Stock Market Today: Banks Burned as Stocks Break Sharply Lower

The Fed's limitations on big banks' dividends and share buybacks coupled with swelling COVID-19 caseloads to weigh heavily on stocks Friday.

(Image credit: Getty Images)

The stock market tug-of-war we mentioned on Thursday (opens in new tab)? Well, the bears bit into the rope and pulled hard on Friday.

The Federal Reserve, following an annual "stress test" that revealed potential capital issues in coronavirus-related scenarios, voted to mandate limiting dividends and stock buybacks at the nation's large banks during the third quarter. "Big Four" banks including Wells Fargo (WFC (opens in new tab), -7.4%) and Bank of America (BAC (opens in new tab), -6.4%) gave up Thursday's gains and then some.

Meanwhile, the rest of the market finally gave way to COVID-19 concerns that had been mounting all week. Florida contributed nearly 9,000 new cases Thursday to help lift the national single-day caseload to roughly 37,000, topping the previous high set in April by more than 800 infections.

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The Dow started off lower and continued to weaken as the day wore on, retreating 2.8% to 25,015.55. The industrial average also was helped lower by Nike (NKE (opens in new tab)), which plunged 7.6% after reporting that its quarterly revenues plunged 38%.

The Nasdaq pulled back 2.6% to 9,757, the S&P 500 declined 2.4% to 3,009, and the small-cap Russell 2000 took the mildest loss of the major indices, dropping 2.2% to 1,382.

Signal to sell, or a buying opportunity?

The U.S. finds itself at another new coronavirus crossroads. While Texas and Florida have put their reopening plans on pause, and while mask adoption is being pushed if not mandated in several states, full shutdowns like those in March still seem unlikely.

If the efforts of America's governors proves enough, this dip might be an opportunity for a stock market that is teeming with values (opens in new tab). You can even pick up several Dividend Aristocrats at a discount (opens in new tab) right now. In fact, in the wake of today's losses, these five financial stocks (opens in new tab) that still boast high marks from the analyst community might appeal to contrarian buyers.

That said, the U.S. might be facing a much longer economic recovery than expected, and than the stock market has priced in.

“It could still take years for the economy to fully come back,” writes LPL Financial Senior Market Strategist Ryan Detrick. “Think of it like building a house. You get all the big stuff done early, then some of the small things take so much longer to finish; I’m looking at you, crown molding.”

"Here’s the hard truth; it might take years for all of the jobs that were lost to fully recover. In fact, during the 10 recessions since 1950, it took an average of 30 months for lost jobs to finally come back."

If the U.S. economic recovery is significantly delayed or slowed, weak equities are about to become even shakier. The pros have red-flagged the following short list of S&P 500 stocks that could be more trouble than they're worth.

Kyle Woodley
Senior Investing Editor, Kiplinger.com

Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.