It wasn’t the surprise outcome to the UK election that sent stocks into the red during the final hour of trade on Wall Street, but a selloff in technology shares that pressured the major averages, pushing them off record levels.
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The Dow Jones Industrial Average ended at a fresh record and near its session high, adding 87 points, or 0.41% to 21269 while the broader S&P 500 ticked down 2 points, or 0.09% to 2431. The tech-heavy Nasdaq Composite, meanwhile, recovered some of its nearly 3% losses, but still closed down 113 points or 1.80% to 6207, its biggest selloff in three weeks.
The S&P technology sector was by far the biggest loser of the 11 industry groups on the session, dropping nearly 4% at the lowest point. Tech heavyweights Apple (APPL), Google parent Alphabet (GOOGL), Amazon (AMZN), and Facebook (FB) all dropped more than 3% while Netflix shares dropped nearly 6% at its low. The so-called FANG stocks – Facebook, Amazon, Netflix, and Google – and other large-cap tech names have been on a tear over the last year, helping push the overall market to record highs, as investors flock to the stocks to get in on the latest wave of innovation.
Amid the selloff in technology shares, the CBOE’s VIX index, Wall Street’s so-called fear gauge, spiked to 11.6 as the tech selloff ballooned and investors fretted about odds of heightened volatility over the next 30 days. The index had traded below 10 to a 1993 low during the morning hours.
Shrugging off May’s Lost Gamble
Earlier in the day, the major averages largely brushed off the effects of British Prime Minister Theresa May’s snap election that resulted in a hung parliament, throwing her future as the nation’s leader into uncertainty.
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The outcome socked pound sterling overnight as it shed more than 2% against the U.S. dollar, dropping as low as $1.2636 before clawing back some of its lost ground. In recent action, it traded at $1.2741, down 1.66%. Meanwhile, European stocks closed higher Friday as the broad Stoxx 600 ended up 0.32%, while the UK’s FTSE 100 gained 1.04%, after Prime Minster Theresa May sought to ensure stability would remain in the nation’s government despite the surprise outcome of the election.
Gold prices settled down 0.61% to $1,268 a troy ounce while Treasury yields rose. The yield on the benchmark 10-year note rose 0.019 percentage point to 2.213% while the longer 30-year yield gained 0.013 percentage point to 2.868%.
May’s Lost Gamble
In her first remarks following the election, rather than announcing her resignation as many speculated might happen, May declared she “will now form a government,” and emphasized the need for unity and certainty ahead of looming Brexit negotiations set to begin next week.
“What the country needs more than ever is certainty,” she said just outside 10 Downing Street in London after meeting with Queen Elizabeth. “Having secured the largest number of votes and the greatest number of seats in the general election, it is clear that only the Conservative and [Northern Ireland’s Democratic] Unionist Party has the legitimacy and ability to provide that certainty by commanding a majority in the House of Commons.”
She capped her remarks by saying the British people want the government to work toward a Brexit deal that works for everyone.
“That’s what people voted for last June. That’s what we’ll deliver. Now let’s get to work,” she said.
The weeks leading up to the election showed the wide lead May’s Conservative party had enjoyed narrowed significantly, though it was still expected to hold onto its parliamentary majority. Instead, the outcome was a hung parliament, a scenario in which no party gained the 326 seats needed for a majority in the House of Commons. Conservatives won 318 seats to the rival Labour party’s 261 with 649 of 650 seats declared.
In late April, May -- who became prime minister last June when David Cameron stepped aside in the aftermath of the nation’s decision to sever ties with the European Union – called for a snap election in an effort to shore up her party’s parliamentary majority before heading to the negotiating table with the EU. Conservatives at the time held 330 seats.
The big question now is how the election’s outcome will impact the beginning of Brexit talks.
The election results provide no clear mandate to negotiate either a “hard” or “soft” Brexit – referring to whether the nation will hold onto its access to the EU’s single trading market, and increase the likelihood of an early breakdown in negotiations or a disorderly Brexit process, economists at Barclays said Friday.
“Because a hung parliament leaves the prime minister vulnerable to small groups of MPs intent on influencing Brexit negotiations, the risks of a ‘no deal’ Brexit resulting from a small group of Conservative MPs blocking the ratification of the final agreement have increased,” the economists said, noting the risk of that worst-case scenario would likely weigh on sentiment and economic performance throughout the negotiation process.