Wall Street quacked by Moody’s downgrade of banking sector

US stocks retreated Tuesday as an August sell-off was reignited by a downgrade of the banking sector by credit rating agency Moody’s. The Dow Jones Industrial Average was down 359 points, or 1%, led by a decline in Goldman Sachs. The S&P 500 dipped 1.1%, bringing its pullback from its late-July high to more than 3%.

The Nasdaq Composite pulled back by 1.5%. Moody’s downgraded the credit rating on several regional banks, including M&T Bank and Pinnacle Financial, citing deposit risk, a potential recession, and struggling commercial real estate portfolios. The credit agency also placed Bank of N.Y. Mellon and State Street on review for a downgrade.

Goldman Sachs and JPMorgan Chase traded around 3% and 2% lower, respectively, while the SPDR S&P Bank ETF (KBE) dropped more than 3%. The SPDR S&P Regional Banking ETF (KRE) also slid nearly 3%, as did M&T Bank. The regional bank ETF lost 28% in March amid the failure of Silicon Valley Bank. Traders also parsed through the latest batch of earnings, with UPS shares slipping after the delivery giant reported weaker-than-expected revenue for the second quarter and lowered its full-year revenue outlook.

The corporate earnings season has so far been better-than-anticipated, with 89% of S&P 500 stocks done reporting quarterly results. About four-fifths of them have beaten Wall Street’s expectations, according to FactSet. However, it appears that many of those results were already priced into the market, given the pullback the last two weeks.

Investors got a short respite from the selling on Monday with the 30-stock Dow posting its best day since June 15. Solar stocks and clean energy names hit new lows going back to May 2022, with the Invesco Solar ETF being down 1.36% and the iShares Global Clean Energy fund declining 0.91%. The earnings scorecard as the season nears an end, with results out so far from 89% of the S&P 500.