Wall Street drops on mixed earnings, and First Republic plummets to an all-time low

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First Republic is down on a $100 billion filing trip, due to a bleak outlook for full-year revenue

April 25 (Reuters) – U.S. stocks fell on Tuesday after a mixed batch of earnings reports, while lower deposits from regional First Republic bank stoked concerns about the banking sector.

Shares of First Republic (FRCN) fell 28.9% to a record low after the beleaguered bank reported more than $100 billion in deposit flight in the first quarter in the wake of the biggest banking crisis since 2008 last month.

Other regional banks PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) fell 5.6% and 3.7%, respectively.

The KBW Regional Banking Index (.KRX) fell 1.5% to its lowest level in more than two years and was on track to drop 23% this year as the collapse of two medium-sized lenders last month wreaked havoc on the banking sector.

Some major US banks including Bank of America (BAC.N) and JPMorgan Chase & Co (JPM.N) lost around 1%, with the S&P 500 (.SPXBK) down 1.2%.

“Rising interest rates are worrying depositors that small and medium-sized lenders will face increasing difficulties, and that their business models are too dependent on a low interest rate environment,” said Stuart Cole, chief macro economist at Equiti Capital.

“The risk is that the cost of emergency financing proves too expensive for smaller banks, and the market sees it as no longer profitable.”

Investors are also concerned about the impact of high inflation and steep interest rate hikes by the Federal Reserve on corporate margins.

PepsiCo Inc (PEP.O) rose 2% after increasing annual revenue and earnings expectations.

United Parcel Service Inc (UPS.N) fell 8.4% after the delivery company expected full-year revenue to be at the lower end of its previous estimates as it struggled with a weak economy. Peer FedEx Corp (FDX.N) lost 2.1%.

The Dow Jones Average Transportation (.DJT) index fell 2.5%.

In a busy week for earnings, 178 S&P 500 companies are expected to report first-quarter results. Analysts have largely maintained their expectations for a first-quarter earnings drop of nearly 5% for S&P 500 companies, according to Refinitiv data.

$1 trillion earnings from Alphabet Inc (GOOGL.O) and Microsoft Corp (MSFT.O) are due after the market closes on Tuesday.

At 9:43 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 21.15 points, or 0.06%, at 33,854.25, the S&P 500 (.SPX) was down 15.10 points, or 0.36%, at 4,121.94, and the Nasdaq The Composite Index (.IXIC) declined 51.11 points, or 0.42%, to 11,986.10 points.

Investors are awaiting the Federal Reserve’s monetary policy decision in May for clues about the path of interest rates. Traders mostly expect the central bank to raise interest rates by 25 basis points next week and hold steady before cutting them later this year.

April consumer confidence and March new home sales unit data are also in play after the opening bell.

Defensive sectors such as utilities, healthcare and consumer goods were the rare bright spots.

Among others, Spotify Technology SA (SPOT.N) rose 5.6% after its monthly active users in the first quarter crossed the half-billion mark for the first time, while 3M Co (MMM.N) gained 1.1% on the industrial conglomerate’s plans to cut back. About 6,000 positions worldwide.

Declining issues outnumbered advancers by 3.93 to 1 on the New York Stock Exchange and 2.41 to 1 on the Nasdaq.

The S&P recorded 13 new highs in 52 weeks and four new lows, while the Nasdaq recorded 21 new highs and 134 new lows.

Reporting by Sruthi Shankar in Bengaluru, Editing by Vinay Dwivedi

Our Standards: The Thomson Reuters Trust Principles.

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