The DJIA dropped 367.17 points, or 1.08 per cent, to 33,684.53, the S&P 500 shed 48.29 points, or 1.16 per cent, to 4,119.58 and the Nasdaq Composite lost 132.09 points, or 1.08 per cent, to 12,080.51
Wall Street stock indexes finished lower on Tuesday, a day prior to the Federal Reserve’s interest rate decision, while U.S. Treasury yields dropped as investors were concerned that the government could run out of cash after June 1 without a debt ceiling raise.
Bank stocks underperformed steeply following the weekend collapse of U.S. regional bank First Republic Bank.
Energy shares slid as oil dropped 5 per cent to a five-week low on worries about the economy as U.S. politicians contended about ways to avoid a debt default and investors get ready for one more interest rate raise this week.
The dollar index slipped following disappointing U.S. data a day before that the Fed is anticipated to raise rates by an extra 25bps and give guidance on whether it aims to hike rates further in June.
In the meantime regional U.S. banks posted huge decreases, pulling the S&P 500 bank index 3.2 per cent lower following the collapse over the weekend of First Republic and the agreed sale of its assets to JPMorgan Chase.
Trading on Tuesday showed rising investor concerns that other banks would begin to show sharp deposit outflows like First Republic, the third big U.S. bank to fail since March, according to Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Couple that with the Fed’s rate decision tomorrow and you have higher levels of anxiety in financials spilling over the market in general, the debt ceiling limit is part of a higher anxiety, he stated.
The Dow Jones Industrial Average (DJIA) dropped 367.17 points, or 1.08 per cent, to 33,684.53, the S&P 500 shed 48.29 points, or 1.16 per cent, to 4,119.58 and the Nasdaq Composite lost 132.09 points, or 1.08 per cent, to 12,080.51.
MSCI’s gauge of stocks across the globe declined 0.96 per cent. Emerging market stocks tumbled 0.26 per cent.
Data showed U.S. job openings dropped for a third month in a row in March even as they remained in line with a tight labour market.
In currency markets, the dollar index dropped 0.245 per cent, with the euro up 0.25 per cent to $1.1002.
The Japanese yen added 0.73 per cent compared to the greenback at 136.50 per dollar, while sterling was trading at $1.2471, 0.20 per cent lower on the day.
U.S. Treasury investors strengthened stakes that the Fed will rollback its interest rate-raising course earlier than expected, amid a broad sell-off in regional bank stocks and indications that government funds will run short by June.
The benchmark 10-year Treasury note yields were 14.4bps lower at 3.430 per cent, from 3.574 per cent late on Monday. The 30-year bond was down 10.7bps to yield 3.7101 per cent while the 2-year note was down 15.3bps to yield 3.986 per cent, from 4.139 per cent.
U.S. crude oil futures were $4 or 5.29 per cent lower at $71.66 per barrel and Brent closed at $75.32, down $3.99 or 5.03 per cent on the day.
Gold expanded gains, on way to its biggest daily gain in a month, as yields declined on renewed concerns of contagion in the U.S. banking sector and prior to the Fed’s rate decision.
Spot gold gained 1.8 per cent to $2,016.79 an ounce. U.S. gold futures advanced 1.64 per cent to $2,015.90 an ounce.