Banks Stocks Decline After Trump’s Latest Tariff Threat

Bank stocks fell sharply Thursday after President Trump’s latest tariff threat sent U.S. Treasury yields tumbling and raised new questions about the outlook for economic growth.

Shares of banks ranging from Wall Street giants including

Citigroup
Inc.


C -3.95%

and

JPMorgan Chase


JPM -2.64%

& Co. to such regional players as

PNC Financial Services Group
Inc.


PNC -3.25%

and

SunTrust Banks
Inc.


STI -3.90%

all came under heavy pressure, outpacing the declines of major stock indexes.

Citigroup lost 4%, JPMorgan Chase fell 2.6%, PNC Financial slipped 3.3% and SunTrust Banks declined 3.9%. The KBW Nasdaq Bank index of large U.S. commercial lenders dropped 3.7%, while the KBW Nasdaq Regional Banking index slid 4%.

President Trump moved Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict with Beijing.

Some analysts and investors said a decline in Treasury yields helped spur the selling. The yield on the 10-year U.S. Treasury note settled Thursday at 1.894%, its lowest close since November 2016, compared with 2.034% on Wednesday. Yields fall when bond prices rise.

Lower rates generally hurt bank earnings by narrowing the gap between what they pay on deposits and charge on loans, a spread known as the net interest margin. Investors track bank stocks closely because a healthy banking system is considered crucial to a growing economy.

It “all just seems to be a food fight today to reduce exposure to banks in general,” said R.J. Grant, director of equity trading at KBW.

Compounding the declines, bank stocks have generally performed well in recent weeks, leaving room for a selloff, analysts said.

Thursday’s drops came a day after the Federal Reserve lowered interest rates but signaled it was in no rush to cut them further. That message drove down the 10-year yield but lifted yields on shorter-term debt, suggesting investors expected a higher path for interest rates than they did before Wednesday but also possibly slower economic growth as a result of that change.

On Thursday, yields were sharply lower on all Treasury debt maturing in one year or more, indicating investors were back to expecting rate cuts but even more nervous about growth.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

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