Stocks stumble on Wall Street with renewed concerns about banks

New York (AP) – Stocks fell back on Wall Street on Wednesday as concerns about the strength of banks on both sides of the Atlantic intensified.

The S&P 500 fell 1.3% at midday, while markets in Europe fell more sharply as Swiss Credit Suisse shares fell. to a record low level. The Dow Jones Industrial Average was down 461 points, or 1.4%, at 31,694 as of 11:15 a.m. ET after earlier falling as much as 639 points. The Nasdaq Composite fell 0.9%.

Credit Suisse has been battling trouble for years, including losses from the collapse of investment firm Archegos Capital in 2021. Its shares in Switzerland sank more than 16% after reports that its largest shareholder would not put more money into its investments.

The hard lights have intensified on Wall Street across the banking industry recently over concerns about what might break after the second and third largest bank failures. in US history over the past week. US banking stocks fell again on Wednesday after enjoying a short one-day respite on Tuesday.

The biggest losses have been concentrated on small and medium-sized banks, which are seen as the most vulnerable to customers trying to withdraw their money en masse. The big banks also fell, but not to the same extent.

First Republic Bank fell 16.9 percent, a day after rising 27 percent. Fifth Bankcorp III fell 5.8%. JPMorgan Chase shares fell 4.4 percent.

Much of the damage is seen as the result of the Fed’s fastest barrage of interest rate increases in decades. The Fed pulled its main interest rate overnight to a range of 4.50% to 4.75%, up from almost zero at the start of last year, hoping to bring down painfully high inflation rates.

Higher rates can tame inflation by slowing the economy, but they increase the risk of a recession later. They also hurt the prices of stocks, bonds, and other investments. That last factor was one of the problems that hurt the Silicon Valley bank, which collapsed on Friday because high rates drove down the value of its bond investments.

The US government announced a plan late Sunday to protect depositors at Silicon Valley Bank and Signature Bank, which were closed by regulators over the weekend, hoping to boost confidence in the banking industry. But since then the markets have swung from fear to calm and back again.

There remains a great deal of uncertainty about the banking industry as it struggles to absorb last year’s storm of rising interest rates after years of historically easy conditions. In his annual letter to investors, BlackRock CEO Larry Fink points to earlier eras of high interest rates that led to “staggering financial turmoil,” such as the years-long savings and loan crisis.

“We don’t know yet if the consequences of the easy money and regulatory changes will fade across the US regional banking sector (similar to the S&L crisis) with more forfeiture and closures to come,” he wrote.

Some of the wildest events this week have been in the bond market, as traders rush to guess what all the chaos will mean for the Fed’s future action. On the one hand, the pressure in the financial system could prompt the Fed to hold back from raising interest rates again at its meeting next week, or at least refrain from the larger rate hike it was likely signaling..

On the other hand, inflation remains high. While taking it easy on interest rates could give more breathing space to banks and the economy, the fear is that such a move by the Fed could give inflation more oxygen.

Weaker-than-expected economic reports released on Wednesday may have eased some of these concerns. One of them showed that inflation is at the wholesale level Last month slowed much more than economists expected. It’s still up at 4.6% over the previous year, but that was better than the 5.4% that was expected.

Other data showed that US spending on retailers Last month it fell more than expected, although spending in previous months was revised upward. Meanwhile, manufacturing in New York State is weakening more than expected. Data like this could raise concerns about a looming recession, but it could take some pressure off inflation in the near term.

This caused the yield on the two-year Treasury note to drop. It tends to track the Fed’s expectations, and fell to 3.77% from 4.25% late Tuesday. This is a huge move for the bond market. The two-year yield was above 5% just a week ago, at its highest level since 2007.

The yield on the 10-year Treasury fell to 3.42% from 3.69%. Helps determine rates for mortgages and other important loans.

The weak economic data prompted traders to build bets that the Federal Reserve may end up holding interest rates next week. This is a sharp turnaround from earlier this month, when the only options seemed to be another 0.25 percentage point increase or an acceleration to 0.50 percentage point.

In Europe, indices fell due to weaker banks. France’s CAC 40 fell 3.2%, and Germany’s DAX lost 2.8%. The FTSE 100 in London fell 3.1%.

They’ve tracked gains across much of Asia.

On Wall Street, oil and gas companies also fell as the price of crude oil fell more than 3%. They led a broad decline within the S&P 500, with 80% of stocks falling.

Halliburton fell 8.6 percent and Schlumberger fell 5.5 percent.

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AP Business contributing writers Joe McDonald and Matt Ott contributed.