The S&P 500 slumped 2.6 percent to 2,058.91 at 9:39 a.m. in New York, the most in four months. The Dow Jones Industrial Average dropped 467.94 points, or 2.6 percent, to 17,543.13, after sliding 538 points. The Nasdaq Composite Index lost 3 percent, also its worst in four months. Trading volume in S&P 500 shares more than double the 30-day average for this time of day.
Overnight, equity futures on the benchmark fell far enough to reach trading curbs that blocked further losses. The steep selloff Friday was compounded by the fact that markets had rallied during the past week on optimism the U.K. would vote to remain in the EU, with the S&P 500 rising 1.7 percent in four sessions.
The pound slid the most on record to its weakest since 1985, while the yen rallied on demand for haven assets. Polling before the referendum had indicated a vote too close to call. The final tally, announced just after 7 a.m. London time, showed voters had backed “Leave” by 52 percent versus 48 percent for “Remain.”
“U.S. stocks are clearly following the European market,” said Joe Rundle, head of trading at ETX Capital in London, who has been awake all night. “The risk is that this will trigger a U.K. recession and that will in turn cause a European and global recession. For me, this is as big as 2008 and has the potential to be even bigger. I don’t see the Fed raising interest rates any time soon, at least not this year.”
The New York Stock Exchange has temporarily widened the collars for trading halts in all securities to 10 percent. A plunge of 7 percent in the S&P 500 at any time before 2:30 p.m. in New York will trigger a marketwide circuit breaker that shuts down trading for 15 minutes in an effort to restore order. That would occur if the index slides to 1,965.38, based on Thursday’s close of 2,113.32.
Central banks have sounded the alarm over a potential Brexit, with chiefs of the Federal Reserve, Bank of Japan and Bank of Canada all citing the vote as a potential disruption to the global economy. Fed Chair Janet Yellen said the decision could have consequences for financial markets, and “in turn for the U.S. economic outlook.” The International Monetary Fund had warned that a so-called Brexit risked damage to the U.K. economy.
“Markets appear to be entering a new volatility regime, centered on political risk,” wrote Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, in a Friday note. “In this environment, policy makers may feel compelled to step up to offer ports in the storm in future days, with hopes of stabilizing asset prices.”
The benchmark U.S. equity gauge could plunge as much as 7 percent in the event of a Brexit, Bank of America Corp. strategists led by Savita Subramanian wrote in a note prior to the referendum. A vote to remain would weaken the dollar and boost crude prices, spurring a 3 percent to 4 percent rally in U.S. stocks, they said.
The vote comes at a time when uncertainty already plagues U.S. stocks, with questions around the Fed’s ability to stoke growth after the worst month for hiring since 2010, a four-quarter decline in corporate profits, price-earnings ratios that are close to a decade high and a presidential election looming in the fall.
The S&P 500 plunged 11 percent in its worst-ever start to a year before recovering through April. It’s virtually been stuck in place since, struggling to hold above the 2,100 level that has capped three rallies since November. It fell from that perch again after closing above it Thursday for the first time in two weeks.