Stock market today: Wall Street sinks as bank fears flare
By Stan Choe, The Associated Press on May 4, 2023.
NEW YORK (AP) – Stocks closed lower as Wall Street’s worries about the U.S. banking system cranked even higher. The S&P 500 lost 0.7% Thursday. The Dow Jones Industrial Average fell 286 points and is now down for the year. The Nasdaq composite also closed lower. PacWest Bancorp fell by half as investors looked for the next weak link following several big U.S. bank failures since March. Other smaller and mid-sized banks also fell sharply. Helping to limit the market’s losses were several companies reporting better profits than expected. The European Central Bank also raised its benchmark interest rate and indicated more rate hikes were on the way. THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below. NEW YORK (AP) – Stocks are sinking on Wall Street Thursday as worries crank higher about a cracking U.S. banking system. The S&P 500 was 0.6% lower in late trading as several market-moving forces swirled, from the latest rate increase by the European Central Bank to a report indicating more U.S. workers got laid off last week than expected. The Dow Jones Industrial Average was down 276 points, or 0.8%, at 33,137, as of 3:32 p.m. Eastern time, while the Nasdaq composite was 0.3% lower. The wildest action was in the financial industry, where shares of PacWest Bancorp tumbled 47.7%. It’s been under heavy scrutiny by investors recently following three of the four largest U.S. bank failures in history. “The important thing to remember is banking is as much about confidence as it is about economics and accounting,” said George Bory, chief investment strategist for fixed income at Allspring Global Investments. “We’re in a period where confidence is very fragile, arguably damaged. Policy makers are trying to reestablish confidence in the system, and you can just see what’s happening in share prices: The confidence hasn’t been restored yet.” Wall Street has been hunting for other possible weak links in the system, which could see a swift exodus of customer deposits as the industry contends with much higher interest rates. PacWest said overnight that it’s considering its options and that several potential partners and investors have approached it. It also said that its core customer deposits have increased since the end of March. Fear is running so high in the industry that shares of Western Alliance Bancorp plunged as much as 61% after a report from The Financial Times said the Phoenix-based bank was considering selling its business, among other options. But the company refuted the report, saying there “is not a single element of the article that is true.” Its stock pared its drop to a loss of 36.3%. The wild movements came after Western Alliance tried to reassure investors late Wednesday with a statement saying its deposits are stable and that they increased from Monday to Tuesday. First Horizon, meanwhile, dropped 32.4% after it and TD Bank Group agreed to call off their merger deal. TD told First Horizon it did not know when it could get regulatory approvals for the deal. At the start of this week, regulators seized First Republic Bank and sold most of it to JPMorgan Chase, with hopes that could bolster confidence in the industry. Officials have stressed they see the banking system is sound and secure, but the worries aren’t leaving the market. Banks are dealing with drastically different business conditions now that interest rates are no longer at record lows. The Federal Reserve on Wednesday announced its latest increase, which took its key overnight rate up to a range of 5% to 5.25% from virtually zero early last year. The Fed has jacked up rates at the fastest pace in decades to knock down high inflation. But it does that by slowing the economy, raising the risk of a recession and hurting prices for investments. Many of the loans made and bonds bought by banks when rates were low are suddenly worth much less in today’s market. The worry now is that even if no more banks topple, the industry’s turmoil could cause smaller and mid-sized banks to pull back on their lending. That in itself could act like rate hikes, which would further smother the economy. Many investors already believe a recession will hit later this year. A report on Thursday showed that the number of U.S. workers filing for unemployment last week accelerated a bit more than expected. The job market has remained largely resilient, and it’s one of the main pillars still propping up the slowing economy. A more comprehensive report on Friday will give the latest monthly update on the overall job market. With worries rising about the economy, the Fed indicated Wednesday that it may be done hiking interest rates for the moment. But the European Central Bank on Thursday pressed on. Its president, Christine Lagarde, said that it has “more ground to cover, and we are not pausing.” It did slow the pace of its hikes, raising rates by only a quarter of a percentage point. The higher rates mean investors are getting paid higher yields for owning bonds, which in turn offers more protection for future shakiness in the market, Allspring’s Bory said. “Investing in fixed income today is actually kind of the best it’s been in one and a half decades,” he said. Helping to support stocks despite all the worries has been a largely better-than-feared earnings reporting season. Companies in the S&P 500 are still on track to report a second straight quarter of profit drops, but the results have mostly been better than expected. Ball gained 13.7% after the maker of aluminum cans and other packaging reporting stronger profit than expected. On the opposite end was Qualcomm, which fell 5.9%. It reported stronger results for the latest quarter than expected, but analysts pointed to disappointing guidance for upcoming results. Kenvue, the consumer health business spun off by Johnson & Johnson, soared nearly 21% in its first trading following its initial public offering. Its brands include Band-Aids, Listerine and Tylenol. ___ AP Business Writers Joe McDonald and Matt Ott contributed. 24-23
