Financials: A Big Drag on the Broader Equity Index
Markets continued to hit record highs
The stock markets continued their winning streak last week with the S&P 500 (SPX-INDEX) (SPY), the Dow Jones Industrial Average (DJI-INDEX) (DIA) and the NASDAQ Composite (COMP-INDEX) posting their all-time closing highs. Strong economic data like higher retail sales bolstered US equities. While broader equities are continuously making record highs, financials are plagued with a fall in fixed income trading revenue. The fall in trading revenue is partly driven by a slide in Treasury yields. Banks tend to benefit from higher long-dated yields because they charge a higher interest rate on loans that improve their net interest margin.
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Financials are a big drag
Financial stocks were the biggest drag on the S&P 500 with the S&P 500 Financials Index falling 0.90%. All of the major bank stocks were in the red last week. Citibank (C) was the biggest loser with a fall of 4.7% mainly due to concerns about rising credit costs. The other shares that fell the most included Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), and Bank of America (BAC). They fell 3.4%, 3.0%, 2.9%, and 1.5%, respectively. The Financial Select Sector SPDR ETF (XLF) fell 0.83%.
AIG’s losses might widen
American International Group (AIG) estimates pre-tax catastrophe losses (net of reinsurance) of $2.9 billion–$3.1 billion in 3Q17.
The S&P Insurance Select Industry Index (SPSIINS) rose 0.72%.