Wall St falls as bank shares drop after Moody’s downgrades

Traders work on the floor of the NYSE in New York

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 19, 2023. REUTERS/Brendan McDermid/File Photo

  • Drugmakers rise after positive data from Novo’s obesity drug study
  • UPS falls after cutting annual revenue view on lower demand
  • Banks slide after Moody’s downgrades 10 mid-sized banks
  • Indexes down: Dow 0.79%, S&P 0.72%, Nasdaq 0.84%

Aug 8 (Reuters) – Wall Street dropped on Tuesday as financial stocks fell after Moody’s overnight cut credit ratings on several small- to mid-sized U.S. banks and said it could downgrade some of the country’s biggest lenders.

The agency cut the ratings on 10 lenders by one notch and placed six banking giants, including Bank of New York Mellon (BK.N), US Bancorp (USB.N), State Street (STT.N) and Truist Financial (TFC.N), on review for potential downgrades.

Moody’s also warned that the sector’s credit strength would likely be tested by funding risks and weaker profitability.

Big banks Goldman Sachs (GS.N) and Bank of America (BAC.N) eased 2.7% and 3.6%, respectively, while Bank of New York Mellon and U.S. Bancorp shed 2.6% and 4.9%.

“Moody’s putting some banks on warning adds to Fitch’s downgrade of the U.S. Treasury market last week and gives investors additional reason to be cautious,” said Sam Stovall, chief investment strategist at CFRA Research.

“It also means that the concern that we had in March over those three bank defaults, is not over yet.”

The banking index (.SPXBK) fell 3.3% in early trading and has lost 4.7% so far this year, compared with a 16.8% rise in the benchmark S&P 500 index (.SPX), after the collapse of Silicon Valley Bank and Signature Bank earlier this year sparked a crisis of confidence in U.S. lenders.

After the S&P 500 and Nasdaq logged their worst week since March, Wall Street rallied on Monday as investors built positions ahead of Thursday’s highly awaited U.S. inflation report.

On Tuesday, Philadelphia Fed President Patrick Harker, a voting member this year, said barring any abrupt change in the direction of recent economic data, the U.S. Federal Reserve could be at a stage where it could leave interest rates unchanged.

At 9:42 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 279.54 points, or 0.79%, at 35,193.59, the S&P 500 (.SPX) was down 32.51 points, or 0.72%, at 4,485.93, and the Nasdaq Composite (.IXIC) was down 117.38 points, or 0.84%, at 13,877.02.

Ten of the 11 major S&P 500 sectors declined, led by losses in energy (.SPNY) firms, as crude prices fell after disappointing trade data from top-consumer China.

Drugmakers globally rose after Denmark-based Novo Nordisk (NOVOb.CO) said that its obesity drug Wegovy reduced the risk of heart disease.

Eli Lilly (LLY.N) surged 15.3% after the pharmaceutical firm posted upbeat quarterly profits, ahead of its decision to use diabetes drug Mounjaro as a weight-loss treatment.

Dish Network (DISH.O) surged 4.3% after the pay-TV provider disclosed plans to merge with satellite communications vendor EchoStar (SATS.O).

United Parcel Service (UPS.N) lost 1.3% after the U.S. economy bellwether cut its annual revenue forecast.

Declining issues outnumbered advancers by a 4.81-to-1 ratio on the NYSE and a 2.55-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and nine new lows, while the Nasdaq recorded 13 new highs and 78 new lows.

Reporting by Bansari Mayur Kamdar and Johann M Cherian in Bengaluru; Editing by Sriraj Kalluvila and Vinay Dwivedi

Our Standards: The Thomson Reuters Trust Principles.

Bansari reports on the global financial markets and writes Reuters’ daily flagship market reports on equities, bonds and currencies. An economist by training and winner of the Arthur MacEwan Award for Excellence in Political Economy, she has written for renowned global papers and magazines including The Diplomat, Boston Globe, Conversation, Huffington Post and more.

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