Stocks - Wall Street Reverses Early Gains as Trump Hits Bank Stocks

By Geoffrey Smith 

Investing.com -- U.S. stock markets turned negative on Tuesday as President Donald Trump renewed his pressure on the Federal Reserve to cut interest rates further, hitting financial stocks in particular.  

By 10:10 AM ET (1410 GMT), the Dow Jones Industrial Average was down 97 points, or 0.4%, at 24,319 points, while the S&P 500 and the Nasdaq Composite were both slightly down.

"As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!" Trump tweeted. 

JPMorgan (NYSE:JPM) stock fell 1.0% while Bank of America (NYSE:BAC) stock fell 0.9% and Citigroup (NYSE:C) stock fell 0.8%, reversing early gains, amid fear that even lower official interest rates will squeeze their profit margins as has been the case in other countries where the strategy has been tried, such as the euro zone and Japan.

Bank stocks had opened marginally higher, reassured by comments from three Federal Reserve officials in the last 24 hours downplaying the benefits of negative rates. Speculation that the Fed may cut the fed funds target range to below zero has increased in recent days as markets have moved to price in a slower, flatter recovery that charts more like a Nike-style swoosh than a V. There were fresh signs of the near-term deflationary impact on the economy from the pandemic earlier, as consumer prices fell by 0.8% in April, their biggest drop in over a decade.

The mood was in any case cautious, amid lingering concerns that the rushed reopening of the U.S. economy may lead to a second wave of infections and lockdowns later in the year.

“Some U.S. states that are relaxing restrictions are not always those that should, being earlier on the recovery curve, either having peaked later or still increasing,” analysts at Sanford C Bernstein wrote in a note to clients. “We believe multiple U.S. states will struggle with further relaxing requirements as disease trends will start heading the wrong way. Modelling the pandemic forward suggests even moderately elevated Rt =1.05 will lead to unacceptable disease rates come the fall.”

The U.S. Senate is due to hear testimony from top scientists later Tuesday on the risks of reopening the economy. One of the scientists testifying will be Dr. Anthony Fauci, director of the National Institute for Allergies and Infectious Diseases. The New York Times (NYSE:NYT) cited an email from Fauci on Tuesday saying that a premature opening "risks needless suffering and death."

Against that backdrop, Tesla (NASDAQ:TSLA) stock rose 2.1% after CEO Elon Musk reopened the company's production facility in Fremont before getting the approval of local authorities, who still have an extensive lockdown order in place.

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Elsewhere, BlackRock (NYSE:BLK) stock fell 5.3% while PNC Financial  (NYSE:PNC) fell 2.0% after the latter said it intends to offload its 22% stake in the asset manager. 

In other markets, U.S. crude futures rose over 5% as four of the world's biggest exporters, including Saudi Arabia, pledged additional combined output cuts of more than 1.2 million barrels a day from next month, accelerating the rebalancing of an oversupplied market.