Stocks slump as Credit Suisse selloff reignites bank worries
Stocks fell on Wall Street on Wednesday amid concerns about the strength of banks on both sides of the Atlantic.
The Dow was down 503 points, or 1.6%, at 31,652 as of 11:25 a.m. ET, the broader S&P 500 fell 1.4% and the tech-heavy Nasdaq Composite fell 1%. European markets fell further as Switzerland’s Credit Suisse shares hit a record low.
A Switzerland-based Wall Street bank has closed after reports that its top shareholder will not put more money into the struggling firm. Representatives of the Saudi National Bank said they could not proceed with their investment in Credit Suisse, citing regulatory concerns.
The banking giant in February reported its biggest annual loss since the 2008 financial crisis of $1.5 billion, when clients withdrew $88.3 billion from the bank in the first two weeks of October, amid a year of scandal and restructuring. After fear of instability, Bloomberg Reported.
A global problem
“Credit Suisse is not just a Swiss problem, but a global problem,” Andrew Cunningham, chief Europe economist at Capital Economics, said in a research note.
“Credit Suisse’s problems once again raise the question of whether this is the start of a global crisis or just another ‘abnormal’ case,” he said. Cunningham said that given regional bank failures in the U.S. as well, “it would be foolish to assume there won’t be more problems down the road.”
Indeed, three recent bank failures in the U.S. have spurred investors, and the Credit Suisse news prompted a renewed selloff in bank stocks in both the U.S. and Europe.
Concerns over the stability of the banking system
After the failure of Silicon Valley Bank on Friday and Signature Bank on Sunday, confidence in the banking system has been eroded within days.
Premarket decliners in the S&P 500 early Wednesday were mostly regional banks, with Zion Bancorporation, KeyCorp, Commerce and Region all sliding between 5% and 8%. Major banks also lost ground, with Wells Fargo, Bank of America and Citigroup all falling between 3% and 4%.
Banks have struggled for the better part of a year as fewer people and businesses borrow because of higher interest rates, part of the Federal Reserve’s goal as it cools the economy and reduces four-decade high inflation. tries to
Investors returned to the bond market on Wednesday, cutting yields again after some recovery the previous day. The 2-year yield fell to 4.05% from 4.25% late Tuesday, and the 10-year yield fell to 3.53% from 3.69%.
Stocks rallied on Tuesday after the government said consumer prices fell from last month, in line with most analysts’ expectations. The data showed that core inflation, with volatile energy and food prices to show a clear trend, was 0.5% in February from the previous month, up from January’s 0.4% increase. . The Fed pays close attention to core inflation in deciding monetary policy.
Investors fear an overreaction by the Fed.
Investors fear the Fed may respond to rising price pressures by accelerating the pace of interest rate hikes to dampen economic activity and inflation.
The Fed faces a dilemma over how to respond when banks are already under pressure after the fastest pace of rate hikes in a decade sent their asset prices plummeting.
“The Fed is stuck between a rock and a hard place,” said Brian Jacobson, senior investment strategist at Allspring Global Investments.
“Inflation met expectations, but coupled with a stark warning that they may need to hike further if inflationary trends do not improve.”
The Fed has other tools to use besides rate hikes, he said. Among them: The Fed can adjust the pace at which it is shrinking its vast treasury of bond investments, a process that effectively tightens the screws on the financial system.
President Biden and regulators have tried to reassure the public that the risks are contained and that deposits at other banks are safe.
After Wednesday, the government reported on retail sales, providing more data to the Fed ahead of next week’s meeting where the central bank will decide whether to raise its key borrowing rate for the ninth consecutive time or no.
In energy markets, benchmark U.S. crude fell $1.039 to $70.24 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded down $3.47 on Tuesday, hitting $71.33.
On Tuesday, the S&P 500 gained 1.7% and the Dow gained 1.1%. The Nasdaq Composite rose 2.1 percent.