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Stocks close sharply lower after Britain votes to leave the EU

CNBC CNBC 24/06/2016 Evelyn Cheng

Stocks closed sharply lower Friday in a global risk-off trade after Britain surprised markets by voting to leave the European Union.

The S&P 500 and Dow Jones industrial averages erased year-to-date gains and joined the Nasdaq composite in negative territory for 2016.

The S&P 500 lost 3.6 percent to 2,037. Financials dipped more than 5 percent as the greatest laggard. Goldman Sachs had the greatest negative impact on the Dow Jones industrial average, which shed 611 points. The Nasdaq plunged by 4.1 percent.

Investors went into more defensive areas of the market. Utilities sector was the only S&P 500 advancer, while the domestically-focused Wal-Mart and telecom firm Verizon were the only gainers in the Dow Jones industrial average.

Pound sterling fell more than 10 percent against the U.S. dollar between its high of $1.500 touched late Thursday to the overnight low of $1.3224, its lowest since 1985. Sterling was last near $1.375.

U.S. crude oil futures settled down $2.47, or 4.93 percent, at $47.64 a barrel.

"The biggest thing is markets are operating and there isn't a liquidity crisis. This isn't a Lehman moment," said Chris Gaffney, president, EverBank World Markets.

"I think investors mispriced the risk and quickly repriced it," he said. "That's what we're seeing now, the repricing of risk with heightened uncertainty."

U.S. stocks surged into the close Thursday amid increasing expectations that Britain would vote to stay in the European Union. As of the close Thursday, the major U.S. stock indexes were tracking for weekly gains of nearly 2 percent or more.

Stocks erased those gains intraday Friday to be on pace for a weekly decline of nearly 1 percent or more.

The EU referendum vote results released overnight showed the leave camp secured 51.9 percent versus 48.1 percent for remain.

"Positioning, hedging for this kind of event was super light. ... When markets realized that (leave was ahead), it's when everything started trading very badly. That was a function of very light positioning," said Andres Jaime, global FX and rates strategist at Barclays.

After the unexpected result, David Cameron announced his resignation as Prime Minister of the United Kingdom.

Global stocks plunged, with the Nikkei 225 falling nearly 8 percent. The German DAX closed down 6.8 percent for its worst day since November 2008.

The STOXX Europe 600 Banks index had its worst day on record (going back to 1987) with a decline of more than 14 percent, to end more than 40 percent below its 52-week intraday high. The index lost 6.15 percent for the week, its worst since early May.

The UK FTSE 100 closed 2.76 percent lower Friday for its worst day since January but held weekly gains of nearly 2.4 percent.

"I think time will tell whether it's an overreaction," said Chris Konstantinos, director of international portfolio management at Riverfront Investment. "The severity with which they're reacting suggests there's lots of uncertainty. People are analyzing the referendum as prospects for populous movements in the future."

Treasury yields fell sharply. 10-year U.S. Treasury note yields hit a low of 1.406 percent, its lowest since July 26, 2012. The yield recovered to near 1.57 percent as of 11:54 a.m. ET.

The 2-year yield was last near 0.65 percent after earlier hitting a low of 0.499 percent, its lowest level since April 17, 2015.

The German 10-year bund yield fell back into negative territory.

Gold hit its highest in more than 2 years and was last near $1,320 an ounce.

In U.S. economic news, durable goods orders fell a more than expected 2.2 percent in May. The University of Michigan June consumer sentiment was 93.5.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 23.

About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 720 million and a composite volume of nearly 3.4 billion in afternoon trade.

Gold futures for August delivery surged $58.60 to $1,321.80 an ounce.


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