With the S&P 500 depreciating around 1.2%, major banks, including JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Morgan Stanley (MS - Free Report) , Citigroup (C - Free Report) , Wells Fargo (WFC - Free Report) and Goldman Sachs (GS - Free Report) , witnessed significant declines in prices on Tuesday. This resulted from the heightening political drama in Italy and Spain, which has spooked investors, creating uproar in global markets. Moreover, the Financial Select Sector SPDR fund (XLF - Free Report) — a top bank ETF — declined 3.34%.
Particularly, shares of JPMorgan, BofA, Morgan Stanley, Citigroup, Wells Fargo and Goldman have declined 4.27%, 3.98%, 5.75%, 3.99%, 3.55% and 3.4%, respectively.
Worries surrounding Italy’s rising debt yields raised concerns over the stability of Eurozone, dealing a blow to U.S. bank stocks. The rising political uncertainty has put pressure on the European markets and cast a pall over the Euro projects. Therefore, increasing demand for traditional safe assets, like the U.S. debt, has brought down the U.S. 10-year Treasury yields, triggering losses for banks in the nation.
Further, subdued guidance from some of the Wall Street biggies has also raised investors’ concerns, dragging down banking stocks.
At the Deutsche Bank Global Financial Services Conference earlier this week, JPMorgan’s head of corporate and investment banking — Daniel Pinto — announced the company’s latest outlook for the second quarter.
“Overall, markets revenue as we see it today will be flat year on year,” Pinto said. “The core activities will be up let's say mid single digits. Then we have a series of one-offs that overall take that back down to flat,” he added.
Additionally, though the bank is performing well in rates, commodities and corporate credit business, a quarterly charge of $100 million associated with the tax-oriented investment unit of its fixed income division is expected to be recorded, Pinto added. Moreover, investment banking business momentum is likely to continue.
Similarly, Alastair Borthwick, head of BofA’s global corporate banking, came up with the bank’s lending demand outlook for the current year. Per Borthwick, though companies are “more optimistic about the economy,” BofA believes it is still too early to forecast the lending outlook.
Strong economy indicates spur in loan growth, but lower U.S. tax rates has already helped earning extra income which refrains the company from providing the lending demand outlook, per Borthwick.
Meanwhile, investment bank — Morgan Stanley — tanked on concerns over challenging business conditions in the second quarter, which are affecting its wealth management unit. Notably, this unit generates half of the bank's revenues.
Andy Saperstein, co-head of the bank's wealth management division, noted during the conference that prevalent slower client activity in April and May, as well as March, has dampened Morgan Stanley’s retail transaction revenues.
Furthermore, pricing of fee-based accounts is related to market prices on the last day of the previous quarter. At the end of Q1, the market was tumbling, resulting in low pricing of these accounts, thereby negatively impacting Morgan Stanley.
The January-March quarter witnessed investors’ anxiety on uncertainty over the number of rate hikes, on upbeat economic numbers and rising inflation, which pulled the benchmark 10-year Treasury bond yields down. This somewhat reversed the rally experienced by bank stocks since last September. In addition, Trump’s trade-tariff announcements on Chinese imports thwarted the stock market rally in Q1.
After three straight quarters of muted activities, it appeared that volatility was back in the markets, with extremity in February and March. This indicated higher trading activities and increased trading revenues, primarily for big banks.
Nonetheless, banks are skeptical for the second quarter on global market turmoil and uncertainty of markets on the ongoing developments, including easing of regulations.
Among the above-mentioned stocks, Citigroup, Wells Fargo, BofA, Goldman and JPMorgan currently carry a Zacks Rank #3 (Hold), while Morgan Stanley carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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