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All three major Wall Street benchmarks finished lower on Tuesday in a broad sell-off after the downgrading of several lenders by credit rating agency Moody’s reignited fears about the health of U.S. banks and the economy. The Canadian benchmark stock index also closed lower, as worries about China’s sluggish economy weighed on materials and energy stocks.

After a five-month rally pushed the benchmark S&P 500 and Nasdaq Composite within 5% of their lifetime highs, August has now recorded five losing sessions out of six. The S&P is down 2% this month, with the Nasdaq dropping 3.2%.

Tuesday’s decline was triggered after the agency cut ratings on 10 small- to mid-sized lenders by one notch and placed six banking giants, including Bank of New York Mellon, U.S. Bancorp, State Street and Truist Financial , on review for potential downgrades.

Moody’s also warned that the sector’s credit strength would likely be tested by funding risks and weaker profitability.

Market confidence in U.S. banks has been gradually returning after the failures of three lenders earlier this year, including Silicon Valley Bank, shocked the financial system.

The S&P 500 Banks index has slipped 2.5% year to date, compared with a 17.2% gain by the S&P 500, and the downgrades exposed the fragility of investors’ confidence towards financial stocks.

The banks index slid 1.1% on Tuesday, while the KBW Regional Banking index dipped 1.4%.

Big banks Goldman Sachs and Bank of America each eased around 1.9%, while Bank of New York Mellon dropped 1.3% and Truist fell 0.6%.

Jason Pride, chief of investment strategy and research at Glenmede, noted that Moody’s downgrades, as well as the notice given to larger banks about possible future action, were a public statement about the agency’s concerns for the health of the banking system, and how it affects the wider economy.

“I think it’s a big deal in the bigger picture of how the economy operates, because regional banks’ lending is one of the main lubricants of the economy,” he said. “If it slows down, the engine just doesn’t work as well.”

Reaction to the bank downgrades pushed up the CBOE Market Volatility index, Wall Street’s fear gauge, at one point hitting a two-month high.

Canadian markets, which reopened after a long weekend break, were supported by a jump in shares of cannabis company Tilray Brands, which said it was pivoting into craft beer by acquiring eight beer and beverage brands from Anheuser-Busch. Tilray soared 31% to close at $4.06.

In another bright spot, earnings posted by miner Barrick Gold and Restaurants Brand International, parent company of the fastfood chain Burger King, beat analysts’ expectations.

But fears of a slow economic recovery in China dented investor sentiment in Toronto.

Data showed China’s imports dropped 12.4% in July from a year ago, more than an estimated decline of 5%, while exports contracted 14.5%, steeper than an expected 12.5% decline, heightening pressure on the government to provide fresh stimulus to boost demand.

“There’s certainly growing evidence that the Chinese economy is struggling to really maintain its forward momentum,” said Douglas Porter, chief economist at BMO Capital Markets. “This might be a pretty strong signal that there is a move away from sourcing from China.”

In economic data Tuesday, Canada posted its biggest trade deficit in almost three years.

The materials sector, which includes miners and fertilizer companies, dropped 0.47%, hitting a near one-month low as prices of base and precious metals fell. Heavily weighted energy stocks recovered to end 1% firmer. It rebounded along with oil prices after a U.S. government agency projected a rosier economic outlook.

Financial stocks slipped 0.49%, mirroring declines across the globe from the Moody’s ratings cut.

Bank of Montreal fell 1.0% after U.S. regulators on Tuesday fined nine Wall Street companies, including BMO, over employees’ use of personal messaging apps to discuss deals, trades and other business.

The S&P/TSX composite index provisionally ended down 30.06 points, or 0.15%, at 20,205.98.

The Dow Jones Industrial Average fell 158.64 points, or 0.45%, to 35,314.49, the S&P 500 lost 19.06 points, or 0.42%, at 4,499.38 and the Nasdaq Composite dropped 110.07 points, or 0.79%, to 13,884.32.

Health-care shares advanced, supported by Eli Lilly jumping 14.9% to a record close on news of its upbeat quarterly profits.

Drugmakers globally rose after Denmark-based Novo Nordisk said its obesity drug, Wegovy, reduced the risk of heart disease.

Dish Network jumped 9.6% as the pay-TV provider disclosed plans to merge with satellite communications vendor EchoStar, which also rose 1%.

United Parcel Service slipped 0.9% after the U.S. economy bellwether cut its annual revenue forecast.

Volume on U.S. exchanges was 10.94 billion shares, in line with the average over the last 20 trading days. The S&P 500 posted 13 new 52-week highs and 17 new lows; the Nasdaq Composite recorded 46 new highs and 195 new lows.

Reuters, Globe staff

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