Financials and industrials weigh on Wall Street

Financial and industrial stocks retreated on Wednesday as hopes over the Trump administration’s promised extensive economic overhaul continued to fade.

Industrial companies fell by the most in three weeks and banks slipped for the seventh day in April’s eight trading sessions.

That helped to pull the S&P 500 below its 50-day moving average, a closely watched measure of momentum for the broad market. By close of trading in New York, the S&P 500 had shed 0.4 per to 2,344.93.

The S&P 500’s financial sub-index also notched its lowest closing price since late January after falling another 0.9 per cent on Wednesday.

Banks and insurers were the biggest decliners, dragged down by fading optimism that higher interest rates and bond yields will reinvigorate their core businesses.

Underscoring the sense of the “Trump trade” fading further, smaller US companies — which would benefit the most from a corporate tax cut and are less exposed to a stronger dollar — also gave back their gains of earlier this week, with the Russell 2000 index declining 1.4 per cent.

Investors had hoped that the failure of the Republican healthcare plan would allow the administration to pivot to a more market-friendly tax regime overhaul.

But in an interview with Fox, Mr Trump indicated that he wanted to resurrect healthcare reform before pivoting to tax reform and infrastructure spending.

Banking stocks are expected to be some of the biggest winners from the upcoming earning season, which kicks off with JPMorgan on Thursday.

“Financials are likely to benefit from the rise in interest rates over the past year, along with healthy capital markets and credit conditions; help from deregulation is probably coming later in the year,” Burt White, chief investment officer for LPL Financial, said in his outlook.

Nonetheless, longer-run gauges have tempered the longer-term outlook.

The difference between two and 10-year US Treasury yields — the so-called “yield curve” that is an important indicator of how profitably banks can fund deposits and lend out money at higher rates in the longer term — has this week fallen to just 104 basis points, the lowest since the US election in November. That saps banks of earnings potential.

Wells Fargo was points-wise the biggest faller on the S&P 500 on Wednesday with the sprawling bank falling 1.9 per cent. Citigroup declined 0.9 per cent, Bank of America was down 1.2 per cent and JPMorgan dipped 0.4 per cent.

But industrials was the worst-performing sector on Wednesday, declining 1.3 per cent — its worst performance since March 21. While airlines nudged higher, every stock in the aerospace, defence, machinery, capital goods and conglomerate sectors took a hit.

For example, among the big conglomerates General Electric and Honeywell fell 0.9 per cent and 1.1 per cent, respectively, while Caterpillar gave back some of its recent gains from a Goldman Sachs analyst upgrade, slipping 2.3 per cent.

Among the other major benchmarks, the Dow Jones Industrial Average was 0.3 per cent lower at 20,591.86 and the Nasdaq Composite was down 0.5 per cent to 5,836.16.