Two shocks hit the stock market last week. On Monday, the heads of the major AI labs called for slowing the development of frontier models, and chip stocks sold off hard. On Wednesday, the FOMC raised the federal funds rate by 25bps to 3.75%-4.00%, the first hike since July 2023, and the updated Dot Plot points to one more this year. The S&P 500 fell 0.1%, with eight of the 11 sectors declining.
The Health Care sector (OW) rose 1.8%, and Communication Services (MW) was close behind at 1.2%. Utilities (OW) fell the most, down 3.0%, while Financials (OW) and Real Estate (UW) both fell 2.3%.
Let's take a closer look at Financials, Communication Services, and Industrials:
(1) Financials. Financials was the second-worst performer this week, but the Fed wasn't the main reason. On Monday, Bank of America CEO Brian Moynihan told the Barclays Global Financial Services Conference that Q3 investment banking fees will come in between $1.6 billion and $1.8 billion, down from $2.0 billion a year earlier.
Moynihan cited Dealogic data showing investment banking fees across the market down about 10%. The IPO window has not helped, with OpenAI ruling out a 2026 listing. Bank of America fell 5.1%, and the group fell with it. Investment Banking & Brokerage declined 4.4% this week, the second-worst industry in the sector, while Regional Banks fell 4.8% and Diversified Banks fell 4.0% (chart).
