BREXIT VOTE HAMMERS GLOBAL STOCKS -- BRITAIN AND EUROPE LEAD DECLINES -- GOLD, TREASURIES, AND THE YEN SOAR -- RISING DOLLAR PUNISHES OTHER COMMODITIES -- VIX SURGES TO 2016 HIGH -- US STOCK INDEXES HEAD TOWARD MAY LOWS
WORLD MARKETS ARE SHOCKED AT BRITISH VOTE... Even though polls showed the British vote to be very close, a lot of money bet that the Brits would vote to stay in the European Union. That was true with London bookies and global investors. Strong currency and stock action on Wednesday and Thursday added to the complacency (including my own). That explains why today's reaction to the vote to leave the EU has provoked such a strong negative reaction. The numbers are pretty bad. The daily bars in Chart 1 show the British Pound falling nearly 9% to the lowest level in decades. Sterling had just hit a new 2016 high the day before. Chart 2 shows the FTSE 100 losing 3% after being much lower earlier in the day. European stocks were also hit hard. Chart 3 shows the Dow Jones Europe Index (excluding the UK) tumbling nearly 8%. It had just cleared its 200-day line the day before. Safe haven buying pushed gold and Treasury prices sharply higher.The safe haven yen also surged. The VIX Index jumped to a new high for the year. The rising dollar pushed most other commodities lower. All those intermarket moves are consistent with falling stock prices.
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Chart 1
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Chart 2
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Chart 3
BANKS FALL AS UTILITIES RISE ON FALLING BOND YIELDS... Nine of ten market sectors are in the red today. Utilities are the only gainers on the back of rising bond prices and plunging bond yields (Chart 4). Banks were the hardest hit for the same reason. Chart 5 shows the KBW Bank Index losing nearly 7% and falling to the lowest level in two months. Defensive dividend paying stocks like staples and telecom are losing ground, but holding up better than the rest of the market. Economically-sensitive stock groups are suffering the biggest losses.
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Chart 4
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Chart 5
U.S. STOCK INDEXES HEAD TOWARD SUPPORT... It's small consolation to report that U.S. stocks aren't falling as much as European shares. But they are falling. Chart 6 shows the Dow Industrials down more than 3% and heading toward its May low and 200-day moving average. Chart 7 shows the S&P 500 in a similar situation. The Nasdaq is in worse shape. Chart 8 shows the Nasdaq Composite Index down 4% and heading for a test of its May low. The Nasdaq has already fallen below its 200-day moving average. Today's stock losses are also taking place in heavier trading.
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Chart 6
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Chart 7
