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S&P 500 could drop as much as 7% in Brexit swoon

Published: June 26, 2016 5:51 p.m. ET

Volatility to keep investors on the edge

"Keep a stiff upper lip” is a phrase often used by Brits to express fortitude and stoicism during times of distress. U.S. investors may need to borrow the cliché next week as uncertainty and volatility are likely to reign in the stock market.

Most expect the weakness to continue, at least in the coming days.

“In an environment of weak corporate earnings growth and lofty valuations, U.S. financial markets are already primed to overreact to external developments,” G. Scott Clemons, chief investment strategist for Brown Brothers Harriman’s wealth management business, wrote in a blog post. “This is a big external development, and U.S. financial markets—even though not directly exposed to a redefinition of Europe—are likely to experience heightened price volatility for some time to come.”

Savita Subramanian, an equity strategist at Bank of America Merrill Lynch, who had been bearish on stocks even ahead of the U.K. referendum, predicted the S&P 500 could drop as much as 6% to 7% based on previous selloffs sparked by external shocks.

The CBOE Market Volatility Index VIX, +2.48% which gauges the level of fear in the financial markets, skyrocketed 49% to 25.76, notching its biggest one-day percentage gain since Aug. 8, 2011.

“There are obviously many ripples that will flow from this momentous event,” said Douglas Borthwick, managing director of Chapdelaine Foreign Exchange. “One thing we can be certain about, and that is volatility.”

More http://www.marketwatch.com/story/brexit-sparked-volatility-will-continue-to-weigh-on-us-stock-market-2016-06-25?link=MW_popular