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Mar 26, 2018

The Wall Street Journal | MoneyBeat BANK STOCKS HAD A ROUGH WEEK TOO on March 26,2018.

The Wall Street Journal
MoneyBeat

Bank Stocks Had a Rough Week Too

By Chelsey Dulaney
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 03/26/2018 08:07:45 AM ET
S&P 500 Futures 1.15%
2627.75
DJIA Futures 1.11%
23875
U.S. 10 Year -8/32
2.846%
WSJ Dollar Index -0.26%
83.18
Crude Oil -0.2%
$65.75
Gold -0.08%
$1354.60
Europe
Asia
FTSE 100 0.39%
Nikkei 225 0.72%
DAX 0.6%
Hang Seng 0.79%
CAC 40 0.34%
Shanghai -0.6%

Overnight Developments


  • Global stocks rallied on news that the U.S. and China have started negotiating improved American access to mainland markets. S&P 500 futures pointed to an opening gain of 1.3%.
  • The Stoxx Europe 600 climbed 0.5%.
  • Earlier, Japan’s Nikkei Stock Average finished up 0.7%, Hong Kong’s Hang Seng Index rose 0.8% and the Shenzhen A Share Index advanced 1.4%.
  • The Breakfast Briefing

    Last week’s selloff in technology stocks stole the spotlight, but investors should be paying attention to an intensifying rout in bank stocks, too.
    The S&P 500’s financial sector tumbled 3% on Friday, the steepest decline out of its 11 sectors. An index of bank shares, the KBW Nasdaq Bank Index, fell 8% last week, eclipsing the 7.9% decline for the S&P 500's tech sector.
    The slide in shares of banks and other financial companies comes despite a broadly supportive backdrop. The Federal Reserve raised interest rates last week and signaled a steeper path of tightening ahead, which in theory should help boost the profitability of banks’ lending operations.
    Meanwhile, banks are also benefiting from strong earnings growth, the U.S. corporate tax cut and a resurgence in market volatility, which can bolster revenue in their trading arms.
    Hopes for deregulation under the Trump administration have also helped bank stocks outperform the broader market. The KBW index soared roughly 30% in the year following the November 2016 presidential election, outpacing the S&P 500’s 22% gain. The big runup has left the sector vulnerable to this year’s market downturns, analysts say.
    The tumble in bank shares is notable, analysts say, because it illustrates fears about the Fed's policy tightening and the prospects for economic growth.
    One metric used to assess bank profitability, the difference between the yields on the 10-year U.S. Treasury note and the two-year note, fell as low as 0.54 percentage point last week, nearing the lowest level in a decade.
    The flattening of the so-called yield curve--driven by concerns about long-term economic growth--means that banks earn less on longer-term lending, such as on mortgages. Meanwhile, the Fed’s rate-increases are boosting the cost at which they borrow. It can also put pressure on banks to push up rates they pay out to consumers for deposits.
    Among the biggest losers last week were Morgan Stanley, which tumbled 9.5%, and Bank of America Corp., which fell 9.3%.
    Will bank stocks continue to fall? Let the author know your thoughts at chelsey.dulaney@wsj.com.

    Daily Factoid

    On this day in 1954, modern health care took a giant step forward when cardiac surgeon C. Walton Lillehei conducted the first successful open-heart surgery, repairing a patient’s ventricular septal defect in an operation at the Univ. of Minnesota medical center.

    Key Events

    8:30 a.m.: Chicago Fed National Activity Index for February [Prior: 0.12]
    Growth slid in January from the previous month. The index takes into account four main factors including employment; production and income; sales, orders and inventories; and housing and personal consumption.
    10:30 a.m.: Dallas Fed Manufacturing Survey for March [Prior: 27.9]
    Manufacturing activity across Texas expanded at an accelerated pace in February. Positive readings in the survey generally indicate an expansion of factory activity, while readings below zero generally indicate contraction.

    Stocks to Watch

    Facebook—Up 1%: The Wall Street Journal reported that the social-media firm is hustling to quell anxiety among its advertising partners—and prevent damage to its core business—as a handful of marketers have suspended advertising on the platform in the wake of revelations that an outside company improperly handled user data. Shares fell 14% last week, their largest weekly drop since 2012.
    Qualcomm—Up 1.8%: The Journal reported that six of Qualcomm's directors, including Chief Executive Steve Mollenkopf, failed to win support from a majority of the company’s shareholders Friday, a significant protest vote that signals investor discontent after the chip-making giant successfully rebuffed a hostile takeover from Broadcom.
    Dropbox—Up 5.2%: Shares of the data-storage and collaboration firm jumped 36% in their market debut Friday, a sign of healthy demand.

    Number of the Day

    1413.31
    The number of points the Dow Jones Industrial Average fell last week, the biggest one-week point decline since October 2008. The 5.7% drop was the biggest percentage decline since January 2016.

    Must Reads

    U.S., China Quietly Seek Trade Solutions: China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets, after a week filled with harsh words over Washington’s threat to use tariffs, people with knowledge of the matter said. 
    New Tax on Overseas Earnings Hits Unintended TargetsA new tax aimed at income earned by U.S. technology and pharmaceutical firms abroad is hitting unexpected places, including Kansas City Southern, a U.S. railroad company.
    Spotify’s Numbers Show Growth, Possible Path to ProfitSpotify Technology is adding users rapidly and moving into new markets around the world, but it is unclear how soon its business will be in the black.
    Facebook and Google Confront Antagonism of Big AdvertisersThe latest uproar over voter-profiling data has sparked anxiety among some marketers and advertisers, including over whether their own data on Facebook are safe.
    Dropbox Shares Jump in Market Debut: The data-storage and collaboration company started trading on Nasdaq under the symbol ‘DBX.’
    Wells Fargo’s Risk Shake-up Continues With Departure of Four Executives: Bank’s moves come as another settlement looms with regulators