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Why Bank Stocks Tanked on Tuesday

Looking up at Chase Tower in Phoenix, Arizona.

Tuesday proved to be a tough start to the week for bank stocks. Following the holiday weekend, stocks across the board were down, with bank stocks in the lead.

The broader market, represented by the S&P 500, lost 0.8%. Meanwhile, the KBW Bank index , which tracks shares of two dozen large-cap bank stocks, fell 2.3%.

Looking up at Chase Tower in Phoenix, Arizona.

The Chase Tower in Phoenix, Arizona. Image source: Getty Images.

Every bank on the index headed lower for the day. Regions Financial (NYSE: RF) led the way down, losing 4.2% by close. Comerica (NYSE: CMA) was the runner-up, with a 3.7% drop.

All four of the big-name banks saw meaningful drops as well. Bank of America (NYSE: BAC) was off 3.1% , JPMorgan Chase (NYSE: JPM) was down 2.3%, Citigroup (NYSE: C) fell 2%, and Wells Fargo (NYSE: WFC) lost 1.6%.

There wasn't any industry-specific news that weighed on banks. It was rather the market's reaction to news over the weekend that North Korea had successfully tested a hydrogen bomb.

"After North Korea's test of its most powerful nuclear bomb yet, investors headed for safer stores of value, like U.S. government bonds and gold," wroteThe Wall Street Journal .

The reason bank stocks responded more robustly to the news seems to be tied to their performance over the past year.

In the wake of the presidential election last November, shares of banks rocketed on optimism that the new administration would relax regulations in the industry and lower tax rates, both of which would make banks more profitable, which in turn would make their stocks more valuable, as stocks tend to be valued as a multiple of earnings.

Compared with this time last year, Bank of America's stock has gained 46%, followed by Citigroup at 41% and JPMorgan Chase at 33%. By contrast, the S&P 500 is up 13% over the past 12 months.

Given this situation, it seems clear that bank stocks, generally speaking, had more to give back than the broader market.

JPM data by YCharts .

The only Big Four bank to see its stock drop over this stretch is Wells Fargo, which has been ensnared for most of this time in efforts to repair its image following a multiyear sales scandal that regulators disclosed last September.

In sum, assuming that the United States and North Korea don't go to war, there seems little in today's large drop in bank stocks that should lead to concern among investors in companies such as JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo.

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John Maxfield owns shares of Bank of America and Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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