Dow falls 300 points as Fed bank capital decision hits financial stocks

Dow falls 300 points as Fed bank capital decision hits financial stocks

U.S. stocks fell on Friday after the Federal Reserve said it will not extend a pandemic-era rule that had allowed banks to relax capital levels.

The Dow Jones Industrial Average slid 340 points, while the S&P 500 was off by 0.7%. The tech-heavy Nasdaq Composite traded 0.3% lower.

The central bank on Friday declined to extend a rule expiring at the end of the month that relaxed the supplementary leverage ratio for banks during the pandemic. The rule allowing banks to hold less capital against Treasurys and other holdings was implemented to calm the bond market during the crisis and encourage banks to lend.

Bank stocks sold off in unison following the Fed decision. JPMorgan and Wells Fargo both slid 3%, while Goldman Sachs fell 1.5%.

The decision could have some adverse effects, traders have warned, if in response banks sell some of their Treasury holdings. That could send yields even higher at a time when a rapid rise in rates is already unnerving investors.

Bond yields bounced off their lows after the announcement. The 10-year Treasury yield reversed slightly higher at 1.74%, hovering near its 14-month high above 1.75% hit a day earlier (1 basis point equals 0.01%).

Rising bond yields, which can signal confidence about the economic recovery and fears about inflation, can also make high growth stocks look less attractive to investors.

The major averages were on track to post a losing week with the Nasdaq being the relative underperformer. The S&P 500 is off by 0.9% this week and the Nasdaq is down 1.3%. The Dow has dipped 0.3%.

Shares of FedEx jumped 6% Friday after the delivery company beat expectations on the top and bottom lines for its fiscal third quarter.

Nike‘s stock slipped by 4% after third-quarter revenues were weaker than anticipated.

Tech and other growth stocks got hit on Thursday, which resembles a trend seen in recent months as value stocks surged. However, growth stocks have had a few strong days over the past two weeks and this is muddying the waters, said Michael Mullaney, director of global markets research at Boston Partners.

“If you look at the price pattern on a day-to-day basis for the last now seven days, we’ve got a ping-pong match going on. One day it’s been growth, one day it’s been value,” said Mullaney. “I’m not sure if that’s indicating we’re at some kind of inflection point where growth might get a bounce here.”

Energy stocks were also hit hard on Thursday, with the price of West Texas Intermediate crude sliding by more than 7%. The slow rollout of vaccines and rise in Covid cases in Europe have weighed on the near-term demand outlook for oil.