US Bank Stocks Dip After Country’s Unemployment Rate Jumps

Several U.S. bank stocks reportedly slipped Monday (Aug. 5) as investors left the sector amid rising fears of a potential recession.

Among the losses were a drop of about 4% at Citigroup; a 2.7% decrease at Bank of America and Goldman Sachs; and a 2.2% dip at J.P. Morgan Chase, Reuters reported Monday.

The losses followed the release of weak economic data by the government, including news that the U.S. unemployment rate jumped to a near three-year high in July, according to the report.

That announcement, along with a slowdown in hiring, raised fears among investors that the economy could be vulnerable to a recession, the report said.

Those concerns affect bank stocks because the sector is closely tied to the health of the economy, as recessions and high unemployment can lead to lower loan demand and higher credit losses, per the report.

Investors were already uncertain about the banking sector due to the collapse of three regional banks in 2023, according to the report.

More recently, the sector’s outlook was also impacted by earnings reports in which bank executives had mixed expectations about the Federal Reserve’s future moves on interest rates and said they had seen a deterioration in consumer’s financial health, the report said.

The Bureau of Labor Statistics reported Friday (Aug. 2) that U.S. firms added 114,000 jobs in July, and the unemployment rate hit 4.3%, which was up 0.2% from June and reached a level not seen since the depths of the pandemic.

This data dovetailed with unemployment data from ADP, which said Wednesday (July 31) that U.S. companies added 122,000 jobs in July, down from 155,000 positions in June, while wage growth increases slowed to 4.8%, the slowest pace in three years.

In mid-July, bank earnings from J.P. Morgan, Wells Fargo and Citigroup included management commentary and earnings supplementals that revealed a bit of a mixed picture on consumer spending and credit trends.

For example, while overall credit trends and delinquency rates remained within historical patterns, there was a widening divide between relatively affluent consumers and those who are struggling, PYMNTS reported at the time.