NEW YORK (AP) — Stocks began to fall again on Wall Street on Wednesday as concerns deepened about the strength of banks on both sides of the Atlantic.
The S&P 500 was down 1.3% at midday as European markets fell more sharply as Swiss Credit Suisse shares fell at a record high. The Dow Jones Industrial Average was down 461 points, or 1.4%, at 31,694 as of 11:15 a.m. Eastern Time, after losing as much as 639 points earlier. The Nasdaq composite was 0.9% lower.
Credit Suisse has been battling issues for years, including losses it suffered following the 2021 collapse of investment firm Archegos Capital. Its shares in Switzerland fell more than 16% following reports that its largest shareholder will no longer inject money into its investment.
Wall Street’s harsh spotlight has intensified in the banking sector recently amid concerns over what could crack after the second and third largest bank failures in the history of the United States over the past week. U.S. bank stocks fell again on Wednesday after enjoying a brief one-day respite on Tuesday.
The heaviest losses have been concentrated on small and medium-sized banks, which are seen as more at risk of their customers trying to withdraw their money en masse. The big banks also fell, but not as much.
First Republic Bank fell 16.9%, a day after climbing 27%. Fifth Third Bancorp fell 5.8%. JPMorgan Chase slipped 4.4%.
Much of the damage is seen as the result of the Federal Reserve’s fastest barrage of interest rate hikes in decades. The Fed cut its overnight rate to a range of 4.50% to 4.75% from virtually zero at the start of last year, hoping to bring down painfully high inflation.
Higher rates can keep inflation in check by slowing the economy, but they increase the risk of a later recession. They also hurt the prices of stocks, bonds and other investments. The latter factor was one of the issues that hurt Silicon Valley Bank, which slumped on Friday as high rates depressed the value of its bond investments.
The US government on Sunday night announced a plan to protect depositors at Silicon Valley Bank and Signature Bank, which regulators shut down over the weekend in hopes of bolstering confidence in the banking industry. But the markets have since gone from fear to calm and back again.
There is still great uncertainty about the banking sector as it struggles to absorb last year’s blizzard of rate hikes after years of historically easy conditions. In his annual letter to investors, BlackRock CEO Larry Fink pointed to past eras of rising rates that led to “spectacular financial extinctions,” such as the decades-long savings and lending crisis. years.
“We don’t yet know if the consequences of easy money and regulatory changes will ripple through the entire U.S. regional banking sector (similar to the S&L crisis) with more foreclosures and closures to come,” he said. writing.
Some of the wildest action this week has been in the bond market, where traders are racing to guess what all the chaos will mean for future Fed action. On the one hand, strains in the financial system could push the Fed to suspend rate hikes again at its meeting next week, or at least refrain from the larger rate hike it had. potentially flagged..
In contrast, inflation remains high. While it is true that an easing of interest rates could give banks and the economy more breathing space, the fear is that such a decision by the Fed could also give inflation more breathing space.
Weaker-than-expected economic reports released on Wednesday may have eased some of those concerns. One showed that inflation at the wholesale level slowed much more last month than economists expected. It is still high at a level of 4.6% from the previous year, but it was better than the 5.4% expected.
Other data showed that US spending at retailers fell more than expected last month, although spending in previous months was revised upwards. Manufacturing in New York State, meanwhile, is weakening much more than expected. Such data could raise fears of a recession on the horizon, but it could also ease some pressures on inflation in the short term.
This caused the two-year Treasury yield to fall. It tends to track Fed expectations and fell to 3.77% from 4.25% on Tuesday night. This is a massive move for the bond market. The two-year yield was above 5% just a week ago, at its highest level since 2007.
The 10-year Treasury yield fell to 3.42% from 3.69%. It helps set the rates for mortgages and other large loans.
Weak economic data had traders betting that the Fed could end up holding rates steady next week. That’s a sharp turnaround from earlier in the month, when the only options seemed to be another 0.25 percentage point rise or an acceleration to 0.50 points.
In Europe, the indices fell due to the weakness of the banks. The French CAC 40 fell by 3.2% and the German DAX by 2.8%. The FTSE 100 in London fell 3.1%.
They tracked gains across much of Asia.
On Wall Street, companies in the oil and gas sector also fell, with the price of crude falling more than 3%. They led a widespread fall in the S&P 500, where 80% of stocks fell.
Halliburton fell 8.6% and Schlumberger 5.5%
AP Business Writers Joe McDonald and Matt Ott contributed.