U.S. stocks fell and government bonds rose sharply on Tuesday as a steep selloff in First Republic shares reignited fears about the health of the banking sector.
Wall Street’s benchmark S&P 500 lost 1.6 percent on Tuesday, its biggest daily decline in more than a month, while the tech-heavy Nasdaq Composite fell 2 percent, its biggest drop in nearly two months. First Republic suffered the biggest decline in the session, losing less than 50 percent of its market value.
The fall in First Republic’s share price came a day after it revealed customers had withdrawn $100bn in deposits during last month’s turmoil. The decline in its share price brought the California-based lender’s overall decline this year to more than 90 percent.
Sam Stovall, chief investment strategist at CFRA Research, said investors are concerned that further pressure on the regional banking sector is likely.
“I think investors generally believe that [First Republic] It’s an isolated incident, but at the same time, the minute they say that, they’re looking over their shoulder to make sure no other bank has snuck in on them. It’s like the cockroach theory: if you see one, you’re going to see more.
The broader KBW Regional Banking Index fell 3.9 percent to a new low for the year, signaling continued concerns about the sector after the collapse of Silicon Valley Bank and Signature in March.
At the same time, the policy-sensitive two-year US Treasury yield fell 0.21 percentage points to 3.93 percent as its price rose. The benchmark 10-year yield fell 0.11 percentage points to 3.39 percent.
Government debt is generally seen as a haven for investors in times of economic and market stress. An inversion, known as the Treasury yield curve, when short-term debt offers higher yields than long-term bonds, is traditionally considered a harbinger of recession.
“Financial conditions tightening will be negative [for companies]But if you talk about the consumption side of the economy, you don’t see that,” said Andrew Slimman, portfolio manager at Morgan Stanley Investment Management.
“We’re not seeing a slowdown in jobs in service industries, we’re seeing it in white-collar jobs . . . I think the economy is slowing down, but will it lead to a recession? I’m not so sure.
The dollar added 0.5 percent against a basket of six other currencies.
In stock market moves Tuesday, packaging and delivery giant UPS fell nearly 10 percent on weaker-than-expected earnings, adding to a set of mixed quarterly earnings reports. McDonald’s shares fell 0.6 percent as the fast food group left its forward guidance unchanged.
The S&P 500 is still up 7.5 percent since January. But analysts at JPMorgan said “the market breadth underlying some measures has always been weak,” with a small group of large tech stocks accounting for a proportion of the S&P’s gains.
“The current crowding indicates that the risk of recession is far from priced in,” the bank said.
Elsewhere, Europe’s regional-wide Stoxx 600 fell 0.4 percent and France’s CAC 40 fell 0.6 percent after the head of Belgium’s central bank warned of higher interest rates. London’s FTSE 100 fell 0.3 percent.
Asian stocks sold off sharply, with investors increasingly nervous about the extent of China’s recovery and potential U.S. restrictions on investments in the world’s second-largest economy.
China’s CSI 300 index fell 0.5 percent to 4.8 percent since last Tuesday. Hong Kong’s Hang Seng Index fell 1.7 percent, with all sectors powering into negative territory, while the Hang Seng Tech Index fell 3.4 percent, its biggest daily decline since May last year. The index has fallen by a little more than a tenth over the past week.
“Friend of animals everywhere. Coffee maven. Professional food trailblazer. Twitter buff.”