Wall Street took a turn for the worse in the last hour of trading today as investors scrambled to decode the broader economic message in the U.K.’s surprise vote to leave the European Union.
While stocks started off Friday deeply in the red, with the Dow Jones Industrial Average off 500 points in morning trading, the market took a breather and regained some of the ground it lost in midday trading. That sentiment reversed and the Dow ended the day down 611.21 points, or 3.4 percent, to 17,399.86.
Among the hardest hit decliners were PVH Corp., down 8.9percent to $93.55; Abercrombie & Fitch Co., 8.1 percent to $17.77; Ralph Lauren Corp., 7.9 percent to $89.60; Kate Spade & Co., 6.7 percent to $20.01; Michael Kors Holdings Ltd., 6.3 percent to $47.61; VF Corp., 5.7 percent to $61.31, and Estée Lauder Companies Inc., 5.5 percent to $89.73.
European indices plummeted with the French CAC down 7.8 percent, the German DAX off 6.6 percent and the U.K. FTSE down 2.7 percent. The British currency, the pound, logged its largest one-day drop on record, falling 9.2 percent against the dollar to a 30-year low.
The shares of many European fashion companies took a big hit. Among the firms weathering the steepest declines were Aeffe S.p.A., down 9.26 percent to 1 euros, or $1.11; Tod’s SpA, 7.8 percent to 50.1 euros, or $55.73; Salvatore Ferragamo, 7.3 percent to 18.61 euros, or $20.70; LVMH Moët Hennessy Louis Vuitton, 6.5 percent to 135.15 euros, or $150.35, and Brunello Cucinelli, 6.25 percent to 16.5 euros, or $18.36.
Bucking the trend was Burberry, which saw its stock rise 2.6 percent to 11.38 pounds, or $15.56.
The euro suffered its biggest decline since 2008 and is down 2.7 percent versus the dollar.
The safe haven of Gold popped up 4.5 percent to $1,320 an ounce and silver jumped 2.7 percent to $17.74. Crude oil fell 3.9 percent to $48.15 a barrel. The Asian market was first to react to news of the vote and sold off sharply.
“The market feels okay and it isn’t panicky,” said Kenny Polcari, director of equities at O’Neil Securities. “There was concern, but once it was opened, the market found some stability.”
Polcari was putting money to work and buying stocks. “We may churn here and rally a bit at the end of the day,” he said.
Polcari also made a point of saying the Brexit was a one-time event and not a trend, adding, “The message is that as difficult as it is for London, the U.S. will be OK.”
Stephen Guilfoyle, managing director at Deep Value Execution Services said he expects stocks to drift higher during the afternoon and then see some action at the close.
“I think the damage has been done,” he said. “There’s been some bargain hunting.” Like Polcari, Guilfoyle has also been buying some stocks.
“The good news is that things were much worse overnight than they are now,” Guilfoyle said.
He said the U.K’s departure now has investors questioning whether there will be more. “Italeave, Czech out, Finnish, Departugal or maybe Oustria. Time will tell and rumors along these lines will move asset prices.”
RBC Capital Markets analyst Brian Tunick noted that under his coverage some of the retail stocks with the biggest exposure to the U.K. include Signet Jewelers Limited, with 12 percent of its sales, TJX Cos. Inc. at 10 percent of its sales, Michael Kors Holdings at 10 percent, Abercrombie & Fitch Co. at 7 percent, Tiffany’s at 5 percent and Gap Stores with 5 percent. He expects weaker tourism and the stronger dollar will hurt that market and cause more headwinds.
Prime Minister David Cameron, who favored remaining in the EU, has decided to step down saying he wasn’t the right person to lead Great Britain to its next destination. His departure, in addition to the Brexit vote is leading to a great deal of uncertainty in the markets.
IHS Global Research believes the vote to leave is bad news for the U.K. economy and is substantially cutting its GDP growth forecasts to 1.5 percent from 2.0 percent for 2016. It is cutting its forecast for 2017 to 2.0percent form 2.4 percent. IHS also questioned how the City of London’s dominant financial center will be impacted. For now the banks are getting beaten badly in early trading.
The Stoxx 600 Bank index is plunging 14 percent this morning. Barclays bank stock is crashing over 26 percent this morning. American banks are plunging in sympathy this morning. JP Morgan Chase & Co. and Bank of America Corporation are both down by 6 percent and Citigroup Inc. is falling by 8 percent. The Federal Reserve has said it will provide dollar liquidity to banks that need assistance in covering trades.
In addition to the Brexit, this is the day for the Russell index rebalancing. This causes heavy trading as stock levels are adjusted for the Russell 1000 and 2000 and thousands of funds have to trade accordingly. Polcari said that by midday day half a billion shares had been traded and by the end of the day expects that 2 billion shares will trade. The New York Stock Exchange does not expect that any protective trading measure will need to be taken as a result of the high volume. A typical summer day normally sees about 1 billion shares trade.