By Jessica Menton 

Bank stocks were pummeled Friday for a third consecutive day amid heightened investor angst over the outlook for the global economy.

The KBW Nasdaq Bank Index of large commercial lenders slumped 3.9% Friday and shed 8.3% this week, its largest weekly decline since January 2016. Shares of Bank of America Corp. have been among the hardest hit over the past three days, shedding 8.9%. Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. have all dropped at least 5.1% in that span. Meanwhile, Citigroup's stock shed 4.6% Friday, its largest one-day percentage loss since Feb. 5, 2018.

Shares of financial companies have come under pressure this week after the Federal Reserve indicated Wednesday that officials were unlikely to lift interest rates this year. The move has revived investors' fears that the U.S. economy is slowing faster than previously thought. Weak manufacturing data out Friday further stirred concerns among investors.

"The weakness in banks is troublesome for the market," said Willie Delwiche, an investment strategist at Baird. "The market tends to do best when financials are leading the way and right now that's not happening. They weren't that healthy coming into this week in terms of market leadership, and you could make the case that banks were already signaling to the broader market that something was amiss."

The reaction this week in bank stocks was largely due to a sharp drop in bond yields, some analysts said. Banks typically benefit from a rise in borrowing costs because it often boosts margins. The yield on the benchmark 10-year Treasury note -- used as a reference for everything from auto loans to mortgages -- settled at 2.459% Friday, the lowest since January 2018. Yields decline as bond prices rise.

Investors also increased bets that the Fed will cut rates this year amid slowing growth, which would threaten to dent margins of big consumer lenders. Fed funds futures, used to place bets on the course of central-bank policy, showed 58% of investors on Friday expected a Fed rate cut this year, while no investors predict a rate increase, according to CME data.

Write to Jessica Menton at Jessica.Menton@wsj.com

(END) Dow Jones Newswires

March 22, 2019 17:46 ET (21:46 GMT)