Banks’ bad day drags down stocks
A bad day for bank stocks pulled the Dow Jones industrial average to its third straight loss Tuesday as many of the patterns that have propelled markets since the November election snapped into reverse.
The main culprit for the weakness was the financial sector, whose 2.3% drop was nearly triple that of any of the other 10 sectors that make up the Standard & Poor’s 500 index — even though Morgan Stanley joined the list of banks to report better-than-expected fourth-quarter earnings.
One reason for the losses probably was Tuesday’s drop in bond yields. Bank stocks often have been trading in the opposite direction of bond yields, and the yield on the 10-year Treasury note fell to 2.32% from 2.38%. Yields on two-year and 30year Treasurys also sank.
Another reason may lie in how well bank stocks had been performing in the months earlier: Financial stocks in the S&P 500 jumped 17% in the two months after the election.
“Stocks that have been strong are pulling back a little bit, and investors are putting money into some of the laggards,” said Mike Barclay of Columbia Threadneedle Investments.
Firms that sell everyday items to consumers had the day’s biggest gains. Tobacco firm Reynolds American rose 3.1% to $57.68 after British American Tobacco said it would pay $59.64 per share in cash and stock to buy the 57.8% of Reynolds that it doesn’t already own.
Utility stocks, which have also lagged behind the overall the market since the election, did well, aided by the drop in Treasury yields. When bonds are paying less in interest, dividend-paying stocks become more attractive to investors who are seeking income.
NRG Energy rose 5.1% to $15.34 after an investment firm run by activist investor Paul Singer disclosed an ownership stake.
The biggest gain in the S&P 500 came from Noble Energy, which rose 7.1% to $40.05. The oil and gas company agreed to buy Clayton Williams Energy for $2.7 billion in stock and cash. Clayton Williams shares soared 39.7% to $145.25.
The dollar fell against most of its rivals, including the Japanese yen, the euro and the Canadian dollar. Its sharpest drop came against the British pound, which rallied after Britain’s prime minister gave a speech about the country’s pending exit from the European Union. One pound bought $1.2396, up from $1.2190 late Friday but still down more than 15% since June.
Benchmark U.S. crude oil rose 0.2% to $52.48 a barrel. Brent crude fell 0.7% to $55.47. Gold rose $16.70 to $1,212.90 per ounce. Silver rose 38 cents to $17.15 per ounce, and copper fell 1 cent to $2.63 per pound.