NEW YORK: Bank stocks fell sharply after President Trump’s latest tariff threat sent U.S. Treasury yields tumbling and raised new questions about the outlook for economic growth.
Shares of banks ranging from Wall Street giants including Citigroup Inc. C -3.98% and JPMorgan Chase JPM -2.64% & Co. to such regional players as PNC Financial Services Group Inc. PNC -3.25% and SunTrust Banks Inc. STI -3.90% all came under heavy pressure, outpacing the declines of major stock indexes.
Citigroup lost 4%, JPMorgan Chase fell 2.6%, PNC Financial slipped 3.3% and SunTrust Banks declined 3.9%. The KBW Nasdaq Bank index of large U.S. commercial lenders dropped 3.7%, while the KBW Nasdaq Regional Banking index slid 4%.
Some analysts and investors said a decline in Treasury yields helped spur the selling. The yield on the 10-year U.S. Treasury note settled at 1.894%, its lowest close since November 2016, compared with 2.034% on Wednesday. Yields fall when bond prices rise.
Lower rates generally hurt bank earnings by narrowing the gap between what they pay on deposits and charge on loans, a spread known as the net interest margin. Investors track bank stocks closely because a healthy banking system is considered crucial to a growing economy.
It “all just seems to be a food fight today to reduce exposure to banks in general,” said R.J. Grant, director of equity trading at KBW.
Compounding the declines, bank stocks have generally performed well in recent weeks, leaving room for a selloff, analysts said.
Thursday’s drops came a day after the Federal Reserve lowered interest rates but signaled it was in no rush to cut them further. That message drove down the 10-year yield but lifted yields on shorter-term debt, suggesting investors expected a higher path for interest rates than they did before Wednesday but also possibly slower economic growth as a result of that change.
On Thursday, yields were sharply lower on all Treasury debt maturing in one year or more, indicating investors were back to expecting rate cuts but even more nervous about growth.
Boris Johnson suffered a setback in his first ballot box test as British prime minister on Friday after the Conservative candidate lost to a pro-EU rival in a by-election that slims his parliamentary majority to one.
Thursday’s vote in the Welsh sheep farming community of Brecon and Radnorshire offered a stark choice between the Brexit-backing incumbent from Johnson’s ruling Tories and a Liberal Democrat who wants to preserve Britain’s four-decade membership of the European Union.
Johnson dropped by the region Tuesday to help out Chris Davies — a Conservative MP who was forced to step down after being criminally convicted of expenses fraud.
Davies protested his innocence and contested the seat again, but saw the Liberal Democrats’ Jane Dodds overturn his previous majority of 8,038 and win by a margin of 1,425 votes.
“My very first act as MP when I arrive in Westminster will be to find Boris Johnson wherever he is hiding and tell him loud and clear: stop playing with the futures of our communities and rule out no-deal Brexit,” she said.
Johnson’s newly-formed government is trying to force Brussels to return to the negotiating table by insisting Britain is ready to leave the EU without a deal on the latest delayed departure date of October 31.
Finance minister Sajid Javid announced Wednesday an extra £2.1 billion ($2.6 billion, 2.3 billion euros) in funding to prepare for such an eventuality.
But Bank of England governor Mark Carney said Friday a no-deal Brexit would be a shock for the country’s economy causing supply disruption and potentially undermining entire sectors such as the car industry and farming.
Meanwhile an official government document obtained by Sky News warned of potential “consumer panic” and gaps in security within weeks.
Such fears have already pushed the pound to its lowest levels since Britons first voted to leave the EU in June 2016.
Dodds benefitted from a so-called “Remain alliance” which saw two smaller pro-EU parties back her bid.
The result extends a recent revival for the Liberal Democrats at the major parties’ expense, thanks to its firm stand against Britain’s split from the EU.
It came a surprise second behind populist eurosceptic Nigel Farage’s Brexit Party in European Parliament elections in May.
Farage’s candidate in the Wales by-election ate into the Conservative’s support, while the main opposition Labour Party came in a distant fourth.
Liberal Democrats leader Jo Swinson, elevated to the role just last month, said the party would look to forge further pro-EU alliances at the next election.
“I do think that working across party lines is important when there is so much at stake for the future of our country,” she told BBC Radio.