Bank stocks extend second-half slump amid sharp interest rate rise

Bank stocks tumbled on Thursday, extending losses in recent weeks amid a sharp rise in interest rates .

The KBW Nasdaq Bank Index ( ^BKX ), which closely tracks the nation's large banks, tumbled as much as 2.4% before paring some of those losses to trade 0.7% below its Wednesday closing price. The index has retreated to its level set in late May and is down more than 13% from its mid-August peak.

Major stock indexes slipped as fresh manufacturing readings added to mounting investor concerns about inflation. Treasury yields eased Thursday following the worst quarter in decades for US government bonds.

A number of big banks are taking even harder hits. Shares of Citigroup ( C ) and PNC ( PNC ) fell 1.9% and 1.8%, respectively, while Bank of America ( BAC ) stock declined 1.4%.

The weakness follows an unusually brutal month for broader financial-sector stocks relative to the market. Financial stocks just posted their worst month relative to the S&P 500 (^GSPC) since 1990, according to Truist Securities.

"History doesn't repeat but it often rhymes," Truist analyst Brian Foran wrote in a Thursday note, adding that on a relative basis, the performance of financial stocks "today looks a lot like the Dot Com era."

The sharp rise in borrowing costs over the past month has the potential to zap borrower appetite on Wall Street and Main Street. A fast spike in rates can also spur a slowdown in dealmaking and weaker trading activity.

Global M&A activity slowed sharply in the third quarter, with deal value falling to about $1.23 trillion from a record $1.8 trillion in the second quarter, according to Mergermarket.

Smart-ring maker Oura postponed its planned initial public offering this week , joining companies like Holtec Nuclear and Bamboo Insurance that have paused their public debuts in recent weeks, citing uncertain market conditions.

Earnings earlier this week from Jefferies Financial Group ( JEF ) also bolstered evidence of a softer third quarter for fixed-income trading at Wall Street banks after a number of Big Bank executives began telegraphing the development.

Investors are also weighing how much AI advancements, signaled most recently by the release of Meta's Muse agent, could add to profit margin pressure for banks.

David Hollerith covers a range of developments throughout the financial sector, from Wall Street to banking and asset management to crypto and fintech. Email him at david.hollerith@yahoofinance.com. Follow him on X at @DsHollers.