By Orla McCaffrey
Global and U.S. bank stocks fell Thursday, a day after Federal Reserve officials indicated they had no plans to raise interest rates over the next two years.
Shares of JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. and Citigroup Inc. fell between 5% and 7% early Thursday.
Fed officials indicated Wednesday that short-term rates would likely remain near zero through 2022, citing the coronavirus pandemic's potential to do long-term damage to the U.S. economy and a yearslong labor-market recovery.
"We're not thinking about raising rates. We're not even thinking about thinking about raising rates," said Fed Chairman Jerome Powell.
Lower interest rates make it more difficult for banks to profit from lending, a key revenue source.
The Fed's prediction that the economy could contract as much as 10% this year is also weighing on financial stocks, often a bellwether of economic health.
The National Bureau of Economic Research said Monday that the U.S. economy officially entered a recession in February.
Financial stocks haven't enjoyed the same recovery in recent weeks as stocks in other sectors.
The S&P 500 financials sector has fallen 23% so far this year while the overall index is down less than 5%.
The KBW Nasdaq Bank Index fell 6.5% Thursday morning. It plummeted as much as 50% earlier this year before paring about half of its losses.
The KBW Nasdaq Regional Banking Index declined 7.4%. Regional banks tend to rely more heavily on lending income than the largest banks, meaning their stocks are often more sensitive to interest-rate projections. CIT Group Inc. and Truist Financial Corp. fell 12.1% and 8.8%, respectively, on Thursday.
Investors are also concerned about the uncertainty around how much the economic decline will sour loans, said Christopher Marinac, director of research at Janney Montgomery Scott LLC.
Banks including Wells Fargo, JPMorgan and Citigroup said this week they would set aside at least as much in reserves for potential losses as they did in the first quarter.
The decline comes after financial stocks rose quickly in the first week of June.
"There hasn't been a happy medium in bank stocks," Mr. Marinac said. "It's a volatile time so banks behave that way."
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