NEW YORK (AP) — Stocks fell again on Wall Street Wednesday as concerns about the strength of banks on both sides of the Atlantic worsened.
The S&P 500 was down 1.3% in midday trade, while markets fell sharply in Europe as shares in Switzerland’s Credit Suisse fell. One achievement at least. The Dow Jones industrial average was down 461 points, or 1.4%, at 31,694 as of 11:15 a.m. ET, having previously fallen as much as 639 points. The Nasdaq composite was 0.9% lower.
Credit Suisse has been battling problems for years, including losses from the 2021 collapse of investment firm Archigos Capital. Its shares fell more than 16% in Switzerland, following reports that its top shareholder would not pay more money into its investment.
Wall Street’s harsh spotlight has recently intensified across the banking sector amid concerns about what might happen next following the second and third major bank failures. Last week in American history. US bank stocks fell again on Wednesday after enjoying a short, one-day off on Tuesday.
The heaviest losses were concentrated in small and medium-sized banks, where customers are most at risk of trying to withdraw their money en masse. Big banks also fell, but not by much.
First Republic Bank rose 27% before falling 16.9% a day later. Fifth Third Bancorp fell 5.8%. JPMorgan Chase fell 4.4%.
Much of the damage can be seen as a result of the Federal Reserve raising interest rates the fastest in decades. The central bank has pulled its key overnight rate to a range of 4.50% to 4.75%, from near zero at the start of last year, in hopes of reducing painfully high inflation.
Higher rates can curb inflation by slowing the economy, but they raise the risk of a recession later on. They also affect prices for stocks, bonds and other investments. That latter factor is one of the issues plaguing the Silicon Valley bank, which slumped on Friday as higher rates eroded the value of its bond investments.
The U.S. government late Sunday announced plans to protect depositors at Silicon Valley Bank and Signature Bank, which regulators hoped would boost confidence in the banking sector after it closed over the weekend. But markets went from fearful to calm and back again.
There is still great uncertainty in the banking sector to absorb the blizzard of last year’s rate hikes following historically easy conditions. In his annual letter to investors, BlackRock CEO Larry Fink pointed to previous periods of rising rates that led to “spectacular financial flare-ups” like the savings and loan crisis over the years.
“We don’t yet know whether the effects of easy money and regulatory changes will ripple across the US regional banking sector (analogous to the S&L crisis) and further seizures and shutdowns,” he wrote.
Some of the worst action this week has been in the bond market, where traders are rushing to guess what all the chaos will mean for future central bank action. On the one hand, stress in the financial system could push the central bank to hold off on hiking rates again at its meeting next week, or at least avoid a potentially large rate hike..
On the other hand, inflation is still high. While easing interest rates will give banks and the economy more breathing space, there are fears that such a move by the central bank could give more oxygen to inflation.
Weaker-than-expected economic reports released Wednesday may have eased some of those concerns. One showed that there is inflation in wholesale prices Last month fell more than economists had expected. That was still higher than the 4.6% level a year ago, but better than the 5.4% forecast.
Other data shows US spending at retailers Last month fell more than expected, although spending was revised down in previous months. Meanwhile, manufacturing in New York state is weakening more than forecast. Such data may raise concerns about a recession on the horizon, but they may take some pressure off inflation in the near term.
This caused two-year Treasury yields to fall. It tends to track expectations for the central bank, and fell to 3.77% from 4.25% late on Tuesday. This is a big move for the bond market. The two-year yield was above 5% a week ago, the highest level since 2007.
The yield on the 10-year Treasury fell to 3.42% from 3.69%. It helps set rates for mortgages and other important loans.
Weak economic data pushed traders to bet the central bank will keep rates steady next week. That’s a sharp turnaround from earlier this month, when an acceleration to 0.25 percentage points or 0.50 points seemed the only options.
In Europe, indices fell on weak banks. France’s CAC 40 fell 3.2%, while Germany’s DAX lost 2.8%. The FTSE 100 fell 3.1% in London.
They pursued conquests throughout much of Asia.
On Wall Street, companies in the oil and gas business also fell as crude oil prices fell more than 3%. They led to a widespread decline within the S&P 500, where 80% of stocks fell.
Halliburton fell 8.6%, Schlumberger fell 5.5%
AP business writers Joe McDonald and Matt Ott contributed.