Here’s why Affiliated Managers Group, Western Alliance Bancorp, AFLAC and Markel are dropping out today

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What happened

The massive decline in the coronavirus-fueled stock market continued on Thursday, with the Dow Jones Industrial Average and reference S&P 500 Index down 9% and 8%, respectively, at 2:45 p.m. EDT.

Financial sector stocks were hit harder than most. To name a few, wealth manager Affiliated Managers Group (NYSE: AMG) is down 15%, regional bank Western Alliance Bancorp (NYSE: WAL) fell 12%, the insurance giant Aflac (NYSE: AFL) is down 13%, and the specialist insurer Markel (NYSE: MKL) is more than 12% lower per day.

Image source: Getty Images.

So what

There are several reasons why financial companies are particularly affected. Falling interest rates affect banks as well as insurance companies. Banks earn much of their money by earning interest on loans, and insurance companies typically invest in high quality bonds. Lower rates are bad for both.

On the insurance side, there is also the possibility of more claims due to the virus itself. And on the bank stocks On the financial sector side, there is the prospect of a sustained economic downturn, which would hurt loan demand and also likely increase default rates on existing loan products.

Now what

The market downturn is always a volatile situation, and there is simply no way of knowing if there is more room for the downside or if the market will rebound quickly if virus fears abate. However, it is almost certain that the profitability of banks and insurance companies could take a serious hit for the first half of 2020 – it is just a question of how severe and lasting the damage will be.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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