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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, record 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 534 points, or 2.1%, while the S&P 500 lost 1.7%. Nasdaq Composite declined 1.7% and Russell 2000 fell 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.
Shares of JPMorgan Chase (ticker: JPM) fell 5.1%, Goldman Sachs (GS) lost 7.5%, Wells Fargo (WFC) fell 6.2%, and Bank of America (BAC) declined 5.6%. The KBW Bank index was off 5.9%.
It was also a bad day for Facebook (FB) shares. Shares have already fallen 4% on news that a growing group of companies would withdraw their expenses from the social networking site, including Verizon Communications (VZ), VF Corp.
(VFC) and Patagonia. After The Unilever Group (UN) said it would remain in the US, Facebook shares fell further, to a loss of 7.5%.
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 was down 0.4%, with the French CAC 40 down 0.2%, the DAX in Germany 0.7% lower and the FTSE 100 in the UK rising 0.2%. Asian stocks ended mostly higher, out of a 0.9% drop for the Hang Seng index. In China, the markets were closed for holidays.
Haven’s assets were trading higher on Friday when the shares fell. The price of gold rose 0.5% to $ 1,779.10 an ounce, after a pullback this week from the highest levels since 2012. The yield on the 10-year US Treasury note fell 3 basis points. , or hundredths of a percentage point, to 0.640%, 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 1.4% to $ 38.19 a barrel and Brent down 0.9% to $ 40.70.
Nike (NKE) shares fell 6.3% after the sportswear maker posted a surprise loss as the pandemic hit sales more than expected.
Virgin Galactic (SPCE) shares rose 1% after its spacecraft completed its second successful glider flight over southern New Mexico.
Tesla (TSLA) fell 1.8% when Deutsche Bank raised its target for the electric car company’s stock price to $ 900, below its recent levels of about $ 1,000 a 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 0.2% on Friday.
—Carleton English contributed to this article.
Write to Barbara Kollmeyer at [email protected]
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