On July 6th, U.S. bank stocks experienced a decline, and a key regional index reached a near two-week low. Lingering concerns about the health of lenders following the crisis in regional banks, coupled with anticipation of second-quarter results starting next week, weighed on investor sentiment.
The KBW Regional Banking Index fell 3% to its lowest level since June 23rd, further contributing to its year-to-date loss of 25.9%. The S&P 500 Banks Index slipped nearly 2.8%.
Analysts at brokerage firm Raymond James expressed concerns about the banking sector, stating that the pressure on net interest margins is expected to be greater than anticipated. They highlighted that the "honeymoon" period of the tightening cycle, during which assets reprice higher while liabilities repricing lags, has come to an end.
The recent crisis in the banking sector, the most significant since 2008, has eroded investor trust, especially as small lenders faced challenges during the U.S. Federal Reserve's rate-hike cycle.
According to Raymond James analysts, there are limited bright spots from a fundamental perspective for most banks in the current interest-rate environment.
Several regional lenders saw significant declines. PacWest Bancorp dropped 8.1% after KBW analysts lowered the stock's price target from $14 to $9. Other banks, including Comerica, KeyCorp, and U.S. Bancorp, also experienced 3.5% to 5.1% declines.
Bank stocks had shown some recovery in the past month after facing considerable selling pressure in the wake of the collapse of three mid-sized lenders in March, which triggered a sector-wide selloff.
Last week, bank shares rose after the Federal Reserve's annual health checks indicated that lenders were well-prepared to withstand an economic downturn.
Among the large banks, JPMorgan Chase, Wells Fargo, Goldman Sachs Group, Morgan Stanley, Citigroup, and Bank of America all saw declines ranging from 1.7% to 3.2%.
As the second-quarter reporting season approaches, analysts and investors eagerly await updates on deposit stability, net interest margin expansion, and executive comments regarding the potential impact of an impending economic slowdown.