Stocks dive after U.K. vote to leave EU

Silicon Valley tech firms take a beating, but analysts say economy is still strong

Technology stocks plunged steeply Friday, part of a widespread rout on Wall Street after queasy investors jettisoned shares following the United Kingdom’s vote to leave the European Union.

The sell-off, which began in Europe, created a financial wave that raced across the Atlantic and slammed into Wall Street from the opening bell. The Dow Jones industrial average plummeted more than 500 points within moments. After

paring the losses briefly, the Dow wound up tumbling again, losing 610 points at close — a 3.4 percent decline.

The broad-based S&P 500 Index fell 3.6 percent, but the worst losses were inflicted on the tech-focused Nasdaq composite index, which sustained a 202-point loss and fell 4.1 percent.

Despite the massive selloff, industry watchers believe tech companies in the Bay Area likely will do well, even if their stocks are sinking in the short term.

“The fundamentals still look good for Silicon Valley,” said Rob Enderle, an Oregon-based analyst who tracks the technology market. “Silicon Valley is not in any critical state because of this.”

Tech industry experts remain optimistic about Silicon Valley because the market for the region’s hardware, software and services will remain strong despite the upheaval in Europe.

“Companies will need these technologies no matter where they are — no matter the trading situation with their partners,” said Tom Foremski, who runs the San Francisco-based Silicon Valley Watcher site.

But in the short run, a wide array of Bay Area companies must cope with Friday’s battering, which could linger into next week and beyond.

The vote to exit the EU — popularly called the Brexit — caused the British pound to fall more than 10 percent, a stunning one-day decline for a rich country’s currency. Dipping as low as $1.34 per pound, the currency fell to its lowest level since 1985 against the U.S. dollar.

“The dollar is recognized as a safe haven,” said Mark Brady, an economics lecturer at San Jose State University.

“Investors tend to go back to the dollar in times of uncertainty. The euro is also falling against the dollar.”

The sell-off devastated the major stock indexes so severely that the already struggling Nasdaq fell close to a correction and is now down 7 percent for the year.

Japan’s Nikkei index temporarily halted futures trading amid the sweeping global sell-off and closed down 8 percent.

“There is so much market uncertainty because of Brexit,” said Ken Thomas, a Miami-based independent bank analyst and operator of BranchLocation.com. “Investors don’t like uncertainty, so the default is to sell. People were expecting the U.K. to stay in the European Union. Nobody expected this to happen.”

The rout was brutal enough that both the Dow and the S&P 500 are now negative for the year. After suffering its eighth-largest point loss ever, the Dow is down 0.1 percent for the year, and the S&P 500 is down 0.3 percent in 2016.

Among the 10 largest tech companies in the Bay Area, the hardest hit was San Jose-based Cisco Systems, which nose-dived 5 percent.

The setbacks on Wall Street could jeopardize the likelihood of initial public offerings in coming weeks, analysts warned.

“We thought the IPO drought had ended,” said Mark Vitner, a senior economist with Wells Fargo, “but now there is a heightened perception of risk. When that happens, it’s harder for new ventures to raise capital and attract investment.”

The stock market setback also shredded the shares of numerous nontech companies.

San Francisco-based Wells Fargo skidded 4.6 percent, and San Ramon-based Chevron dropped 2.4 percent.

“It’s not surprising the banks are being hit so hard, especially those with overseas operations,” Thomas said.

Banks with operations in London as a proxy for having offices in the European Union might have to open new offices on the European mainland, burdening them with additional costs.

California officials scrambled to reassure investors about the soundness of the state’s investments.

“Market volatility could be sharp until many questions surrounding Brexit can be resolved over the coming two years,” state Treasurer John Chiang said Friday. “Our $75 billion investment portfolio and another $75 billion in outstanding general obligation debt are in strong positions to weather the uncertainty.”

Consumers could enjoy some benefits if the dollar continues to strengthen against currencies in Europe.

“It will be much cheaper for people who come from the United States and visit Europe loaded with dollars,” Brady said.

Even in the face of the Brexit turmoil, the fundamentals of the Bay Area economy and job market remain robust, analysts said.

“We still feel pretty good about the Bay Area economy, despite all of this,” Vitner said. “The tech sector and the West Coast are going to be impacted less by Brexit than the East Coast.”

Analysts did point to one silver lining: Mortgage rates, which are heavily influenced by the rates on long-term government debt and Fed policy, probably will remain ultralow — or dip even lower.

The political turmoil n played out on Google on Friday, dominating the conversation online as well as global headlines.

Google Trends reported spiking searches in the United Kingdom for “getting an Irish passport” and “move to Gibraltar,” the British territory on the south coast of Spain.

One of the top U.K. questions on Google since the Brexit referendum results were released is “what is the EU?” Search interest in the British pound is at its highest level ever.

Among other questions U.K. users pondered Friday, at least when it comes to the EU, include “What does it mean to leave the EU?” and “What will happen now (that) we’ve left the EU?”