The CBOE Market Volatility index (.VIX), Wall Street's fear gauge, hit a two-month high at 17.71.
Wall St falls as Moody's bank downgrades spark broad sell-off
- Drugmakers rise after positive data from Novo's obesity drug study
- UPS falls after cutting annual revenue view on lower demand
- Banks slide after Moody's downgrades 10 mid-sized banks
- Indexes down: Dow 0.98%, S&P 1.03%, Nasdaq 1.41%
Aug 8 (Reuters) - Wall Street tumbled on Tuesday in a broad sell-off led by financial stocks after Moody's downgraded several U.S. banks, though drugmakers rose on Eli Lilly's strong results and positive data from Novo Nordisk's obesity treatment.
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 (BK.N), U.S. Bancorp (USB.N), State Street (STT.N) and Truist Financial (TFC.N), 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.
Big banks Goldman Sachs (GS.N) and Bank of America (BAC.N) eased 2.9% and 3.2%, respectively, while Bank of New York Mellon and U.S. Bancorp shed 2.4% and 2.5%.
The S&P 500 Banks index (.SPXBK) slid 2.6%, while the KBW Regional Banking index (.KRX) dropped 3.1%.
"Anytime you see the backbone of the U.S. financial system being under watch, that gives people a lot to pause," said Brandon Pizzurro, director of public investments at Guidestone Capital Management.
"Markets are slowly digesting that, maybe the U.S. financial system is not absolutely perfect and maybe we are going to have higher rates for a much longer period of time."
...Lenders have lost 4% so far this year, compared with a 16.4% rise in the benchmark S&P 500 index (.SPX), after the collapse of Silicon Valley Bank and Signature Bank earlier this year sparked a crisis of confidence in U.S. lenders.
After the S&P 500 and Nasdaq logged their worst week since March, Wall Street had rallied on Monday as investors built positions ahead of Thursday's highly awaited U.S. inflation report. . .
At 11:35 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 347.27 points, or 0.98%, at 35,125.86, the S&P 500 (.SPX) was down 46.63 points, or 1.03%, at 4,471.81, and the Nasdaq Composite (.IXIC) was down 197.63 points, or 1.41%, at 13,796.77..."
Moody’s put U.S. banks on a negative watch list and warns of a ‘mild’ recession - UPI.com
Aug. 8 (UPI) -- A drain on deposits, along with the decline in asset value in a high-interest rate environment, led to a downgrade in ratings for a handful of U.S. banks, Moody's said.
Moody's Investors Service downgraded the credit rating for smaller lenders such as Pinnacle Financial and put major banks such as Northern Trust under review.
In a report published late Monday, Moody's said banks may be facing a liquidity and capital crisis "as the wind-down of unconventional monetary policy drains system-wide deposits and higher interest rates depress the value of fixed-rate assets."
✓ Second quarter results for many banks, meanwhile, revealed a struggle to generate profit at a time when Moody's expects a "mild" recession to emerge in the U.S. economy by early 2024.
The investment service added that there was a particular risk coming from the commercial real estate portfolios for some of the banks under review.
On top of concerns about China's economic performance, the move on banks led to a downturn on Wall Street. All major U.S. stock indices were in the red during the Tuesday session, with the S&P 500 down 1% as of 11:30 a.m. EDT.
Among the major banks highlighted by Moody's, shares in Northern Trust were down around 3% to trade at $78.36 per share.
"All the headlines just turned bearish," said Ed Moya, a senior market analyst for OANDA.
The concern is reminiscent of early-year fears of a banking crisis that was triggered by the collapse of Silicon Valley Bank, Silvergate and others. Silvergate was the likely victim of over-reliance on volatile, and somewhat untested, cryptocurrencies, while SVB was caught in something of a contagion of fear.
Former SVB CEO Gregory Becker told congressional leaders earlier this year that rumors about the health of the banking sector spread quickly online, triggering a run on deposits that helped usher in the bank's collapse.
The news from Moody's followed last week's decision from ratings agency Fitch to lower the rating of the United States from the top-tier AAA to AA+ after warning the political battle over the nation's debt ceiling was cause for concern.
"The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management," Fitch said as the agency pointed to "expected fiscal deterioration over the next three years."
Moody's downgrades stoke banking fears
STORY: Bank shares fell on Tuesday after Moody's cut the credit ratings of several small- to mid-sized U.S. lenders, a move that further fueled fears that a banking crisis back in March may not be over.
Moody's cut the ratings of 10 banks by one notch and placed another six lenders, including Bank of New York Mellon, U.S. Bankcorp, and State Street on review for potential downgrades.
In a note, the ratings agency described worries about worsening profitability, a potentially mild U.S. recession, and risks in the banks' commercial real estate portfolios.
The cuts come after another ratings agency, Fitch, downgraded U.S. government debt from triple-A to double-A-plus.
Sam Stovall of CFRA Research told Reuters, "Moody's putting some banks on warning adds to Fitch's downgrade of the U.S. Treasury market last week and gives investors additional reason to be cautious..." adding, "it also means that the concern that we had in March over those three bank defaults, is not over yet."
The sudden collapse of Silicon Valley Bank and Signature Bank earlier this year sparked a crisis of confidence in the U.S. banking sector.
Those failures prompted a run on deposits at a host of regional banks despite authorities launching emergency measures to shore up confidence.
Stock Market Today: Dow Drops After Regional Banks Downgrades
Data showing a drop in Chinese exports also weighed on markets
Last Updated:
Aug. 8, 2023 at 12:40 PM EDT
Updated 26 min ago
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