5 percent, as of 9:45 a.m.

The Standard & Poor’s 500 index fell 75 points, or 3.6 percent, to 2,037. Both indexes took their biggest losses since August.

The fallout in the markets was harsh in Europe and Asia’s opening moments, but pared as the day went on.

“We’re seeing some selling pressure today primarily because a lot of investors and market participants were not anticipating this outcome”, said David Lefkowitz, senior equity strategist at US Bank Wealth Management Americas in NY. Traders responded by dumping riskier assets that appeared to have the most to lose from disruptions in financial flows and trade: banks, technology companies and makers of basic materials.

USA short-term interest rate futures rose to contract highs amid speculation the Federal Reserve could cut interest rates to help shield the economy from any global fallout. “USA exporters are going to have to deal with a stronger dollar again”.

Meanwhile the price of another safe haven, gold, rose by more than 4%.

On the currency front, the British pound sterling took a nose dive to its weakest level in 31 years, as investors fled risky assets for the US dollar and the Japanese yen.

The financial markets in the USA could easily end up unchanged from a week ago today… Responses from corporate leaders underlined the global impact. “Markets clearly got it wrong and were obviously, to use the British term, “gobsmacked” by the result”, said Aaron Clark, portfolio manager at GW&K Investment Management in Boston.

Alcoa Inc. CEO Klaus Kleinfeld said in an email that the “outcome of the referendum is disappointing”. The U.S. economy is not as dependent on trade as many other developed nations are.

Europe itself will suffer too, since it’s closely tied with the United Kingdom, and other nations may vote to follow Britain’s departure from the European Union. That followed five days of declines as investors hoped that Britons would vote to remain in the EU.

Banks took the largest losses by far.

Tokyo stocks plummeted about 8 percent, their biggest fall since 2008. They have the most to lose in Britain’s departure from the European Union because they do a lot of cross-border business in Europe based from their offices in London.

But moves in currencies, in particular, the British pound USDGBP, +10.9607% were the most pronounced. Hong Kong’s Hang Seng index tumbled 4.4 per cent to 19,942.90 and Australia’s S&P/ASX 200 fell 3.2 per cent to 5,113.20.

On mainland China, the Shanghai composite slid 1.22 percent while the Shenzhen composite fell 0.76 percent.

Billionaire investor George Soros made headlines in 1992 when his fund made more than $1 billion by correctly betting that the Bank of England would fail to hold the pound in the European Exchange Rate Mechanism. At one point the British currency hit a 31-year low. Brent crude, the worldwide benchmark, fell $2.50, or 4.9 percent, to $48.41 a barrel in London. Gold jumped $59.30, or 4.7 percent, to $1,322.40. That’s its highest price since July 2014. The NASDAQ initially experienced its highest one-day drop – about 5 percent – in more than four months, but eventually bounced back a bit. Duke Energy rose 75 cents to $82.80 and Consolidated Edison gained $1.54, or 2 percent, to $78.40.

The Final Word: Britain’s decision to exit the European Union will have significant implications on the global market. They sent the pound to its highest price of the year and sold bonds, pushing yields higher. Those gains were rapidly undone Friday. The German index tanked 7 percent and France’s index tumbled about 9 percent.

Japan’s Nikkei 225 saw its worst day since March 2011. US markets also took solace in Fed Chair Janet Yellen’s two-day testimony this week when she expressed optimism about the economy and downplayed the chances of a recession this year.

In other currencies, the dollar fell to 102.75 yen from 104.80 yen while the euro weakened to $1.105 from $1.132. “It’s not really clear how this is going to play out, and it’s a huge issue”.