U.S. Stock Futures Signal More Losses After 2016 Gains Wiped Out
published Jun 26th 2016, 6:38 pm, by Joseph Ciolli and Anna-Louise Jackson
The selling continued in American stocks after investors suffered the worst day since August on Friday following the U.K. referendum.
Index futures on the S&P 500 Index fell 0.6 percent to 2,005.75 as of 7:31 p.m. in New York, extending a slide that topped 4 percent Friday when the underlying gauge finished lower by 3.6 percent and erased its advance for the year. Nasdaq 100 contracts slipped 0.7 percent.
Risk assets have been under pressure since Britons voted to secede from the European Union, raising concerns that an already-fragile global economic recovery will falter as trade snarls in one of the world’s biggest consumer blocs. Losses last week wiped out gains in U.S. equities for the year and pushed the benchmark volatility gauge up 49 percent.
“You’re going to continue to see selling pressure in the equity futures market and all risk markets as the British pound continues to sell off,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion, said by phone. “The political uncertainty in England is going to bleed into the global economy. This issue could continue to plague the market for the next several weeks as investors become a increasingly jittery.”
The next days and weeks will likely be key for central banks as they seek to minimize the damage in trading from Asia to the U.S. As the vote tally came in on Friday — surprising many investors who had bought risk assets in the lead-up amid optimism the “Remain” camp would prevail — Governor Mark Carney said the Bank of England could pump billions of pounds into the financial system. The European Central Bank said it will give lenders all the funding they require, while in the U.S. Federal Reserve said it was “carefully monitoring” financial markets.
Still, it could’ve been worse for U.S. traders, who ended last week down 1.6 percent thanks to gains in the lead-up to the Brexit decision. Futures plunged 5 percent and triggered exchange curbs in the vote’s aftermath and the S&P 500 spent most of the session down about 2.5 percent.
U.K. Prime Minister David Cameron will address Parliament Monday after a weekend of political turmoil that left Britain looking rudderless following the vote. German Chancellor Angela Merkel’s chief of staff urged a time-out in Britain’s exit from the EU, saying U.K. leaders should pause to consider the implications.
Britain’s departure will unleash as much as $300 billion of selling by automated quant programs in the already-battered U.S. stock market, Marko Kolanovic, the JPMorgan Chase & Co. derivatives strategist, wrote in a note late Friday. Equity investors in the U.S. would be wise to stay away until quant managers finish the rebalancing that was forced on them by the day’s volatility, he said.
Another JPMorgan strategist, Nikolaos Panigirtzoglou, said investors globally currently sit with an allocation to equities that is about 3 percentage points higher than during the European sovereign debt crisis of four years ago. In a worst case scenario, he wrote, that would require a 10 percent drop in stocks to align with levels in 2010-2012.
“Admittedly, that period was characterized by an acute sovereign debt crisis which triggered a banking crisis in Europe, something that has low probability of happening in the current conjuncture,” he wrote. “As such, investor positioning during the euro debt crisis can be thought of as the worst case for markets in the current conjuncture, in a very adverse scenario where Brexit ends up causing a lot of economic disturbance in terms of trade, people and financial flows as well as business confidence in Europe.”
To contact the reporters on this story: Joseph Ciolli in New York at firstname.lastname@example.org ;Anna-Louise Jackson in New York at email@example.com To contact the editors responsible for this story: Chris Nagi at firstname.lastname@example.org Jeremy Herron, Emma O’Brien