By Jessica Menton 

Bank stocks fell broadly Thursday, their second straight day of declines, after the Federal Reserve signaled caution on U.S. economic growth.

Shares of JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and Citigroup Inc. all slipped more than 1% in midday trading. Losses also spread to European banks, with Barclays PLC and Royal Bank of Scotland PLC dropping at least 1.7% each.

The KBW Nasdaq Bank Index of large commercial lenders shed 1.3% Thursday after dropping 3% a day earlier, its biggest one-day percentage loss since Dec. 4. The index, which has climbed 12% in 2019, is down 4.3% this week, on pace for its largest weekly decline since December. Financial shares in the S&P 500 were the only group in the red Thursday, down 0.5%.

The Fed said Wednesday that officials were unlikely to lift interest rates this year, sparking concerns that slowing global growth is beginning to spill over into the U.S. economy.

The Fed also announced plans to end the runoff of its $4 trillion asset portfolio at the end of September, sooner than most investors were expecting. The balance-sheet runoff has been a source of concern for investors amid worries that it will tighten financial conditions.

Banks are among the most economically sensitive stocks and typically reflect investors' outlook for the broader U.S. economy. If the declines continue, it could spell further trouble for global growth. Anxiety over tepid economic activity has sparked worries about demand for bank loans for industries tied to the strength of the U.S. economy, including the housing and auto markets.

"The banks are key components to our economy, so much that if they don't do well, they're a drag on the market and the economy as a whole," said Ed Cofrancesco, chief executive of International Assets Advisory LLC, an Orlando, Fla.-based brokerage firm. "The Fed has made it quite clear that they're going to reduce their balance sheet, which means they're going to be buying less bonds, which will have a negative drag on the banks."

Bond yields also slumped, which tends to hurt bank stocks because their lending profitability typically rises when rates are higher. The yield on the benchmark 10-year Treasury note, a barometer that influences borrowing costs for consumers, corporations and state and local governments, fell to 2.521% Thursday from 2.537% Wednesday, on pace for its lowest level since January 2018.

A flattening yield curve -- the gap between yields on short- and long-term Treasurys -- threatens to crimp margins of big consumer lenders.

 

(END) Dow Jones Newswires

March 21, 2019 12:56 ET (16:56 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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