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People wait in line in front of a New York City bank in late May.
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Weaker-than-expected economic data, an increase in coronavirus cases and an unfavorable result for banks in Thursday’s Federal Reserve stress tests left the market lower on Friday.
The Dow Jones Industrial Average fell 521 points, or 2%, the S&P 500 lost 1.7%, and the Nasdaq Composite and Russell 2000 declined 1.8%.
The Fed found that, in the worst-case economic scenario in the future, credit losses at the 33 largest banks in the United States could force them to draw on their capital reserves. That’s too big a risk, in the Fed’s eyes.
Therefore, regulators will limit the amount of cash that banks can pay in dividends in the third quarter, to preserve capital. The Fed also requires them to suspend the share buyback, although most had already done so earlier this year.
Bank stocks fell on Friday, after rising on Thursday after the Federal Deposit Insurance Corporation announced a loosening of the Volcker rule, imposed after the 2008-2009 financial crisis to limit risk taking by banks.
JPMorgan Chase (ticker: JPM) shares fell 4.4%, Goldman Sachs (GS) lost 6.5%, Wells Fargo (WFC) fell 5.8% and Bank of America (BAC) decreased 4 , 8%. The KBW Bank index was down 4.8%.
In other news, US consumer spending rebounded 8.2% in May, compared to expectations for a 8.7% rebound as companies reopened after the blockades.
Investors are also keeping a close eye on the growing coronavirus infections in the U.S., and several states report daily logs this week. The Texas governor again marked the reopening of that state on Friday, including the closing of bars and restricting the size of outdoor gatherings.
“There is no doubt that the second wave of coronavirus has been grim and can hold this narrative for some time, but the fact is, smart money does see the recent action by the Texas governor to halt reopening efforts as a positive sign. “Naeem Aslam, chief market analyst at AvaTrade, said in a note to clients.
“For them, this is the step in the right direction to end the current spike in Covid-19,” he said.
European markets trimmed previous gains on Friday. The Stoxx Europe 600 Index rose 0.1%, with the French CAC 40 and the UK FTSE 100 rising 0.4% and 0.7%, respectively. Asian stocks ended mostly higher, out of a 0.9% drop for the Hang Seng index. In China, the markets were closed for holidays.
The price of gold fell 0.9% to $ 1,755.30 an ounce, continuing a pullback this week from recent levels that were the highest since 2012. Yield on the 10-year US Treasury note fell 2 points. basis, or hundredths of a percentage point, to 0.659%, as the price of the securities rose. The US Dollar Index (DXY), which measures the dollar against a basket of other currencies, was up 0.2%.
Oil prices also fell on Friday, with West Texas Intermediate crude falling 1.6% to $ 38.15 a barrel and Brent falling 0.7% to $ 40.75.
Nike (NKE) shares fell 4.9% after the sportswear maker posted a surprise loss as the pandemic hit its sales harder than expected.
Shares of Virgin Galactic (SPCE) fell 0.5% after its spacecraft completed its second successful glider flight over southern New Mexico.
Tesla (TSLA) fell 1.3% when Deutsche Bank raised its target for the electric car company’s share price to $ 900, below its recent levels near $ 1,000 per share.
Amazon (AMZN) confirmed reports that it will buy driverless car developer Zoox. That would pit Amazon against Waymo, which is backed by Alphabet.,
Google’s parent company. Amazon shares fell 0.6% on Friday.
—Carleton English contributed to this article.
Write to Barbara Kollmeyer at [email protected]
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