US stocks dropped the most in two months and Treasury yields retreated after First Republic Bank’s disappointing earnings and potential assets sale rekindled worries that the banking crisis has not run its course.
(Bloomberg) — US stocks dropped the most in two months and Treasury yields retreated after First Republic Bank’s disappointing earnings and potential assets sale rekindled worries that the banking crisis has not run its course.
The S&P 500 lost 1.6% Tuesday, with First Republic’s 49% plunge taking the lender’s shares to a record low. Bloomberg News reported the troubled bank, which saw greater-than-expected withdrawals in the first quarter, is exploring divesting up to $100 billion of long-dated mortgages and securities as part of a broader rescue plan.
The two-year Treasury yield tumbled to 3.94% as investors sought the safety of US government debt. Meanwhile, tech stocks rallied in after-hours trading with Microsoft Corp. and Alphabet Inc. higher after better-than-expected earnings.
The Federal Reserve is still expected to raise interest rates by a quarter percentage point when it meets next week, though signs are mounting that the American economy is starting to sputter after a year of aggressive tightening. Data Tuesday showed consumer confidence slipped, while two regional Fed manufacturing reports underwhelmed.
“US regional banks still face headwinds, and signs of stress in the system have not fully subsided,” Ken McAtamney, portfolio manager and head of William Blair’s Global Equity team, wrote. But despite the instability in the financial sector, “the US Federal Reserve and global central banks remain vigilant in their fight against inflation.”
Among other US companies reporting earnings Tuesday:
- UBS Group AG slid after results fell short
- Spotify Technology SA rose 5.1% after adding subscribers
- 3M Co. was little changed after announcing a restructuring push
- General Electric Co. declined 1.7% after raising forecasts
- McDonald’s Corp. was little changed after beating sales estimates
- Danaher Corp. dropped 8.8% after lowering full-year guidance
“The sugar high from the Covid stimulus has ended. Now companies are having to contend with a more challenging economic environment following a big batch of Fed rate hikes,” Kelly Bogdanova, vice president and portfolio analyst at RBC Wealth Management, said in an interview. “From our perspective, we’re staring an earnings recession in the face.”
The market is now pricing a peak for US interest rates in June, followed by a cut to below 4.5% by year end.
“Investors need to spend a little more time using common sense … and adjust their portfolios to the reality that a soft landing in the economy this year is a pipe dream,” wrote Matt Maley, chief market strategist at Miller Tabak + Co, in a morning note.
There’s a growing consensus a recession is near, especially with signs of a credit crunch in results from First Republic and UBS, Maley said. “When was the last time a material contraction in credit did not result in a recession? The answer: Never!” he wrote.
A Bloomberg gauge of the dollar climbed. The Stoxx Europe 600 index dropped 0.4%. Oil fell, gold was little changed, iron ore extended a losing streak to a fifth day, and Bitcoin slid for a third day.
Key events this week:
- Australia CPI, Wednesday
- Sweden rate decision, Wednesday
- Eurozone economic, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Bank of Japan meets on interest rates, Friday
- Euro-area GDP, Friday
- US personal income, Friday
Earnings highlights:
- Wednesday: Boeing, Meta, Hilton
- Thursday: Amazon, American Airlines, Intel, Mastercard, Southwest Airlines, Hershey, Honeywell, Barclays
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.6% as of 4 p.m. New York time
- The Nasdaq 100 fell 1.9%
- The Dow Jones Industrial Average fell 1%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.7% to $1.0970
- The British pound fell 0.7% to $1.2403
- The Japanese yen rose 0.5% to 133.51 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $27,626.28
- Ether fell 0.1% to $1,837.86
Bonds
- The yield on 10-year Treasuries declined 11 basis points to 3.38%
- Germany’s 10-year yield declined 12 basis points to 2.38%
- Britain’s 10-year yield declined nine basis points to 3.69%
Commodities
- West Texas Intermediate crude fell 2.2% to $77.05 a barrel
- Gold futures rose 0.5% to $2,009.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo, Robert Brand, Tassia Sipahutar, Sujata Rao and Subrat Patnaik.
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