Stocks fell sharply Tuesday, led lower by declines in bank shares, as traders braced for the latest Federal Reserve policy announcement. Small and large banks fell, as traders questioned the future of some regional financial institutions after the crisis that engulfed Wall Street in March. Regional banks PacWest and Western Alliance had trading paused after tumbling more than 20%.
Meanwhile, JPMorgan Chase’s shares shed 1%, giving back some of its gains from the previous session. A day earlier, JPMorgan shares rose after the takeover of embattled regional First Republic Bank. Other large banks including Goldman Sachs, Bank of America and Citigroup also dropped more more than 2.5%.
“We think that the concerns around the bank sector, combined with uneasiness regarding the debt ceiling — and most importantly, apprehension over the uncertain future Fed rate policy stance — are all contributing to this risk off sentiment. So in an area like the bank sector that already was under stress, we’re also seeing greater unease because of these other contributing factors,” said Greg Bassuk, CEO of AXS Investments.
According to CNBC News, The Fed’s two-day policy meeting, which kicked off Tuesday, is expected to conclude with the central bank announcing another 25 basis-point rate hike. Per the CME Group’s FedWatch tool, traders are pricing in 97% chance of a rate hike. Investors will be looking for clues on whether the Fed will keep rates steady after this meeting, or if it will further tighten monetary policy to fight inflation.
Weighing on sentiment Tuesday was word from Treasury that the country may hit the debt ceiling sooner than expected. Treasury Secretary Janet Yellen warned on Monday that the U.S. may run out of measures to pay its debts as early as June 1, earlier than the late July deadline Goldman was estimating.
“You have the perfect cocktail for a risk-off day,” said Art Hogan, chief market strategist at B. Riley Wealth Management. “It’s a typical risk-off day with three binary situations staring at us from the short-term horizon.”
Elsewhere, fresh numbers from the Job Openings and Labor Turnover Survey for March showed signs of a loosening job market. Employment openings hit their lowest levels since April 2021. Orders for manufactured goods in March grew 0.9%, falling below expectations of a 1.3% increase.