U.S. equities finished higher on Wednesday, recovering from Tuesday’s close and early session weakness despite ongoing pressure on the European banking system. Italian banks are in focus amid political bickering over a possible bailout. But the tailspin is catching the entire industry, with Deutsche Bank AG (USA) (NYSE:DB) collapsing well below its 2008/2009 financial crisis lows.
Amid the ongoing fallout from the Brexit vote two weeks ago, and in response to weakness in the pound sterling, more than five U.K. property funds have suspended trading and blocked redemptions as investors scramble to sell in anticipation of further currency-driven losses.
Catalysts for the malaise include fears over the economic fallout from Brexit, political risk that the likes of Spain and Portugal could look to exit as well, and the realization that any new monetary policy stimulus effort is likely to further reduce long-term interest rates and thus further pinch bank sector profitability.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 gained 0.5%, the Nasdaq Composite gained 0.8% and the Russell 2000 ended the day 0.7% lower. Treasury bonds were mixed, the dollar was mixed, gold gained 0.6% and crude oil gained 1.8%.
Healthcare stocks led the way higher, rising 1.2%. Telecom and consumer staples were the laggards, reversing some recent strength.
American Airlines Group Inc (NASDAQ:AAL) lost 2% after being downgraded by analysts at Credit Suisse on higher balance sheet leverage and a worsening free cashflow outlook on rising fuel costs.
United Continental Holdings Inc (NYSE:UAL) lost 2.4% on a downgrade from Credit Suisse, also on cash flow concerns.
Netflix, inc. (NASDAQ:NFLX) lost 3.4% after being initiated at underperform at Jefferies on a more competitive environment and the likelihood that subscriber growth moderates.
The release of the June Federal Reserve meeting minutes was largely a non-event, with policy makers highlighting possible risks from the Brexit vote and the disappointing May payroll report. While a minority noted the risking financial stability risks of keeping policy too lax for too long, the majority prefers to take it slow with any subsequent rate hikes until inflation becomes a clear and present threat.
On the economic front, there was some good news from the June ISM services index, which rose to 56.5 from 52.9 in May (the lowest since February 2014) in what was the largest sequential increase since 2008. But some bad news from the U.S. trade report, with the deficit widening to $41.1 billion on a 1.6% jump in imports and a 0.2% drop in exports.
Moving forward, watch for the weakness in European banks — which U.S. financials conveniently ignored this afternoon — to resume overnight.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
