The stock exchanges in New York had a blood-red Tuesday thanks to selloff in the banking sector. Investors were worried about the decline in interest rates. Goldman Sachs fell 3.8% JP Morgan Chase lost 4.4%, Morgan Stanley dropped 5%, Bank of America retreated 5.4%, Wells Fargo plunged 4.5% and The Bank of New York Mellon sank 3.8%. Banks derive their profits from the gap between the short-term rates (which they borrow) and the long-term rates (to which they lend). The flattening, or even the reversal of the yield curve, which we are witnessing in recent days, is therefore bad news for their accounts. In addition to concerns about the economy, disappointing outlook also affected JPMorgan.
The Dow-Jones index closed with a loss of 3.1 percent to 25.027.07 points. The S & P 500 ended 3.2 percent lower at 2700.06 points and tech heavy Nasdaq lost 3.8 percent to 7158.43 points.
Packers were also under pressure. According to Morgan Stanley’s Ravi Shanker, companies like UPS (down 7.4 percent) and FedEx (down 6.3 percent) are going to feel the competition from Amazon Air. “We expect this drag to intensify once Amazon Air has all 40 planes in the air (and potentially 100 planes if it runs its planned air hub at capacity) and as its utilization improves to UPS/FedEx levels,” Shanker said. Amazon itself lost 5.9 percent under pressure from possible tariff increases by state postal company US Postal Services.
Weak prospects from Apple supplier Cirrus Logic (down 1.9 percent) sparked concerns about the demand for iPhones. Cirrus is not the first Apple partner to lower expectations. Previously, Qorvo and Lumentum, which surrendered more than 5 percent of market value, did so. The Apple shares lost 4.4 percent partly due to a downgrade to hold from buy by analysts at HSBC.
Toll Brothers dragged home builders such as Lennar, DR Horton and KB Home down after providing weak outlook.
Delta Air Lines lost 5.3 percent after the company came out with a weak outlook, despite the tailwind that it enjoys because of the sharp fall in oil prices.