Wall Street ended lower on Thursday after PacWest’s move to explore strategic options deepened fears about the health of U.S. lenders and hit shares of regional banks as well as JPMorgan Chase, Wells Fargo & Co and other major financial players. The TSX also ended lower, although the tech sector got a boost from heavyweight Shopify surging 23% after announcing an earnings beat, a sale of its logistics operation, and plans to cut 20% of its staff.
PacWest Bancorp tumbled 51% after it confirmed it was exploring strategic options, including a sale. Shares of the regional lender and other banks got hammered recently on fears of a worsening banking crisis.
Western Alliance Bancorp plummeted almost 39%, with trading in the stock halted multiple times. At its session low, Western Alliance shares were down more than 60% and the lender denied a report that it was exploring a potential sale. Comerica and Zion Bancorporation both lost about 12%. The KBW Regional Banking index ended down 3.5%, bouncing off its session low which was down about 7%.
Canada’s Toronto-Dominion Bank Group called off its US$13.4 billion acquisition of First Horizon Corp, triggering a 33% slump in the U.S. bank’s shares.
Among the largest U.S. banks, JPMorgan dropped 1.4% and Wells Fargo lost 4.25%.
“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 CBOE volatility index, also known as Wall Street’s fear gauge, rose to as much as 21 points, its highest since late March.
On Sunday, regulators seized troubled First Republic Bank and JPMorgan Chase agreed to buy majority of its assets, marking the largest U.S. bank failure since the 2008 financial crisis.
With investors increasingly worried a widening banking crisis and an economic downturn, U.S. interest rate futures prices now imply traders mostly expect the U.S. Federal Reserve to cut rates by the central bank’s July meeting, according to CME Group’s FedWatch Tool.
The Fed on Wednesday raised interest rates by 25 basis points, while 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.
Data on Thursday showed the number of Americans filing new claims for jobless benefits increased last week as the labour market gradually softens amid higher interest rates, which are cooling demand in the economy.
Of the 11 S&P 500 sector indexes, nine declined, led lower by financials, down 1.29%, followed by a 1.26% loss in communication services.
The S&P 500 declined 0.72% to end the session at 4,061.22 points. It was its fourth straight session of declines, the first such streak since February The Nasdaq declined 0.49% to 11,966.40 points, while Dow Jones Industrial Average declined 0.86% to 33,127.74 points.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 116.49 points, or 0.6%, at 20,238.19, its lowest closing level since April 6.
Heavily-weighted financials fell 1.3% as pressure mounted on U.S. regional bank stocks and despite a gain of 0.3% for Toronto-Dominion Bank Group after the lender called off its First Horizon acquisition.
Energy also lost ground, falling nearly 1%, as oil settled 0.1% lower at US$68.56 a barrel following another volatile session.
Technology was the lone sector to rise, gaining 3.4%, thanks to the surge in Shopify shares.
Shares of Apple rose nearly 1% in the post market after the tech giant beat sales expectations for its latest quarter. It had dipped 1% in regular trading hours.
In other stock moves Thursday, Moderna Inc jumped 3.2% following stronger-than-expected sales for its COVID-19 vaccine for the first quarter.
Qualcomm Inc slumped 5.5% after the chip designer’s third-quarter forecasts missed estimates, while Paramount Global Inc tanked about 28% after missing first-quarter revenue estimates amid a weak advertising market in its TV business.
Volume on U.S. exchanges was relatively heavy, with 12.0 billion shares traded, compared to an average of 10.5 billion shares over the previous 20 sessions. Declining stocks outnumbered rising ones within the S&P 500 by a 2.4-to-one ratio. The S&P 500 posted 4 new highs and 27 new lows; the Nasdaq recorded 47 new highs and 412 new lows.
Reuters, Globe staff