US close: Wall Street hit by risk aversion after Brexit

Stocks on Wall Street registered sharp losses, as investors reacted to news that UK voters had opted to leave the European Union, albeit slightly smaller ones than those seen in August 2015 when fears of a Chinese devaluation hit markets.

The Dow Jones Industrial Average fell 3.39% or 610.32 to 17,400.75, the S&P 500 declined 3.59% or 75.91 points to 2,037.41 and the Nasdaq Composite was 4.12% weaker.

Volatility surged, with the CBOE´s VIX index leaping 49.33% to 25.76.

Worth noting perhaps, since 1986, whenever the Euro Stoxx 50 retreats at least 5.0% in a single sesión, on average the S&P 500 has dropped by as much as 6.0% over the following week, according to Bloomberg data.

In the subsequent month, the S&P 500 troughs after a loss of about 8.3%.

Results of the referendum showed a Leave win at 52%, with Remain at 48%. London, Northern Ireland and Scotland backed Remain, while the rest of England and Wales opted to leave.

As investors fled to safety, gold, the dollar and US Treasuries all benefited. The pound slid to a 31-year low during the session and front month gold futures rocketed $66.10/oz.

The yield on the 10-year US Treasury bond hit its lowest level since 2012. Yields move inversely to prices. Some analysts said Brexit might keep the Federal Reserve from hiking rates in 2016.

In oil markets, West Texas Intermediate dropped $2.66 to $47.64 a barrel.

In terms of sectors, the most impacted were Travel&tourism (-10.28%), Non-ferrous metals (-10.11%) and Real estate services (-8.91%).

Banks were among the most heavily-traded issues on the NYSE, including ADRs in Santander (-20.21%) and Barclays (-20.48%).

British Prime Minister David Cameron announced his resignation on Friday, saying the UK needed “fresh leadership” to “steer the country” out of the EU.

The Bank of England was quick to respond to the referendum outcome, saying it was “monitoring developments closely” and had undertaken “extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks”.

In addition, the European Central Bank pledged to provide additional liquidity, if needed, in euro and foreign currencies.

Bank of America Merrill Lynch said: “Once the dust of the knee-jerk market reaction settles, we think that the UK's economy will clearly be the main victim, but also that the shock for the Euro area and the global economy is likely to be significant. Policy responses will be needed beyond the ‘first-aid’ remedy market disruption normally requires.”

Britain’s vote for Brexit prompted some analysts to re-think their expectations on the timing of the next interest rate hike.

ING pointed out that its view on the timing of the next Fed rate rise had always been contingent on a Remain vote, as financial market stability was one of the three conditions for the US central bank to hike.

“We believe US financial market tightness will increase significantly following the UK’s Leave vote, irrespective of what is happening elsewhere in the US economy.”

The bank said even a December rate hike looks like a long shot now, with any further tightening unlikely until 2017.