BAC Bank of America Corporation

By Jessica Menton 

Bank stocks slumped Monday after an escalation in U.S.-China trade tensions and a drop in bond yields revived worries over U.S. economic growth.

Investors monitor financial shares because bank stocks are perceived to reflect the health of the broader U.S. economy. The renewed fears hit everything from large to small lenders.

The KBW Nasdaq Bank Index of large commercial lenders shed 2.4% on Monday on pace for its biggest one-day percentage loss since March 22. The index is 13% below its 52-week high from last August, but still well above its December nadir and is up 12% year to date.

Shares of Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and Bank of America Corp. all fell at least 3.5%. JPMorgan Chase & Co. lost 2.6%. Wells Fargo's stock, which declined 1.1%, is now up just 1% in 2019.

Meanwhile, the KBW Nasdaq Regional Banking index of small banks fell 2.5% Monday. The decline in regional-bank stocks signaled that investors were worried that tepid global growth and low yields would threaten to crimp profit margins, some analysts said.

Although many bank stocks have slid in recent weeks, many are still higher for the year. Shares of Citigroup, Bank of America and Goldman Sachs are each up at least 15% in 2019, outpacing the S&P 500's 12% rise.

A further decline in bank shares could signal that investors' outlook for global growth is dimming, said R.J. Grant, director of equity trading at KBW Inc.

"Bank stocks are generally a way that investors express their view on the health of the economy," Mr. Grant said. "We've had a pretty big rally this year in those shares, but now that tensions are dialed up, everyone is worried about global growth and how that will affect all banks."

Anxiety over sluggish economic activity has raised worries about demand for bank loans for industries that power the U.S. economy, including the housing and auto markets.

Bond yields also fell sharply, raising warning signs about global growth. A drop in bond yields, especially for longer-dated debt, tends to hurt bank stocks because their profit margins tend to expand when there is a bigger difference between short-term deposit costs and longer-term lending rates. Investors have increased bets that the Federal Reserve will cut rates this year, which would threaten margins.

The yield on the benchmark 10-year Treasury note, a barometer that influences borrowing costs for consumers, corporations and state and local governments, fell to 2.393% compared with 2.455% Friday, falling below 2.400% for the first time since March, according to Tradeweb.

Write to Jessica Menton at Jessica.Menton@wsj.com

(END) Dow Jones Newswires

May 13, 2019 14:51 ET (18:51 GMT)

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