MARKET SNAPSHOT: U.S. Stocks Run Into Brexit Buzz Saw

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)

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