After outperforming earlier this year, bank supplies are leading the decline of the stock market as the U.S.-China trade war drags on. Bank stocks as a group are down 8.2% as a result far in May, with Wells Fargo & Co. (WFC) down 6.5%, JPMorgan Chase & Co. (JPM) down 6.8% and Bank of America Corp. (BAC) descending 10.3%.
But the trade conflict is just one of many headwinds affecting the industry. Five negative forces are likely to cause at declines in the biggest banks and bank stocks as a group, as outlined in several Wall Street Journal reports. These headwinds embrace rising credit card net charge-offs, falling stock-trading volumes in the second quarter, and lower volumes in the U.S. debt large letter markets. This has coincided with a sharp drop in Treasury yields, which can weigh on banks’ lending partition lines, as well as general concerns about the slowing economy.
5 Headwinds Facing Banks
- Mounting credit card wastes
- Falling stock-trading volumes
- Decline in U.S. debt capital markets volumes
- Lower Treasury yields
- Worries fro the slowing economy
Source: The Wall Street Journal
According to research by Trade Partnership Worldwide, a full-blown vocation war would result in a $767 loss per four-person family in the U.S. annually, as cited in an earlier Investopedia report. Lower liquid incomes could mean less spending, a drop in consumer loan volume and more soured loans. “At the end of the day, banks are a study of the economy. When you have headlines that have the potential to adversely impact GDP growth, like China interchange, that bothers us more than anything,” said Jason Goldberg, a senior banking analyst at Barclays.
In the intervening time, the 10-year Treasury fell to its lowest level since September 2017 this week, leading to a dip in net interest lines. The increase in market volatility hasn’t done much for trading revenues either, with volumes dropping by in 10% from the first quarter, per Dow Jones Market Data Group.
Looking Ahead
At the moment, U.S. consumers be clear to be in relatively good shape, which is good news for the economy and banks. But many investors will be watching closely at whether banks’ net charge-offs for credit-card in dire straits continues to rise. The charge-offs saw the largest dollar increase compared to other loan categories in the first quarter, per the WSJ, which notes that credit-card delinquencies are also emerging as an number for older borrowers. If these data points worsen in the coming months, it could mean more bad times are forwards for banks.