NEW YORK (AP) — Wall Street’s week of turmoil is closing with sharp drops for stocks on Friday as worries worsen about the banking industry and fears rise that it could drag the economy into a recession.
The S&P 500 was 1.3% lower in midday trading, cutting into its gain for the week. The Dow Jones Industrial Average was down 442 points, or 1.4%, at 31,803, as of 11:30 a.m. Eastern time, while the Nasdaq composite was 1.1% lower.
This week has been a whipsaw for markets around the world as worries rise following the second- and third-largest U.S. bank failures in history. Just a day earlier, markets rallied in relief after two banks on both sides of the Atlantic tapped into tens of billions of dollars of cash to bolster their finances.
But on Friday, some of the hope was washing out, and the pair were back to falling. In Switzerland, Credit Suisse shares dropped nearly 10%. On Wall Street, shares of First Republic Bank sank 26.5% and were on their way to a 69% plunge for the week.
The two banks have different sets of issues challenging them, but the overriding fear is that the banking system may be cracking under the weight of the fastest set of hikes to interest rates in decades.
The two banks have different sets of issues challenging them, but the overriding fear is that the banking system may be cracking under the weight of the fastest set of hikes to interest rates in decades.
The two banks have different sets of issues challenging them, but the overriding fear is that the banking system may be cracking under the weight of the fastest set of hikes to interest rates in decades.
Banks have borrowed nearly $165 billion from the Federal Reserve over the last week in a sign of how much stress is in the system. After years of enjoying historically easy conditions, banks and the economy are now getting a shock to the system after the Federal Reserve and other central banks jacked up interest rates at a blistering pace. The moves are meant to get the world’s high inflation under control.
Higher rates can indeed help 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.
Since then, Wall Street has tried to root out banks with similar traits to Silicon Valley Bank, such as lots of depositors with more than the $250,000 limit that’s insured by the Federal Deposit Insurance Corp., or lots of tech startups and other highly connected people that can spread worries about a bank’s strength quickly.
That’s why investors keyed in so much on San Francisco-based First Republic. A group of 11 of the biggest banks on Thursday said they would deposit a combined $30 billion in the bank to show their confidence in it and banks in general.