By Andrew Welsch

Shares of banks and brokerages firms sold off Thursday morning as investors continued to weigh increasing signs of economic distress and the impact of a budding trade war.

The KBW Nasdaq Bank Index fell nearly 3% on the open before paring some of its losses. The index was down 1.42% as of midmorning, compared with a 0.85% decline for the S&P 500.

The selloff was broad-based, affecting some of the nation's largest consumer banks as well as investment banks and wealth managers. Shares of Bank of America and JPMorgan Chase fell 1.7% and 2%, respectively. Shares of Morgan Stanley, which operates a large investment bank and wealth manager, was down 1.7%. Brokerage firms Robinhood Markets and Interactive Brokers dropped 1.4% and 3.9%, respectively.

Economic worries have been mounting. The Federal Reserve Bank of Atlanta's forecast for first-quarter gross domestic product, GDPNow, calls for a decline of 2.8%. As recently as Feb. 19, GDPNow predicted growth of 2.3%.

On Wednesday, fresh data showed private sector job creation slowed to a crawl in February. Private employers added 77,000 jobs, half of what was expected. That comes amid souring business and consumer sentiment. An economic slowdown could hurt lending and capital markets, and thus put pressure on financial companies' earnings.

And then there's tariffs and the developing trade war between the U.S. and its largest trading partners. President Donald Trump has imposed tariffs on goods coming from China, Mexico, and Canada. Yesterday, he granted a one-month reprieve to auto makers. Administration officials have provided different reasons for tariffs, ranging from stopping the flow of migrants and to combating fentanyl.

While some investors may have previously discounted the likelihood of broad-based tariffs, recent moves suggest the administration is serious about implementing tariffs for the long term.

During his address to Congress Tuesday, Trump emphasized his commitment to tariffs, saying they weren't just for protecting American jobs. "They're about protecting the soul of our country," he said. "Tariffs are about making America rich again and making America great again and it's happening and it will happen rather quickly. There'll be a little disturbance, but we're OK with that."

Economists have warned that tariffs will raise prices for American consumers and businesses. Investors are now stuck trying to determine how abrupt changes in trade policy will affect the economy and ultimately impact the bottom line at the nation's banks and brokerages.

Write to Andrew Welsch at andrew.welsch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 06, 2025 10:54 ET (15:54 GMT)

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