NEW YORK: All three major Wall Street benchmarks finished lower on Tuesday (Aug 8) in a broad sell-off after the downgrading of several lenders by credit rating agency Moody's reignited fears about the health of US banks and the economy.
The Dow Jones Industrial Average fell 158.64 points, or 0.45%, to 35,314.49, the S&P 500 lost 19.06 points, or 0.42%, at 4,499.38 and the Nasdaq Composite dropped 110.07 points, or 0.79%, to 13,884.32.
After a five-month rally pushed the benchmark S&P 500 and Nasdaq Composite within 5% of their lifetime highs, August has now recorded five losing sessions out of six. The S&P is down 2% this month, with the Nasdaq dropping 3.2%.
Tuesday’s decline was triggered after the agency cut ratings on 10 small- to mid-sized lenders by one notch and placed six banking giants, including Bank of New York Mellon, US Bancorp, State Street and Truist Financial, on review for potential downgrades.
Moody's also warned that the sector's credit strength would likely be tested by funding risks and weaker profitability.
Market confidence in US banks has been gradually returning after the failures of three lenders earlier this year, including Silicon Valley Bank, shocked the financial system.
The S&P 500 Banks index has slipped 2.5% year to date, compared with a 17.2% gain by the S&P 500, and the downgrades exposed the fragility of investors' confidence towards financial stocks.
The banks index slid 1.1% on Tuesday, while the KBW Regional Banking index dipped 1.4%.
Big banks Goldman Sachs and Bank of America each eased around 1.9%, while Bank of New York Mellon dropped 1.3% and Truist fell 0.6%.
Jason Pride, chief of investment strategy and research at Glenmede, noted that Moody’s downgrades, as well as the notice given to larger banks about possible future action, were a public statement about the agency's concerns for the health of the banking system, and how it affects the wider economy.
“I think it’s a big deal in the bigger picture of how the economy operates, because regional banks’ lending is one of the main lubricants of the economy,” he said.
“If it slows down, the engine just doesn’t work as well.”
Reaction to the bank downgrades pushed up the CBOE Market Volatility index, Wall Street's fear gauge, at one point hitting a two-month high. – Reuters
Source: The Sun Daily
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