It's not just the pound that's falling after the U.K. voted leave the European Union. Markets all over the world are in full freakout mode, the euro is falling, and investors everywhere are pulling money out of markets and putting it somewhere safe, meaning the U.S. dollar and U.S. government debt have both strengthened.
In total, more than $2 trillion in value had been wiped out in global stock markets by Friday morning, Reuters reported.
Those freaked-out investors are dumping American stocks too: The S&P 500 fell over 3.5% and the Dow Jones Industrial Average fell over 600 points, just over 3%, in trading Friday, while the tech- and pharmaceutical-heavy Nasdaq Composite Index fell over 4%. The S&P and Dow's fall were the biggest since the tumultuous August of last year, while the Nasdaq's decline was the largest in over four years, according to data compiled by Bloomberg.
Japanese stocks, often a canary in the coal mine of a burning global economy, have fallen sharply, with the Nikkei 225 index dropping 8%. The Japanese yen also fell in value against the dollar, hitting 102 yen per dollar, the highest level since August 2014.
European stocks were some of the hardest hit: The FTSE 100, the main British index, dropped almost 9% when it opened and finished down 3%, while the Stoxx 600, an index of European stocks, closed down almost 7%. There has been massive trading volume in European stocks — about five times the average volume of the last month, according to data collected by Bloomberg.
"There is likely to be an impact on growth from lower euro area confidence and financial markets," JPMorgan analysts wrote in a note, warning trade relationships between Germany and the UK could weaken, worsening a state of economic uncertainty looming over the entire continent.
Jeff Kleintop, the chief investment strategist at Charles Schwab, compared the shock of the Brexit vote to the worst of the post-financial-crisis events — the Japanese earthquake and tsunami in 2011, the near-breach of the U.S. debt ceiling and default in 2011, and the European debt crisis. It took Japanese markets about four months to hit their pre-tsunami levels, while it took the S&P 500 three months to recover from the debt standoff.
While markets may settle over the coming weeks and months, many analysts expect large swings in the near term. "Liquidity may be thin and volatility high in the immediate aftermath of the result. It may be several days before markets settle," UBS analysts wrote.
Analysts at Nomura, however, compared the Brexit shock to the collapse of hedge fund Long Term Capital Management in 1998, which ended up dragging down markets all over the world. "We believe uncertainties stemming from a Brexit will likely remain in place for a longer period than those from the LTCM shock," the analysts said, "as the process by which the UK exits the EU is likely to be complex and time-consuming."
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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