By Stan Choe, Associated Press
Updated: Wednesday, March 15, 2023
NEW YORK — Stocks are back to falling on Wall Street
Wednesday as worries worsen about the strength of banks on both sides of the
Atlantic.
The S&P 500 was 1.5% lower in morning trading,
while markets in Europe fell more sharply as shares of Switzerland’s
Credit Suisse tumbled to a record low. The Dow Jones Industrial Average
was down 482 points, or 1.5%, at 31,672 as of 10:15 a.m. Eastern time, while
the Nasdaq composite was 1.2% lower.
Credit Suisse has been fighting troubles for years,
including losses it took from the 2021 collapse of investment firm Archegos
Capital. Its shares in Switzerland sank more than 22% following reports that
its top shareholder won’t pump more money into its investment.
Wall Street’s harsh spotlight has intensified across
the banking industry recently on worries about what may crack next following
the second- and third-largest bank failures in U.S. history last week. Stocks
of U.S. banks tumbled again Wednesday after enjoying a brief, one-day respite
on Tuesday.
The heaviest losses were focused on smaller and
mid-size banks, which are seen as more at risk of having customers try to pull
their money out en masse. First Republic Bank sank 15.1%, a day after soaring
27%. KeyCorp fell 9%, and Huntington Bancshares dropped 7.3%
Larger banks weren’t hit as hard but still fell.
JPMorgan Chase slid 3.8%.
Much of the damage is seen as the result of the
Federal Reserve’s fastest barrage of hikes to interest rates in decades. The
Fed has pulled its key overnight rate to a range of 4.50% to 4.75%, up from
virtually zero at the start of last year, in hopes of driving down painfully
high inflation.
Higher rates can tame inflation by slowing the
economy, but they raise the risk of a recession later on. They also hurt prices
for stocks, bonds and other investments. That latter factor was one of the
issues hurting Silicon Valley Bank, which collapsed Friday, because high rates
forced down the value of its bond investments.
The U.S. government announced a plan late Sunday to
protect depositors at Silicon Valley Bank and Signature Bank, which regulators
shut on Sunday, in hopes of shoring up confidence in the banking industry. But
markets have since swung from fear to calm and back again.
Some of this week’s wildest action has been in the
bond market, where traders are rushing to guess what all the chaos will mean
for future Fed action. On one hand, stress in the financial system could push
the Fed to hold off on hiking rates again at its meeting next week, or at least
refrain from the larger rate hike it has been signaling.
On the other hand, inflation is still high. While
taking it easier on interest rates could give more breathing space to banks and
the economy, the fear is such a move by the Fed could also give inflation more
oxygen.
Weaker-than-expected economic reports released
Wednesday may have allayed some of those worries. One showed that inflation at
the wholesale level slowed by much more last month than economists expected.
It’s still high at a 4.6% level versus a year earlier, but that was better than
the 5.4% that was forecast.
Other data showed that U.S. spending at retailers
fell by more than expected last month, though spending in prior months was
revised up. Manufacturing in New York state, meanwhile, is weakening by much
more than forecast. Such data could raise worries about a recession on the
horizon, but they may also take some pressure off inflation in the near term.
That caused the yield on the two-year Treasury to
plummet. It tends to track expectations for the Fed, and it dropped to 3.87%
from 4.25% late Tuesday. That’s 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 yield on the 10-year Treasury dropped to 3.45%
from 3.69%. It helps set rates for mortgages and other important loans.
The weak economic data pushed traders to build bets
that the Fed may end up holding rates steady next week. That’s a sharp
turnaround from earlier this month, when the only options seemed to be another
hike of 0.25 percentage points or an acceleration to 0.50 points.
In Europe, indexes tumbled on weakness from banks.
France’s CAC 40 dropped 3.7%, and Germany’s DAX lost 3.1%. The FTSE 100 in
London fell 3.2%.
They followed up on gains across much of Asia.
On Wall Street, companies in the oil and gas
business also tumbled as the price of crude dropped more than 3%.
Halliburton fell 7.6%, and Schlumberger dropped 5.3%
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