US stocks sank and government bonds rallied sharply on Tuesday, as a steep sell-off in First Republic shares reignited fears over the health of the banking sector.
Wall Street’s benchmark S&P 500 had lost 1.4 per cent by mid-afternoon trade, putting it on track for its biggest daily decline in more than a month, while the technology-heavy Nasdaq slid 1.6 per cent. First Republic was by far the biggest decliner, losing two-fifths of its market value with just an hour of dealings left before the closing bell.
The drop in First Republic’s share price came a day after it revealed that customers had withdrawn $100bn of deposits during last month’s turmoil. The tumble took the California-based lender’s overall decline this year to more than 90 per cent.
The broader KBW Regional Banking index fell 3.6 per cent to a fresh low for the year, signalling persistent worries about the sector after the collapse of Silicon Valley Bank and Signature in March.
At the same time, the policy-sensitive two-year US Treasury yield slid 0.19 percentage points to 3.95 per cent as its price climbed. The benchmark 10-year yield added 0.12 percentage points to 3.4 per cent.
Government debt is typically viewed as a haven for investors in times of economic and market stress. The so-called inversion of the Treasury yield curve, when shorter-dated debt offers a higher yield than longer-term bonds, is traditionally seen as a harbinger of recession.
The dollar added 0.6 per cent against a basket of six other currencies.
Tuesday’s equity market moves also came as packaging and delivery company UPS slid almost 10 per cent on weaker than expected revenues, adding to a batch of mixed quarterly earnings reports. Shares in McDonald’s dropped 1.2 per cent as the fast-food group left its forward guidance unchanged.
The S&P 500 is still 7.5 per cent higher since January. But analysts at JPMorgan said that the “underlying market breadth by some measures is the weakest ever”, with a small group of large technology shares accounting for a disproportionate chunk of the S&P’s gains.
“The current degree of crowding implies the risk of recession is far from priced in,” the broker said.
Elsewhere, Europe’s region-wide Stoxx 600 fell 0.4 per cent and France’s Cac 40 declined 0.6 per cent, as the head of Belgium’s central bank warned of potentially much higher interest rates. London’s FTSE 100 was down 0.3 per cent.
Asian stocks sold off sharply, with investors growing increasingly nervous about the extent of China’s recovery and potential US restrictions on investments in the world’s second-biggest economy.
China’s CSI 300 index dropped 0.5 per cent, taking its decline since last Tuesday to 4.8 per cent. Hong Kong’s Hang Seng index slipped 1.7 per cent, with all sectors bar energy in negative territory, while the Hang Seng Tech index fell 3.4 per cent, its biggest daily decline since May last year. The index has fallen by slightly more than a tenth in the past week.