Financial stocks and bank sector-related exchange traded funds were among the worst off Wednesday after the Federal Reserve Chairman Jerome Powell downgraded its expectations for U.S. economic growth and indicated policy makers won’t be hiking rates any time soon.
Among the worst performing non-leveraged ETFs of Wednesday, the iShares U.S. Regional Banks ETF (NYSEArca: IAT) declined 2.1%, SPDR S&P Regional Banking ETF (NYSEArca: KRE) decreased 2.1% and SPDR S&P Bank ETF (NYSEArca: KBE) fell 2.0%, all testing their short-term support at the 50-day simple moving average.. Meanwhile, the broader Financial Select Sector SPDR (NYSEArca: XLF) was 1.2% lower and was also testing its long-term support at the 200-day moving average.
Financial stocks weakened Wednesday after the Fed downgraded its outlook for the U.S. and reaffirmed its earlier dovish stance, which provides a poor environment for U.S. banks, whose business models typically capitalize on rising interest rates.
Following the Fed’s comments, yields on benchmark 10-year Treasury notes slipped to 2.535% late Wednesday, its lowest level since early January 2018.
The Federal Open market Committee held interest rates at a range of 2.25% to 2.5% as expected. However, it also downgraded its economic outlook, lowering its gross domestic product projection to 2.1% for all of 2019, compared to its earlier estimates of 2.3%. Additionally, the central bank announced that the winding down of its balance sheets will end in September.
When asked if the Fed will consider cutting rates later this year in response to the lower growth outlook, Powell said that the current economic data does not indicate the need for any such measures, according to the Associated Press.
“It is a great time for us to be patient and to watch and wait,” Powell said.
Nevertheless, despite the central bank’s sharp downgrade for growth, Powell still remained optimistic about the growth outlook of the U.S. economy, adding that the unemployment rate remains low, incomes are rising and surveys of consumer and businesses reveal confidence in the economy.
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