Friday’s Stock Market Open: US Equities Fall As Fed Stress Tests May Impose Limits On Banks

Update: 12:05 p.m. EDT:

U.S. stocks continued to slide as of noon Friday over worries about rising covid-19 cases.

The Dow Jones Industrial Average dropped 546.12 points to 25,199.48, while the S&P 500 fell 50.24 points to 3,033.52 and the Nasdaq Composite Index tumbled 138.98 points to 9,878.02.

Gov. Greg Abbott said Friday Texas will scale back some of its reopening plans as coronavirus cases and hospitalizations rise. “At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” Abbott said.

In Europe markets finished mixed, as Britain’s FTSE-100 edged up 0.2%, while France’s CAC-40 edged down 0.18% and Germany’s DAX slipped 0.73%.

Original story:

U.S. stocks opened lower on Friday as the Federal Reserve suggested banks may need to halt stock repurchases and limit dividend payouts.

The Dow Jones Industrial Average dropped 149.49 points to 25,596.11, while the S&P 500 fell 10.76 points to 3,073 and the Nasdaq Composite Index slipped 17.64 points to 9,999.37.

Consumers spending rose sharply by 8.2% in May, after declines of 6.6% in March and 12.6% in April. But May saw a 4.2% drop in personal income.

Late Thursday the Federal Reserve released its annual stress test of major banks which revealed the covid-19 pandemic could push some banks to minimum capital levels. As such, the Fed suggested banks should suspend share buyback plans and keep dividend payments capped at current levels.

“While I expect banks will continue to manage their capital actions and liquidity risk prudently, and in support of the real economy, there is material uncertainty about the trajectory for the economic recovery,” said Fed Vice Chair Randall Quarles.

Separately, Fed Governor Lael Brainard said she supported a blanket suspension of all dividends by banks to “create a level playing field and allow all banks to preserve capital without suffering a competitive disadvantage relative to their peers.”

“These [banks] are effectively nationalized,” said David Ellison, a portfolio manager at Hennessy Funds. “It sounds like buybacks aren’t going to come back [for] a long time, and the dividends are going to be subject to what the Fed believes the economy looks like.”

On Friday, European Central Bank President Christine Lagarde said the recovery from the pandemic will be “restrained” and will likely alter parts of the economy permanently.

Andrew Smith, chief investment strategist, Delos Capital Advisors, in Dallas, Texas, said of the stock market: “We believe investors should prepare for continued volatility as the stock market digests the continued increase in COVID-19 infection rates and the impressive rally from the March 23 market lows.”

Smith added that although the summer typically brings seasonal weakness for stocks, the “increased uncertainty regarding a potential second wave in COVID-19 cases coupled with a resurgence in tariff threats will only exacerbate volatility within the coming weeks and months.”

Overnight in Asia, the Shanghai Composite index was closed for holidays, while and Hong Kong’s Hang Seng exchange fell 0.93%; while Japan’s Nikkei-225 gained 1.13%.

In Europe markets traded higher, as Britain’s FTSE-100 rose 1.43%, while France’s CAC-40 rose 1.24% and Germany’s DAX gained 0.56%.

Crude oil futures slipped 0.23% at $38.63 per barrel, Brent crude edged up 0.19% at $41.20. Gold futures fell 0.19%.

The euro edged up 0.03% at $1.1221 while the pound sterling slipped 0.44% at $1.2364.