Investors punished financial stocks following Friday’s soft U.S. jobs report, highlighting their vulnerability to even modest shifts in the economic outlook.
Shares of Bank of America Corp. and Citigroup Inc. fell more than 3% after Labor Department data showed the U.S. created 38,000 jobs last month, a fraction of the 158,000 expected by economists.
The report, the softest since 2010, dimmed expectations that the Federal Reserve will lift interest rates this summer. Federal-funds-rate futures markets on Friday showed a 4% chance of a Fed rate rise in June, down from 21% on Thursday and as much as 34% in May. At the same time, many analysts said they continue to expect the central bank to gradually increase rates as the economy expands in 2016.
Bank-stock investors long have tracked the Fed’s interest-rate outlook because higher rates tend to make lending more profitable, boosting a measure known as net interest margin, or NIM, reflecting the spread between lending and borrowing costs.
But over the past year, financial shares often have surged more than the market when rate-increase expectations rose and tumbled further when they fell, giving shareholders the sense they are on a roller-coaster ride even as financial stocks broadly lag behind market indexes.