U.S. stocks fell and government bonds rose sharply on Tuesday as a steep selloff in First Republic shares reignited fears about the health of the banking sector.
Wall Street’s benchmark S&P 500 lost 1.4 percent in afternoon trade, putting it on track for its biggest daily decline in more than a month, while the tech-heavy Nasdaq fell 1.6 percent. First Republic suffered the biggest decline, losing two-fifths of its market value.
The fall in First Republic’s share price came a day after it revealed customers had withdrawn $100bn in deposits during last month’s turmoil. The drop brought the California-based lender’s overall decline this year to more than 90 percent.
The broader KBW Regional Banking Index fell 3.6 percent to a new low for the year, signaling continued concerns about the sector after the collapse of Silicon Valley Bank and Signature in March.
At the same time, the policy-sensitive two-year US Treasury yield fell 0.19 percentage points to 3.95 percent as its price rose. The benchmark 10-year yield added 0.12 percentage points to 3.4 percent.
Government debt is generally seen as a haven for investors in times of economic and market stress. An inversion, known as the Treasury yield curve, when short-term debt offers higher yields than long-term bonds, is traditionally considered a harbinger of recession.
The dollar added 0.6 percent against a basket of six other currencies.
In stock market moves Tuesday, packaging and delivery giant UPS fell nearly 10 percent on weaker-than-expected earnings, adding to a set of mixed quarterly earnings reports. McDonald’s shares fell 1.2 percent as the fast-food group left its forward guidance unchanged.
The S&P 500 is still up 7.5 percent since January. But analysts at JPMorgan said “the market breadth underlying some measures has always been weak,” with a small group of large tech stocks accounting for a proportion of the S&P’s gains.
“The current crowding indicates that the risk of recession is far from priced in,” the broker said.
Elsewhere, Europe’s regional Stoxx 600 fell 0.4 percent and France’s Cac 40 fell 0.6 percent after the head of Belgium’s central bank warned of higher interest rates. London’s FTSE 100 fell 0.3 percent.
Asian stocks sold off sharply, with investors increasingly nervous about the extent of China’s recovery and potential U.S. restrictions on investments in the world’s second-largest economy.
China’s CSI 300 index fell 0.5 percent to 4.8 percent since last Tuesday. Hong Kong’s Hang Seng Index fell 1.7 percent, with all sectors powering into negative territory, while the Hang Seng Tech Index fell 3.4 percent, its biggest daily decline since May last year. The index has fallen by a little more than a tenth over the past week.
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