The S&P 500 and the Dow dropped on Friday with banks leading the way after the U.S. Federal Reserve said it would not extend a temporary capital buffer relief put in place to ease a pandemic-driven stress in the funding market.
The S&P 500 bank stocks shed about 3% as the Fed’s move means banks will have to resume holding an extra layer of loss-absorbing capital against U.S. Treasuries and central bank deposits from next month.
“Banks have had such a significant up move this year and this news has only acted as a catalyst for profit taking,” said Art Hogan, chief market strategist at National Securities in New York.
“It’s one of those days when we see a great deal of volume and volatility and we might see things change back on Monday.”
Market trading volumes and liquidity are expected to rise on Friday due to “quadruple witching,” the quarterly simultaneous expiration of U.S. options and futures contracts.
Yield on U.S. 10-year notes, which has risen sharply in the past seven weeks on growth expectations, hovered near a 14-month peak at $1.742%.
Optimism over a $1.9 trillion fiscal package and the Federal Reserve’s promise to maintain its ultra-loose policy stance for years has accelerated a shift into economy-linked stocks, powering the S&P 500 and the Dow to record levels this week.
However, the Nasdaq is still about 6% below its Feb. 12 all-time closing high as technology and high-growth stocks have lost favor, with their valuations looking expensive with a jump in yields.
“There is not much of a reason to justify this minor pullback as downside risks have come down significantly and the market is looking at how quickly the economy can reach pre-COVID levels,” said Jeff Powell, managing partner at Polaris Wealth Advisory Group in California.
Several bond managers believe the recent pace of the rise in yields has been unsettling and also worry the market could be viewed as disorderly if the momentum continues.
At 11:31 a.m. ET, the Dow Jones Industrial Average fell 270.66 points, or 0.82% , to 32,591.68, the S&P 500 lost 12.31 points, or 0.31%, to 3,903.14 and the Nasdaq Composite gained 38.42 points, or 0.29%, to 13,154.55.
Shares of Facebook rose 4.1%, providing the biggest boost to the Nasdaq, after Business Insider reported that Chief Executive Officer Mark Zuckerberg said Apple’s imminent privacy policy changes on ad sales would leave the social network in a ‘stronger position’.
“Apple’s changes encourage more businesses to conduct commerce on our platforms,” Zuckerberg was quoted as saying on a Clubhouse discussion.
FedEx Corp jumped 6.2% after the U.S. delivery firm said quarterly profit jumped more than expected on higher prices and surging volume from pandemic-fueled e-commerce deliveries during the holiday shipping season.
Nike Inc shed 4% after the company missed quarterly sales estimates due to shipping issues and a pandemic-related slump at brick-and-mortar stores.
Declining issues outnumbered advancers by a 1.1-to-1 ratio on the NYSE and by a 1.3-to-1 ratio on the Nasdaq.
The S&P 500 posted eight new 52-week highs and no new low, while the Nasdaq recorded 60 new highs and 66 new lows.