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Shares of some of the U.S.’s largest financial institutions are getting hammered Wednesday, led by a sharp drop in Goldman Sachs’s stock, as bank executives were signaling a slump in second-quarter trading, pointing to the possibility of woeful revenue figures in the financial sector.
“Performance is quite good, but there’s not a lot to trade around right now. … There haven’t been that many exciting events, and we need a few more of them.” J.P. Morgan Chase & Co. JPM, -2.04% CFO Marianne Lake said at an industry conference on Wednesday.
She said trading was on track to slip 15%, compared with the comparable period a year ago.
Those comments played a part in pushing Goldman Sachs Group Inc.’s shares GS, -3.33% to their lowest level in more than six months, according to FactSet. Goldman’s shares notched their first record high since the 2007-09 recession back in February, but they have mostly drifted lower since. Wednesday’s 3.7% slide in the blue-chip component was exacting a 55-point toll on the price-weighted Dow Jones Industrial Average DJIA, -0.11% , with a 2.2% slide in J.P. Morgan’s shares pulling the Dow down by another 12 points.
Lake’s comments come as a rally in financials, dubbed the “Trump rally”—borne on hope of Wall Street deregulation, tax cuts and a boost in infrastructure spending—has all but unraveled. The exchange-traded Financial Select Sector SPDR ETF XLF, -0.77% , which posted a 24% gain from Nov. 8, Election Day, to March 2, have dropped 6.7% since that March peak. An ETF tracking regional banks, the SPDR S&P Regional Banking ETF KRE, -0.72% , is off 10% during that period.
Bank stocks are the second worst performer among the S&P 500 index’s 11 sectors, losing 1.8% for the month, behind only the energy sector’s 4% tumble. Over the past three months, financials have declined 5.6%, the third worst performance over that stretch behind energy’s 8% drop and a 6.6% fall in telecommunications shares.
The downbeat trade for banks comes even as the Federal Reserve is trying to lift interest rates off ultralow levels, which should be supportive of bank’s business models and shares.
But a spate of lackluster economic reports, including those on pending home sales, have cast some doubt on how rapidly the central bank will normalize monetary policy, bearish for banks.
Providing another headwind are benchmark 10-year Treasury rates TMUBMUSD10Y, +0.00% , used to price car loans, mortgages and other debt instruments, which slipped to a five-week low at 2.20% on Wednesday. Benchmark rates have been stubbornly low for months, despite the Fed’s tightening agenda.
Those factors have combined to give investors pause about growth prospects for the banking sector. Goldman posted its worst first-quarter performance in 12 years as its bread-and-butter trading business sputtered, leading many to conclude that Wednesday’s warning may augur more pain for the sector unless the economy and rate increases, or both, rev up soon.
Uncharacteristically low volatility, with the CBOE Volatility Index VIX, +3.66% trading well below its historic average of 20, has added to trading woes. As Lake suggested, protracted periods of quietude can impede the fee-generating ability of banks, which prosper from high volumes and choppy markets in which investors think they can identify big trading opportunities.