S&P 500 cuts losses but signs of further cracks in banks weigh

© Reuters

By Yasin Ebrahim

Investing.com -- The S&P 500 cut losses on Friday, but investor sentiment remained fragile as a selloff in Deutsche Bank weighed on banks, forcing investors to turn to defensive corners of the market.

The S&P 500 rose 0.1%, the Dow Jones Industrial Average rose 0.1% or 22 points, and the Nasdaq fell 0.3%.

Morgan Stanley (NYSE:MS), State Street Corp (NYSE:STT), and Citigroup Inc (NYSE:C) led the losses in the banking stocks as sentiment was soured by a fall in German bank (ETR:DBKGn). The German bank, however, recovered some gains after European Central Bank President Christine Lagarde pledged support to the European banking system and German Chancellor Olaf Scholz said there was “nothing to worry about” as the bank is very profitable.

The selloff in the bank sector has pushed it into "deeply oversold" territory, Janney Montgomery Scott said in a note, though flagged the risk of a broader banking crisis.

“[F]rom a macro standpoint, and based on our technical work in global money flows- what we believe may be unfolding here is not a localized regional banking crisis, but a broader central banking crisis,” it added.

In tech, meanwhile, Microsoft Corporation (NASDAQ:MSFT) was in focus as its $75 billion takeover of Activision Blizzard edges closer to the finish line after the UK competition regulator dropped a key concern about the deal. Activision Blizzard Inc (NASDAQ:ATVI) shares jumped more than 5%.

The UK Competition and Markets Authority pointed to “new evidence” on Friday, and said it no longer believes the deal poses a risk of “substantial lessening of competition.”

Consumer discretionary stocks were also weighing on the broader market, paced by travel and leisure stocks, with Hilton (NYSE:HLT) and Marriott International Inc (NASDAQ:MAR) down more than 2%, while Carnival (NYSE:CCL) fell more than 1%.

The drop in Carnival comes ahead of the cruise line’s quarterly results due Monday that are expected to “elicit a positive reaction from the stock, based primarily on weakening sentiment heading into the print,” Deutsche Bank said in a recent note.

Block (NYSE:SQ), meanwhile, continued to come under pressure following a more than 14% slump a day earlier as short seller Hindenburg Research’s allegations of fraud against the digital payment company continued to weigh.

In a sign of market jitters, defensive corners of the market including consumer staples and utilities were in the ascendency.