Wall Street’s week of turmoil closed with drops for stocks. The S&P 500 fell 1.1% Friday, led by drops in First Republic and other banks. The Dow Jones Industrial Average and Nasdaq composite also pulled back. This week has been a whipsaw for global markets as concerns worsen about banks following the second- and third-largest U.S. bank failures in history. The fear is that the trouble for banks caused by fast-rising interest rates could drag the economy into a recession. Treasury yields sank again Friday in part on such fears, along with easing inflation expectations and falling confidence among U.S. households.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
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 1.2% lower in late trading, cutting into its gain for the week. The Dow Jones Industrial Average was down 441 points, or 1.4%, at 31,805, as of 3 p.m. Eastern time, while the Nasdaq composite was 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 8%. On Wall Street, shares of First Republic Bank sank 32.3% and were on their way to a 71% 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.
“If the Fed hikes this far this fast, something will break,” said Ross Mayfield, investment strategy analyst at Baird. “There’s a very clear and evident history of that happening, even in slower, smaller rate-hike cycles.”
Analysts have been quick to say the current chaos for banks looks nowhere near as bad as the 2007-08 financial crisis that ruined the global economy. But the troubles still feed into concerns about a recession because problems for banks could mean problems for smaller and mid-sized companies getting the loans they need to grow.
In “the biggest picture: since 1870 there have been 14 big world recessions, all driven by wars, pandemics & banking crises,” investment strategist Michael Hartnett wrote in a BofA Global Research report.
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 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…
Read More: First Republic Bank drops again on Friday on recession fears