What happened
The stock market is having a generally strong start today. As of 10 a.m. EST, all major averages are in the green, with the S&P 500 up by more than 2% and the Nasdaq higher by almost 4%. Despite the uncertain election results, investors seem to be eager to put money into the market today.
Bank stocks are another story. Bank of America (BAC -3.53%), JPMorgan Chase (JPM -1.14%), and U.S. Bancorp (USB -1.06%) plunged by as much as 6% before recovering some of their losses, although all three of them remain down by about 3% a half-hour into the session. Shares of other banks are also lagging the the market today.
Image source: Getty Images.
So what
There are two major catalysts hurting bank stocks this morning.
First, Treasury yields are plunging. The 10-year Treasury yield dipped to 0.768%, a two-week low. While the banking business is quite complex, at the core, banks make the bulk of their money by simply lending money out and charging interest. When interest rates fall, it's tougher for banks to keep their profits high.
To that same point, it's important to point out that there's a Fed decision set to be released this afternoon. Although no interest rate change is expected, the contents of the Federal Open Market Committee statement could certainly influence the markets, and bank stocks in particular.
Second, the uncertain outcome of the election is making bank investors uneasy. According to the latest vote tallies, the math favors former Vice President Joe Biden, but not by much. There are still millions of uncounted votes in key battleground states, and it's very much an undecided race as of mid-morning. Banks are an industry that is likely to be heavily impacted by whomever is occupying the White House in January, as the next president could not only influence tax policy, but other issues that will affect banks' bottom lines, particularly further economic stimulus.
Now what
Investors don't like uncertainty, and there's quite a bit of it in the financial sector today. Once we have a bit more clarity on the outcome of the election (presidential and Senate), the FOMC statement, and bond yields, we're likely to see bank investors breathe a sigh of relief. Until then, however, it's fair to expect the volatility to persist.
