Federal Reserve rate cuts are making some investors nervous. Bank shares, in particular, have taken a hard hit since interest rates were slashed by a half of a percentage point earlier this week.
Bank of America shares fell by 5.5 percent, JP Morgan saw a 3.7 percent drop, and Morgan Stanley and Citigroup each were down by 3 percent on Tuesday. Bank stocks continued to fall throughout the week and as of mid-morning Friday, shares from all four banks were still plummeting.
The Feds cut rates in hopes of counteracting the economic effects of the coronavirus outbreak.
If bank margins pay higher deposit rates than market rates, bank margins will likely take a hit. When the margins between short-term and long-term rates flatten, earnings are also affected. This often happens after a Fed cut.
The 10-year Treasury yield recently slowed to a record low during a broad stock sell-off. This has also placed shares under pressure. While much of the remaining stock market rebounded Tuesday, bank shares struggled to bounce back.
Mike Mayo, a Well’s Fargo analyst, said: “No large bank short term is immune to the negative impact of lower interest rates on spread revenues.”
The SPDR S&P Bank ETF has fallen by over 13 percent so far this year, while the 10-year Treasury note tumbled 40 basis points.
Investors seem to be seeking safe haven in bonds as the coronavirus epidemic sparked fears of a recession or worldwide economic slowdown.