Exchange-traded funds (ETFs) that focus on stocks in the financial sector faced challenges on Wednesday, with Morgan Stanley experiencing a significant drop that landed it among the worst performers in the S&P 500 index.
XLF: Decline in Financial Sector
The Financial Select Sector SPDR Fund (XLF), which tracks financial companies in the S&P 500, was down 1.3% on Wednesday afternoon, based on FactSet data. Meanwhile, Morgan Stanley’s stock plummeted 7.7% during Wednesday afternoon trading following the bank’s report of a decline in third-quarter profit, although the results surpassed analysts’ expectations.
Broad Struggles in Financial Stocks
Apart from Morgan Stanley, other major players in the financial sector, such as Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C), also experienced sharp declines. As a result, the financial stocks underperformed compared to the broader S&P 500 index, which was trading 0.7% lower on Wednesday afternoon, as per FactSet data.
Yearly Losses for Financial Sector
While the S&P 500 has seen a gain of approximately 13% so far this year, the financial sector has posted losses. Earlier this year, bank-focused ETFs were severely affected by regional bank collapses and concerns over cracks in the financial system due to rising Treasury yields.
The SPDR S&P Regional Banking ETF (KRE) has already plummeted more than 29% this year, including a sharp 1.9% decline on Wednesday afternoon. Additionally, the Invesco KBW Bank ETF (KBWB), which tracks the broader banking industry, experienced a 2.1% drop in one of its worst trading sessions this month, bringing its yearly plunge to almost 24%.
Noteworthy Drop for Morgan Stanley
Morgan Stanley is currently on track for its largest percentage drop since June 11, 2020, when it fell by approximately 8.5%, according to Dow Jones Market Data. At the same time, the S&P 500’s financial sector (XX:SP500.40) has experienced an almost 3% decline based on Wednesday afternoon trading.
Bond Market Trends
In the bond market, long-term Treasury yields continued to rise on Wednesday. 10-year rates increased by five basis points to around 4.89% in the afternoon. This rise comes after 10-year Treasury yields reached their highest level since July 2007 on Tuesday, according to Dow Jones Market Data.
Read: Why bank stocks are the ‘Achilles’ heel’ of markets as bears worry high bond yields may ‘break’ something.
