Financial stock breakdowns are becoming a little too routine.
Dragged lower by falling interest rates and credit concern, the KBW Bank Index extended its three-day decline to as much as 7.5 percent earlier Wednesday — the fifth time this year a loss has exceeded 5 percent over such a stretch, data compiled by Bloomberg show. At times this week, losses from Bank of America Corp. to Citigroup Inc. have exceeded 10 percent.
Daily drubbings in financials are rapidly supplanting anxiety over oil and its related shares as the equity market’s biggest headache. At 15.7 percent of the Standard & Poor’s 500, banks, brokerages and insurance companies are second only to technology companies as the biggest group and more than twice the size of energy producers.
“Crushing the banks like this is a macro narrative,” Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee, said by phone. “It definitely puts a different tone on this selloff.”
More than $350 billion have been erased in financial shares in 2016, the worst start to a year in data going back to 1990. The selloff in Goldman Sachs Group Inc., Citigroup and Bank of America continued Wednesday, driving the industry down another 1.6 percent at 12:30 p.m. in New York. So far this year, the group has lost 13 percent, almost double the benchmark gauge’s decline.
Volatility in bank shares is spiking to levels not seen since the financial crisis, deepening the rout that just sent stocks to the worst January in seven years. Instances when the KBW Bank Index fell more than 5 percent over three days in 2016 have exceeded all the occurrences in the past three years combined. At 23 percent of trading days, the annualized frequency is greater than any year except 2008 and compares with a two-decade average of 4.4 percent.
The losses came as the 10-year Treasury yield fell below 1.86 percent for the first time since April while credit rating agencies warned of rising debt defaults among American businesses. Moody’s Investors Service Ltd. on Wednesday said that the number of U.S. companies that have the highest risk of defaulting on their debt is nearing a peak not seen since the height of the financial crisis, just one day after S&P downgraded some of the biggest U.S. explorers, citing oil’s plunge.
The gap between the two-year and 10-year Treasury yields shrank to its smallest since January 2008. At the same time, predictions for 10-year yields are being cut as U.S. economic data falls short of expectations, potentially curbing further Fed increases. The year-end weighted average forecast in a Bloomberg survey has fallen to 2.69 percent, from about 3.2 percent six months ago.
The catalyst of wider net interest margin “just flew out the window,” said Brian Barish, the chief investment officer of Denver-based Cambiar Investors LLC. “The memory of 2008 is still deep and painful for most investors, and when the markets descend, banks wind up having some beta to the downturn,” he said, referring to banks’ volatility relative to markets.
© Copyright 2023 Bloomberg News. All rights reserved.