U.S. bank stocks falter as recession worries take hold

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The S&P 500 banks index has slumped some 11 per cent this month against a 5.5 per cent drop for the broader index in the same period

Signs of pessimism over the economy have crept into asset prices in recent weeks, as investors grow increasingly worried that the Federal Reserve’s most aggressive monetary policy tightening in 40 years – aimed at reducing inflation – will also hamstring growth

Job cuts have further hinted at the stresses banks expect to face: Goldman Sachs is planning to cut thousands of employees to navigate a difficult economic environment, a source familiar with the matter told Reuters on Friday, the latest global bank to reduce its workforce in recent months. “The recent performance of banks is evidence to me that there is increased concern around the economic outlook for 2023,” said Walter Todd, chief investment officer of Greenwood Capital. Expectations of a slowdown led Todd’s firm to sell some of its bank shares earlier this year.

The extent of such pressure will become clearer next month when banks report fourth-quarter earnings. In another potential stumbling block for the group, some of the banks that lent Elon Musk $13 billion to buy Twitter are preparing to book losses on the loans this quarter, Reuters reported this week.

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