S&P 500; US Indexes Fundamental Daily Forecast – Flattening Yield Curve Raising Concerns in Banking Sector

The major U.S. stock indexes are under pressure early Wednesday, primarily due to weakness in the banking sector.

At 1537 GMT, the benchmark S&P 500 Index is trading 2587.27, down 3.37 or -0.13%. The blue chip Dow Jones Industrial Average is trading 23518.04, down 39.19 or -0.17% and the tech-based NASDAQ Composite is at 6761.37, down 6.41 or -0.09%.

The Dow is being driven lower by a 0.6 percent drop in shares of JPMorgan. The SPDR S&P Bank exchange-traded fund (KBE) is trading 1 percent lower, dragging down the S&P 500 Index. Bank of America shares are posting the biggest loss, down 1.6 percent.

Without any major economic reports this week and earnings season winding down, investors shifted their focus on U.S. Treasury yields.

The key factor driving the bank stocks lower is the flattening yield curve. The spread between the two and the 10-year U.S. note yields hovered around 70 basis points, its lowest level in a decade. This should be a concern for traders because it usually warns of recession.

In other news, with 87 percent of S&P 500 companies having reported, earnings have grown 6.4 percent year over year, as 74 percent of companies have surpassed Wall Street expectations, according to FactSet.

With earnings season winding down and the Fed likely to raise rates in December, investors have shifted their focus on the passing of the U.S. tax reform plan into law. There are some concerns that there will be some issues raised about the plan in the Senate. This could delay the process which could cause some turmoil in the stock market.

Traders should also keep an eye on the Treasury yields because at some point the spread between the two and the 10-year U.S. note yields may flatten enough to trigger a sell-off in the stock market.