Dow closes more than 200 points lower as banks sell off, breaks a two-week win streak
The Dow Jones Industrial Average fell on Friday after the Federal Reserve’s decision to not extend a pandemic-era capital break for banks stoked a rise in bond yields and a sell-off in financial stocks.
The blue-chip Dow slid 234.33 points, or 0.7%, to 32,627.97, pressured by Visa and JPMorgan.
The S&P 500 dipped 0.1% to 3,913.10, closing off its lowest level of the day when it fell 0.7%.
The Nasdaq Composite gained 0.8% to 13,215.24 as investors bought the dip in tech shares. Facebook gained 4%, while Amazon and Netflix rose about 1.5% each.
The central bank on Friday declined to extend a rule expiring at the end of the month that relaxed the supplementary leverage ratio for banks during the pandemic. The rule allowing banks to hold less capital against Treasurys and other holdings was implemented to calm the bond market during the crisis and encourage banks to lend.
The decision could have some adverse effects, traders have warned, if in response banks sell some of their Treasury holdings. That could send yields even higher at a time when a rapid rise in rates is already unnerving investors.
“This is a disappointment to investors that the Fed decided not to extend it,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office. “There was a lot of expectation, at least a few weeks ago, that the Fed would extend to relieve SLR for the big banks given the need to absorb so much Treasury issuance.”
Bank stocks sold off in unison following the Fed’s decision. JPMorgan and Goldman Sachs both slid more than 1%, while Wells Fargo fell 2.9%. Bank of America also slipped 1%. These names got a lift earlier this week from rising rates and have all rallied double digits this year.
Meanwhile, bond yields bounced off their lows after the announcement. The 10-year Treasury yield reversed higher before turning flat at 1.73%, hovering near its 14-month high. The benchmark rate started 2021 below 1%. (1 basis point equals 0.01%).
The Dow and the S&P 500 lost 0.5% and 0.8%, respectively, this week, breaking their two-week win streak. The tech-heavy Nasdaq also declined 0.8% for the week, posting its fourth negative week in five.
Reference: CNBC
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