Dow plunges nearly 300 points as bank woes overshadow hopes of Fed pause
Wall Street ended lower on Thursday after PacWest’s move to explore strategic options deepened fears about the health of US lenders and hit shares of regional banks as well as JPMorgan Chase, Wells Fargo and other major financial players.
The Dow Jones Industrial Average plummeted 286.50 points, or 0.9%, to 33,127.74, the Nasdaq slid 0.5% and the S&P 500 was down 0.7%. The Dow had been down more than 400 points earlier.
PacWest Bancorp tumbled 51% to a record low after confirming it was exploring strategic options, including a sale, after shares of the regional lender and peers got hammered amid fears of a worsening banking crisis.
Regulators seized troubled First Republic Bank and JPMorgan Chase agreed to buy majority of its assets earlier this week, marking the largest US bank failure since the 2008 financial crisis.
Canada’s Toronto-Dominion Bank Group called off its $13.4 billion acquisition of First Horizon on Thursday, triggering a drop of 33% in the US regional bank’s shares.
Regional lenders including KeyCorp, Valley National Bancorp and Zions Bancorp fell between 2.5% and 12%, while Western Alliance Bancorp dropped 38%.
“Regional banks and tightening credit conditions are weighing on the market as investors try to recalibrate on where we are in terms of credit cycles and bank lending standards, and when a potential recession may hit,” said Zhe Shen, managing director of diversifying strategies at TIFF Investment Management.
The Fed raised interest rates by 25 basis points to the 5.00%-5.25% range and signaled a pause in its policy tightening, giving officials time to assess the recent bank failures, debt ceiling situation and sticky inflation.
However, US stocks dropped on Wednesday after Chair Jerome Powell said that it was too soon to say with certainty that the rate-hike cycle was over as inflation remains the chief concern.
US interest rate futures priced in a pause in tightening at the Fed’s June and July policy meetings, according to CME’s FedWatch tool, while factoring in a nearly 50% chance of rate cuts at the September meeting.
Data on Thursday showed the number of Americans filing new claims for jobless benefits increased last week as the labor market gradually softens amid higher interest rates, which are cooling demand in the economy.
Moderna rose 3.2% on stronger-than-expected sales for its COVID-19 vaccine for the first quarter.
Qualcomm slumped 5.5% after the chip designer’s third-quarter forecasts missed estimates, while Paramount Global dropped 28% after missing first-quarter revenue estimates amid a weak advertising market in its TV business.