U.S. Pull Back Sharply Amid Renewed Banking Concerns

wallstreet july17 17mar23 lt

Stocks have moved mostly lower over the course of morning trading on Friday, giving back ground following the rally seen in the previous session. After seeing some early volatility, the major averages have all slid firmly into negative territory.

Currently, the major averages are just off their lows of the session. The Dow is down 384.74 points or 1.2 percent at 31,861.81, the Nasdaq is down 98.56 points or 0.8 percent at 11,618.71 and the S&P 500 is down 43.32 points or 1.1 percent at 3,916.96.

The pullback on Wall Street comes as some traders look to cash in on yesterday's rally amid lingering concerns about turmoil in the financial sector.

Shares of First Republic Bank (FRC) are showing a significant pullback on the day, plunging by 24.7 percent after surging by 10.0 percent on Thursday.

The jump in the previous session came as a group of financial institutions agreed to deposit $30 billion in First Republic in an effort to express confidence in the banking system.

"U.S. stocks are weakening on fears that this week's banking turmoil will lead to tighter lending standards that will cripple small businesses and eventually send this economy into a recession," said Edward Moya, senior market analyst at OANDA.

He added, "The Fed's rate hiking cycle was already feeling restrictive, so now that we have rising risks of more bank bailouts and even tighter credit standards, the growth outlook for the economy is rather bleak."

In U.S. economic news, the Federal Reserve released a report showing U.S. industrial production was unexpectedly unchanged in the month of February.

The Fed said industrial production was unchanged in February following a revised 0.3 percent increase in January. Economists had expected industrial production to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

A separate report from the University of Michigan showed consumer sentiment in the U.S. fell for the first time in four months in March.

The report said the consumer sentiment index slid to 63.4 in March from 67.0 in February. Economists had expected the index to be unchanged.

Surveys of Consumers Director Joanne Hsu noted the decrease was already fully realized prior to the failure of Silicon Valley Bank.

Meanwhile, the report showed decreases in both near-term and long-term inflation expectations, with year-ahead inflation expectations falling to the lowest level since April 2021.

Sector News

Banking stocks have pulled back sharply after rebounding in the previous session, with the KBW Bank Index plunging by 5.0 percent.

Substantial weakness is also visible among oil service stocks, as reflected by the 3.0 percent nosedive by the Philadelphia Oil Service Index.

The sell-off by oil service stocks comes as the price of crude for April delivery is tumbling $1.61 to $66.74 a barrel.

Brokerage stocks are also seeing considerable weakness on the day, resulting in a 2.5 percent slump by the NYSE Arca Broker/Dealer Index.

Airline, biotechnology and natural gas stocks have also moved significantly lower, while gold stocks are bucking the downtrend amid a spike by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan's Nikkei 225 Index shot up by 1.2 percent, while China's Shanghai Composite Index climbed by 0.7 percent.

Meanwhile, the major European markets have shown notable moves to the downside on the day. While the French CAC 40 Index has slumped by 1.6 percent, the German DAX Index is down by 1.4 percent and the U.K.'s FTSE 100 Index is down by 1.1 percent.

In the bond market, treasuries are rebounding after turning lower over the course of the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 17.1 basis points at 3.414 percent.

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