Shares of big U.S. banks plummeted, notching their biggest two-day drop since March 2020, after China escalated its trade war with the U.S.
Some of Wall Street’s top lenders, Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc., all closed more than 7% lower after China retaliated against President Donald Trump’s tariffs with a 34% levy on US goods. The KBW Bank Index tallied a roughly 16% drop over Thursday and Friday, the gauge’s worst two-session plunge since the start of the Covid-19 pandemic.
Shares of JPMorgan Chase & Co., which traded ex-dividend on Friday, erased some $51 billion from its market capitalization. Regional lenders also took a hit with the KBW Regional Banking Index slumping 3.7%, to close at the lowest level since July 9.
“While U.S. banks do not really have the same direct exposure to tariffs that many other industries do, they have direct exposure to all the industries that are impacted, as well as to the U.S. economy, interest rate levels and capital markets, all of which appear to be affected,” Barclays analysts led by Jason Goldberg wrote in a note.
The rout started on Thursday when the introduction of the steepest American levies in a century saw the key banking sector benchmark drop 9.9%. The gauge has dropped more than 20% from its February highs — pushing the index into a bear market.
“Macro concerns have taken full hold of the group,” Truist Financial Corp. analysts including John McDonald wrote in a note to clients. Valuations now discount recession odds of around 45%, they added.
The ramifications of China’s escalation saw losses extend to equity markets across the globe. The S&P 500 plunged 6%, while the Nasdaq 100 index entered a bear market following sharp losses on Thursday. Meanwhile, billions of dollars worth of acquisitions and initial public offerings are on now on hold.
For banks, the rout is raising the stakes just one week out from quarterly earnings. JPMorgan, Wells Fargo & Co. and Morgan Stanley will kick off reporting for lenders on April 11.
Last month’s report from Jefferies Financial Group Inc. gave an early read on the sector. The New York-based firm’s investment-banking and capital-markets revenue dropped, suggesting a much anticipated boom in dealmaking activity and initial public offerings has yet to materialize.
That potential warning sign came in even before worse-than-expected tariffs hammered market sentiment and left capital markets in limbo. Now, the question is whether banks will maintain or revise their guidance in the wake of the altered outlook.
