Why Are Stocks Down Today?


  • With the major indices flashing red, investors queried the obvious: Why are stocks down today?
  • Banking sector concerns obviously dominate due to the failure of First Republic (FRC).
  • Ambiguities about future monetary policy also cloud Tuesday’s market proceedings.
why are stocks down today - Why Are Stocks Down Today?

Source: shutterstock.com/Pla2na

With the three major indices all printing red ink at roughly the same velocity — a little more than 1% off — investors had one question on their minds: why are stocks down today? Especially following a relatively auspicious start to the new year. Primarily, concerns about banking sector stability dominated headlines. As well, investors await what the Federal Reserve may do next regarding monetary policy.

Naturally, with the failure of First Republic (NYSE:FRC), stability fears tied to the regional banking sector reignited. According to a PBS report, the collapse represented the second-largest bank failure in U.S. history. Despite encouraging words from JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon that federal authorities sparked an initial stage victory against a possible calamity, several financial institutions suffered steep losses.

One of the top concerns centers on a possible consolidation and constriction of the banking industry. As KBW analyst David Konrad pointed out, major financial institutions managing large assets should come out as winners. However, the mid-tier banks — those with assets ranging between $80 billion to $120 billion — may need to deflate to avoid new regulations. Or, they might be forced to merge with others to increase scale and absorb regulatory costs.

Given that the banking ecosystem touches everything, it’s the top catalyst for the question, why are stocks down today? Unfortunately, it’s not the only headwind.

Why Are Stocks Down Today? Look (Again) at the Fed.

Amid the volatility of the market that began last year, the Fed’s influence has never been far away. With inflation data suggesting some indication of price rise deceleration, many investors looked forward to a less-aggressively hawkish central bank. However, the latest bank failure may put a monkey wrench into those assumptions.

According to Yahoo Finance, investors are awaiting the outcome of its two-day meeting, which should be revealed Wednesday. Per the news outlet, “[t]he Fed is widely expected to raise rates by a quarter point. Investors’ main focus will be whether Fed Chair Jerome Powell gives any hints of what’s to come at the central bank’s June meeting.”

Some investors believe the central bank will stay true to its hawkish tone and may signal a June rate hike. Other voices believe the Fed may pause interest rate hikes while also refraining from rate cuts. Therefore, it’s possible that the federal funds rate remains steady at just over 5% for the foreseeable future, states Yahoo Finance.

Still, many other factors may play into the Fed’s decision. Fundamentally, all eyes will eventually turn to Friday’s disclosure of April’s job report. Notably, the Bureau of Labor Statistics showed that job openings dropped to 9.6 million, below the consensus target of 9.7 million.

Why It Matters

Another factor to keep in mind centers on the energy market and broader geopolitical implications. Early last month, the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations — known as OPEC+ — shocked the world with a production cut announcement. Essentially, the Fed isn’t the only major influencer of the dollar’s trajectory, adding an anxious tone to the question, why are stocks down today?

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

Article printed from InvestorPlace Media, https://investorplace.com/2023/05/why-are-stocks-down-today-33/.

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