This report is from today's CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Beset by worries
Major U.S. indexes tumbled, weighed down by losses in financial stocks and worries over China's faltering economy. European markets mostly fell as well. The pan-European Stoxx 600 index lost 0.93%, but Italy's FTSE MIB added 0.57% — the only major bourse to end the day in the green.
Potential banking downgrade
Fitch Ratings warned it may downgrade the U.S. banking industry's credit rating from AA- to A+. Since individual banks cannot be rated higher than the industry, major banks like JPMorgan Chase and Bank of America would be cut to an A+ rating — with a trickle-down effect for smaller banks — if the downgrades happens. Fitch's warning comes as Moody's downgraded 10 banks last week.
U.S. consumer strong as ever
U.S. consumer spending in July remained healthy, according to data from the Commerce Department. Seasonally adjusted retail sales rose 0.7% for the month; economists were expecting 0.4%. Excluding autos, sales rose 1% against a 0.4% forecast. Both figures were the best monthly gains since January, reinforcing sentiment that the consumer can continue supporting economic growth.
Rate hike to strengthen ruble
Russia's central bank jacked up interest rates by 3.5 percentage points to 12% at an emergency meeting Tuesday. The bank's attempting to stop a sudden slide in the Russian ruble, which slumped to nearly 102 against the U.S. dollar Monday. The ruble has since climbed back to around 98.5 as of publication time.
[PRO] Overconfident investors
The stock market rally during the first half of this year has made investors overconfident, according to a Bank of America survey. That's bad — because the "strong tailwind" propelling stocks forwards is fading fast, a BofA analyst wrote in a summary of the survey.
The bottom line
Financial stocks had a bad day.
After Fitch warned that it might downgrade the banking industry's credit rating, shares of big U.S. banks fell. Bank of America lost 3.2%, JPMorgan declined 2.55% and Wells Fargo slid 2.31%.
Regional banks weren't spared the slaughter, either. The SPDR S&P Regional Banking ETF fell 3.33% after Minneapolis Federal Reserve President Neel Kashkari spoke in favor of "significantly further" capital requirements for banks with more than $100 billion in assets. Kashkari also emphasized that if inflation rebounds, rates might have to go higher and "pressures [in regional banks] could flare up again."
But not everyone's worried about Fitch's warning. "The U.S. bank system is overall sound," said Eric Diton, president and managing director at The Wealth Alliance.
"All Fitch was saying was: 'If we did downgrade the sector again, that would lead us to have to downgrade a lot of the individual banks,'" Diton said. "Maybe they will, maybe they won't."
Banking doldrums aside, there were two bright spots in the initial public offering arena. Shares of VinFast, a Vietnamese electric vehicle company, surged from $10 per share to $22 in its debut on the Nasdaq; prices continued rising throughout the day to close at $37.
Meanwhile, Cava shares jumped around 8% in extended trading after its first earnings report since its IPO in June. Taken together, they suggest that the IPO market is returning to health.
Still, major indexes couldn't shrug off worries over banks and China. The S&P 500 slipped 1.16%, ending the day below its 50-day moving average for the first time since March — possibly heralding the start of a continued slide. The Dow Jones Industrial Average lost 1.02%, breaking its three-day winning streak. The Nasdaq Composite fell 1.14%.
If indexes continue sliding, that'd be their third consecutive losing week. Investors are hoping it's a brief summer spell, a moment of correction that will end as the weather turns.
