[New York Stock Market] US Banks Plunge Amid Multiple Credit Downgrades... Nasdaq Down 0.79%

The three major indices of the U.S. New York stock market all closed lower on the 8th (local time) as investor sentiment weakened due to a decline in bank stocks. This was a ripple effect of renewed concerns over bank soundness after international credit rating agency Moody's downgraded the credit ratings of 10 U.S. regional banks and warned of possible downgrades for major banks.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 158.64 points (0.45%) from the previous close to finish at 35,314.49. The S&P 500, which is centered on large-cap stocks, dropped 19.06 points (0.42%) to 4,499.38, and the tech-heavy Nasdaq fell 110.07 points (0.79%) to close at 13,884.32.

Among the S&P 500 sectors, all eight sectors except health care, energy, and utilities declined. Bank stocks showed weakness following Moody's downgrades. The SPDR S&P Bank ETF and SPDR S&P Regional Bank ETF both fell more than 1%. M&T Bank, which was downgraded, and BNY Mellon Bank, which faces potential future downgrades, also saw declines of over 1% each. Amid the weak sentiment in bank stocks, Wall Street's major banks such as Bank of America (BoA), Citi, and Wells Fargo also recorded consecutive declines.

Meta Platforms fell 1.24% after facing a potential fine bomb of up to 100 million KRW per day from Norway. Nvidia, which unveiled next-generation artificial intelligence (AI) chips, slipped 1.66%. UPS showed a slight decline due to weaker-than-expected sales and guidance. IFF, which lowered its annual sales guidance, plunged more than 19%. On the other hand, Eli Lilly surged nearly 15% after reporting quarterly earnings per share of $2.11, exceeding expectations.

[Image source=Reuters Yonhap News]

Investors closely monitored the impact of Moody's downgrades of U.S. regional banks, along with weak Chinese trade data and corporate earnings. Economic media CNBC reported that these unfavorable signals simultaneously worsened investor sentiment on the day. Jay Hartfield, CEO of Infrastructure Capital Advisors, said, "Having a good credit rating is not optional because they need credibility," adding, "A shrinking trust in the regional banking system is truly terrible for market sentiment of any kind."

According to Moody's, the banks downgraded this time include M&T Bank, Webster Financial, BOK Financial, Fulton Financial, Pinnacle Financial, among 10 banks in total. Moody's is also currently reviewing the potential downgrades of six banks: US Bancorp, BNY Mellon Bank, State Street, Truist Financial, Northern Trust, and Cullen/Frost. Additionally, 11 banks, including PNC Financial Services, Capital One Financial, and Citizens Financial, had their rating outlooks changed from 'stable' to 'negative.'

These Moody's downgrades are seen as evidence that the risk from the early-year collapse of Silicon Valley Bank (SVB) continues to weigh on the banking sector. Moody's stated in its report that the credit rating adjustments were driven by factors such as high funding costs, potential weakening of regulatory capital, and increased risks related to commercial real estate loans due to declining demand for office space. It added, "Rising funding costs and declining profitability metrics will weaken the first buffer against losses, which is profitability," and pointed out that "asset risks are increasing especially for small and medium-sized banks."

Accordingly, voices on Wall Street are emerging that expect the Federal Reserve (Fed) to pause interest rate hikes amid worsening macroeconomic conditions. Edward Moya of OANDA said, "The chances of rate hikes in September and November continue to decrease, while the possibility of rate cuts next year continues to rise."

Patrick Harker, president of the Philadelphia Federal Reserve Bank and a prominent dove within the Fed, indicated that rate hikes are nearing their end. In a speech, he said, "Unless there is surprising new data between now and mid-September, we can be patient, hold rates steady, and be at a point where the monetary policy actions we have taken can take effect." However, this statement contrasts with Fed Governor Michelle Bowman's remarks the previous day emphasizing the need for further rate hikes. Harker also added that there will be no rate cuts in the near term.

Market attention is now focused on economic indicators scheduled for this week, including the July Consumer Price Index (CPI) and Producer Price Index (PPI). The importance of inflation indicators has increased following mixed signals from the employment report released late last week. The U.S. July CPI, to be released on the 10th, is expected to rise 3.3% year-over-year and 0.2% month-over-month. Although the June CPI increase was the lowest in over two years at 3%, the July increase is expected to rebound. The July PPI, to be announced the following day, is also forecasted to rebound to positive territory from a 0.1% decline month-over-month (year-over-year).

Currently, the market largely expects the Fed to hold rates steady in September, buoyed by recent hopes for a soft landing. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market reflects more than an 86% probability that the Fed will keep rates unchanged at the upcoming September FOMC meeting. This contrasts with the June dot plot, which predicted one more rate hike by year-end, as the market favors a hold scenario.

Corporate earnings announcements are also nearing completion. According to FactSet, 89% of S&P 500-listed companies have reported earnings so far, with about four-fifths exceeding Wall Street expectations. The U.S. trade deficit for June, released on the day, narrowed by 4.1% from the previous month to $65.5 billion, marking a decline for the second consecutive month following May. Exports ($247.5 billion) decreased by 0.1% month-over-month, while imports ($313 billion) fell by 1.0%, contributing to the reduced deficit. The trade deficit with China stood at $22.8 billion.

In the New York bond market, the yield on the 10-year U.S. Treasury note hovered around 4.02%, while the 2-year Treasury yield, sensitive to monetary policy, was around 4.76%. The dollar strengthened. The Dollar Index, which measures the dollar's value against six major currencies, rose about 0.5% from the previous close to 102.5. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," rose nearly 2% to around 16.

Despite weak Chinese data, oil prices rose. On the New York Mercantile Exchange, September delivery West Texas Intermediate (WTI) crude oil closed at $82.92 per barrel, up 98 cents (1.20%) from the previous close.

This content was produced with the assistance of AI translation services.