Bank Stocks Lead Market's Dive
December 04 2018 - 3:30PM
Dow Jones News
By Ben Eisen
Shares of the largest U.S. lenders took a beating Tuesday,
extending a slump that has kindled fears about the health of the
economy.
The KBW Nasdaq index of 24 bank stocks fell more than 4.5% by
midafternoon. Its losses over the last three months have exceeded
12%, double the fall in the broader S&P 500 index. Financial
stocks were the worst-performing sector in the S&P 500 on
Tuesday.
In afternoon trading, Morgan Stanley slid 5.3%; Bank of America
Corp. sank 5.3%; Citigroup Inc. dropped 4.3%, and JPMorgan Chase
& Co. fell 4.2%.
Goldman Sachs Group Inc., whose shares have struggled amid
fallout from the bank's role in a Malaysian corruption scandal, was
down 3.4%. The stock was poised to close at its lowest level in
more than two years, nearly erasing a jump that followed the 2016
U.S. presidential election.
Bank stocks tend to reflect investors' expectations for the
broader economy, because demand for bank loans can ebb and flow
depending on economic strength.
Bank stocks benefited broadly after the election, when investors
bet that banks would get a boost from accelerating U.S. economic
growth, a deregulatory agenda championed by President Donald Trump
and a windfall from corporate tax cuts. Bank profits got a big
boost after the new tax law slashed the corporate tax rate late
last year.
Now concerns are building around the strength of the economy,
which has shown signs of shifting into a lower gear. Most private
economists now expect U.S. economic growth to slow in 2019 as the
tax-cut stimulus wears off, the Federal Reserve keeps raising
interest rates and trade tensions between the U.S. and China
continue to reverberate.
The rise in short-term rates relative to long-term rates also
threatens to crimp the margins banks earn from borrowing at a low
short-term rate and lending at a higher long-term one.
Banks are starting to pay more interest on the money depositors
hold in their accounts. Meanwhile, higher benchmark rates in the
U.S. have cut into banks' mortgage-lending businesses by choking
off demand for refinancings.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
December 04, 2018 15:15 ET (20:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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