Financial stocks got a big boost on Tuesday, leading the Dow to a new high as Treasury yields rallied for a second-straight day. The Dow climbed to its second record close of 2022 as the index rallied 214.59 points or 0.6%, to 36799.65.
On the other hand, the S&P 500 slipped 3.02 points, or 0.1%, to 4793.54, while the Nasdaq Composite fell 210.08 points, or 1.3%, to 15622.72 points. The SPDR S&P Bank ETF(KBE), rallied toward a six-week high, with all 93 of its equity components gaining ground, after the finishing 2.7% on Tuesday.
Shares of Bank of America Corp. (BA:NYSE), rose 3.4% while Wells Fargo & Co. (WFC:NYSE) tacked on 3.1%. Citigroup Inc. (C:NYSE) gained 2.2%, J.P. Morgan Chase & Co. ( JPM:NYSE)advanced 2.9%, while Goldman Sachs (GS:NYSE) finished 3.2% higher.
The bullish momentum in bank stocks was buoyed by the fading fears surrounding the omicron variant which led to a sharp spike in treasury yields. The yield on the 10-year Treasury note rose to a 10-week high of 1.67% on Tuesday. The spike in treasury yields happened as the latest data on Omicron shows that the variant is less severe than other variants. This ultimately faded fears of any economic shutdown.
Rising longer-term interest rates can help banks grow profits, as they can widen the spread banks earn on longer-term assets, such as loans, that are funded by shorter-term liabilities. As a result, the move in Treasury yields resulted in a strong rally in bank stocks.
The bullish momentum in the financial sector was also replicated in other economically sensitive sectors such as industrials and energy. S&P 500, the energy sector advanced 3.5%, while industrials gained 2%. As the outlook of the economy continues to brighten, investors are piling often into companies that can harness themselves to a strong economy.
A number of travel stocks also advanced on the day. Royal Caribbean (RCL:NYSE) shares rose $1.55, or 1.9%, to $82.38. United Airlines (UAL:NYSE) shares gained 76 cents, or 1.7%, to $46.25. Marriott International (MAR:NASDAQ0 shares added $4.10, or 2.5%, to $168.01.
Tech stocks on the other hand roiled as the sector declined 1.1%. Apple shares fell $2.31, or 1.3%, to $179.70 after the company on Monday briefly touched $3 trillion in market value before closing below that threshold. Tesla shares dropped $50.19, or 4.2%, to $1,149.59 after jumping 14% on Monday.
Cybersecurity stocks were the hardest hit in the sector, as all companies in the sector all finished negative for the day. Shares of Fortinet (FTNT:NASDAQ) and Palo Alto Networks (PANW:NASDAQ) slipped by over 3%, while Crowdstrike CRWD:NASDAQ) and Zscaler Inc. (ZS:NASDAQ) lost 4.61% and 6.71% respectively.
Quite surprising, fintech stocks had a bloodbath on Tuesday. Market watchers expected shares in this sector to replicate the performance of traditional banks. However, this was not to be, as investors still view fintech companies as technology stocks whose valuations are based on future earnings. Shares of Affirm (AFRM:NASDAQ) plummeted by 9.8%, while Sofi Technologies (SOFI:NASDAQ) and Block Inc. (SQ:NASDAQ) fell by 4.02% and 4.64% respectively. PayPal (PYPL:NASDAQ) came off a little better with a drop of 1.98%
Money managers now have their sights locked on earnings season which kicks off in earnest next week with reports from big financial companies. It is expected that banks would continue the trend of impressive earnings reports from the previous quarters. If the happens, then there would be a lot of tailwinds for companies in the sector.
Banks came out of the pandemic stronger following restrictions placed on the Fed on lending and capital requirements. This left major banks sitting on a pile of cash that they could not utilize. Following the easing of restrictions and reopening of the economy, banks have resorted to share buybacks thereby strengthening their balance sheets.