By Jessica Menton 

Bank stocks came under pressure Tuesday as weak manufacturing data and a drop in bond yields renewed fears over a slowdown in U.S. economic growth.

A closely watched gauge of U.S. factory activity showed the manufacturing sector contracted in August for the first time since 2016, raising concerns about demand for bank loans for everything from the housing market to the auto industry.

The KBW Nasdaq Bank Index of large commercial lenders fell 2.1% on Tuesday, on pace for its biggest one-day percentage loss since Aug. 23. Investors tend to track the financial sector because bank stocks are thought to reflect the health of the broader American economy.

Shares of Goldman Sachs Group Inc. and Bank of America Corp. fell 3.1% and 2.6%, respectively. Meanwhile, JPMorgan Chase, Wells Fargo & Co., Citigroup Inc. and Morgan Stanley each fell at least 1.2%.

The broader S&P 500 dropped about 1%.

Bond yields also slid, with the yield on the benchmark 10-year U.S. Treasury note falling to 1.462% Tuesday, according to Tradeweb, compared with 1.503% Friday. Yields fall when bond prices rise.

A drop in bond yields, especially for longer-dated debt, typically hurts bank stocks because their profit margins tend to expand when there is a larger difference between short-term deposit costs and longer-term lending rates.

Investors also have raised bets that the Federal Reserve will cut interest rates again this year, which could potentially weigh on bank margins. But some analysts said that questions surrounding central-bank policy aren't the only thing that have been weighing on investors' minds. The ongoing trade war between Washington and Beijing threatens to crimp corporate profits.

"It's more of a confidence problem when it comes to banks because companies are more apprehensive about investing in their business with the backdrop of a trade war going on," said R.J. Grant, director of equity trading at KBW Inc. "The rate picture is just one thing to monitor, not the predominant thing."

 

(END) Dow Jones Newswires

September 03, 2019 15:20 ET (19:20 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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