The major averages closed mixed again with the Dow Jones Industrial Average fell after the Federal Reserve's decision to not extend a pandemic-era capital break for banks stoked a rise in bond yields and a sell-off in financial stocks.
The blue-chip Dow slid 234 points, or 0.7%, to 32,627, pressured by Visa and JPMorgan. The S&P 500 dipped 0.1% to 3,913. The Nasdaq Composite gained 0.8% to 13,215 as investors bought the dip in tech shares. Facebook gained 4%, while Amazon and Netflix rose about 1.5% each.
The central bank on Friday declined to extend a rule expiring at the end of the month that relaxed the supplementary leverage ratio for banks during the pandemic. The rule allowing banks to hold less capital against Treasuries and other holdings was implemented to calm the bond market during the crisis and encourage banks to lend.
The decision could have some adverse effects, traders have warned, if in response banks sell some of their Treasury holdings. That could send yields even higher at a time when a rapid rise in rates is already unnerving investors.
Bank stocks sold off in unison following the Fed's decision. JPMorgan and Wells Fargo both slid more than 3%, while Goldman Sachs fell 1.5%. Bank of America also slipped 3%. These names got a lift earlier this week from rising rates and have all rallied double digits this year.
Meanwhile, bond yields bounced off their lows after the announcement. The 10-year Treasury yield reversed slightly higher before turning flat at 1.73%, hovering near its 14-month high above 1.75% hit a day earlier. The benchmark rate started 2021 below 1%. (1 basis point equals 0.01%).
Rising bond yields, which can signal confidence about the economic recovery, can also make high-growth stocks look less attractive to investors by diminishing the value of their future cash flows.
The major averages were on track to post a losing week with the Nasdaq being the relative underperformer. The S&P 500 is off by 0.9% this week and the Nasdaq is down 1.3%. The Dow has dipped 0.3%.
Shares of FedEx jumped 6% Friday after the delivery company beat expectations on the top and bottom lines for its fiscal third quarter.
Nike's stock slipped by 4% after third-quarter revenues were weaker than anticipated. Visa shares dropped 4.9% after a report said the Justice Department has opened an investigation into its debit card business and possible anticompetitive practices.
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