Dow Falls 150 Points After FDIC Reveals Record Plunge In Bank Deposits
Topline
Concerns about the American banking system’s health yet again sent the stock market tumbling Wednesday, as one major index appears poised to post one of their weakest May returns of the millennium.
It's been a challenging May for investors not exposed to the AI-driven tech rally.
AFP via Getty ImagesKey Facts
The Dow Jones Industrial Average fell 0.5%, or 150 points, by 1:45 p.m. ET, while the S&P 500 and the tech-heavy Nasdaq slid 0.5% and 0.4%, respectively.
Headlining the skid were bank stocks: All 15 of the largest U.S. banks by market capitalization dropped 1% or more in Wednesday trading, losing $30.9 billion in value.
Investors’ loss of faith in bank stocks came after the Federal Deposit Insurance Corporation revealed bank deposits fell 2.5% during the first three months of 2023, the largest decline since regulators began tracking the metric 39 years ago.
The FDIC noted Wednesday the 8.2% reduction in the volume of deposits above the FDIC-guaranteed $250,000 limit drove the broader outflows; accompanying this flight were a surge in popularity in investing in higher-yield money market funds and safe haven assets like gold.
The Dow is now down nearly 4% this month, on track for its third-worst May since the turn of the millennium, while the S&P 500 (up 0.3%) and Nasdaq (up 6.1%) notched stronger months thanks to their heavier exposure to mega-cap tech stocks.
Key Background
Investors grew quite familiar this year with bank stocks driving broader market losses. A trio of major regional banks – Silicon Valley, Signature and First Republic – failed between March and May, leaving their shareholders with virtually worthless investments. The biggest bank stocks have largely recovered since their March collapses, as shares of the likes of JPMorgan and Bank of America are up significantly over the last two months, though regional institutions like PacWest crashed to fresh all-time lows this month.
Tangent
The Dow’s morose May may forebode weak stock performance for the summer and fall months, if you buy into the “sell in May and go away” investing adage. The saying, which advises to offload stocks in May, is based on the notion that returns are greatest between November and April before waning. Over the last five years, the Dow has gained 3.6% on average between November 1 and April 30 and rallied 4.6% between May 1 and October 31, throwing a wrench in the theory, though that number is heavily skewed by the mid-pandemic rapid rally between late 2020 and early 2021.
What To Watch For
The House will vote Wednesday evening at about 8:30 p.m. on a bill to raise the debt limit before the federal government was set to default on its debt repayments June 5. Despite investors’ keen interest in the saga leading up to the bipartisan agreement struck last weekend, the deal going to vote represents neither a “positive or negative for the broad markets,” Sevens Report analyst Tom Essaye wrote Wednesday, noting the high-profile standoff did little to change federal spending projections.
Further Reading
These Bank Stocks Hit Lows—Some Even All-Time Lows—This Month (Forbes)
How Accurate Is Sell In May And Go Away? (Forbes)
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