Bank stocks declined as the U.S. jobs report fell short of forecasts and bond traders pushed back expectations for a Federal Reserve rate hike until next year.
Nine of the 10 largest U.S. lenders dropped at least 1.2 percent at 1:41 p.m. in New York, led by Bank of America Corp.'s 2.9 percent decline. The Standard & Poor's 500 Financials Index, the worst-performing industry in the broader S&P 500, fell as much as 3.1 percent to the lowest level since May 2014.
Higher interest rates will allow banks to earn larger spreads on the deposits they've collected. While the Fed's efforts to reduce rates stabilized asset prices and helped lenders access cheap debt in the wake of the credit crisis, prolonged low rates have crimped banks' margins. Traders now assign a 55 percent chance for an increase by the central bank's March meeting.
"The payroll trend is not December's friend," Bloomberg Intelligence analysts led by Carl Riccadonna wrote after the Labor Department said the U.S. gained 142,000 jobs last month, less than the 201,000 median forecast in a Bloomberg survey of economists.
Bank of America, which has said it would benefit from higher rates, dropped as much as 5.9 percent. Morgan Stanley, which is down 21 percent this year, fell 2.3 percent to $30.76, which would be the lowest closing price since May 2014.
