Bank Stocks Fall as Stimulus Hopes Fade
November 04 2020 - 12:59PM
Dow Jones News
By Ben Eisen
Bank shares dropped Wednesday, a sharp departure from the
broader market as investors bet that another round of stimulus
relief will be hard to come by.
The KBW Nasdaq Bank Index was down 3.3% around midday. The
broader S&P 500 rose 3.1% in volatile trading.
Investors are wagering that the results of Tuesday's election,
and a potential prolonged period of vote counting, will delay and
possibly curb the size of a potential stimulus bill that would aid
the economic rebound, analysts say. The pandemic recession has left
millions jobless and, in many cases, unable to pay their monthly
bills and loans. Bank executives have said that without more
federal support, the recovery is likely to stall.
Bank stocks tend to track the outlook for the U.S. economy
because their business of taking deposits and making loans depends
on healthy consumers and business.
Shares of regional banks, some of the most dependent on a strong
economy, were down the most on Wednesday. Comerica Inc. fell 10%,
Huntington Bancshares Inc. dropped 7.6% and Citizens Financial
Group Inc. slid 6.3%.
Some of the big U.S. banks with large Main Street lending arms
were also down. Bank of America Corp. dropped 2.9% and JPMorgan
Chase & Co. slipped 2%.
Other market indicators pointed to souring bets on a quick
economic bounce. The yield on the 10-year Treasury note was down by
more than one-tenth of a percentage point on Wednesday. The
benchmark U.S. debt traded at a yield of less than 0.80%.
Lower long-term yields also weigh on the amount banks earn from
lending. A drop of half a percentage point in the 10-year yield,
for example, could hit regional banks' annualized per-share
earnings by 1% to 4%, according to John Pancari, a banking analyst
at Evercore ISI.
Firms that rely less on consumer and commercial banking and more
on Wall Street trading and investment banking outperformed. Goldman
Sachs Group Inc. and Morgan Stanley were both up more than 1%.
Choppy markets tend to boost trading revenue, and both Wall Street
giants reported strong third-quarter results last month even as the
recession dragged on.
Additionally, Wednesday trading favored financial companies that
benefit from low rates, such as mortgage firms that can churn out
more refinancings when rates drop. Rocket Cos., the parent of
Quicken Loans, rose 7.9%. PennyMac Financial Services Inc. jumped
6.3%. The companies are two of the biggest mortgage lenders in the
U.S.
Some of the market movements may have more to do with the
uncertainty of the moment than predictions for future policy,
particularly given a rise in bank stocks earlier in the week. In
the weeks after the contested election of 2000, bank stocks fell by
about twice the decline in the S&P 500, according to Mike Mayo,
a banking analyst at Wells Fargo & Co. Afterward, they bounced
back quicker than the S&P 500.
After the election results are finalized, bank investors may
find more to like, Mr. Mayo said in a note to clients. For example,
if Joe Biden wins the presidency but Republicans hold on to the
Senate, it would be more difficult for a Biden administration to
raise the corporate tax rate or impose more financial
regulations.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
November 04, 2020 12:44 ET (17:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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