Stocks fell on Tuesday, as concerns about the health of the financial sector after the collapse of the First Republic bank collided with broader concern about signs of a weakening economy.
Some regional banks, which have been under pressure since the failures of Silicon Valley and Signature Bank in March, took big hits on Tuesday, shaking up the relative calm that prevailed after First Republic was expropriated and sold to JPMorgan Chase by regulators on Monday.
PacWest lost a third of its value in the first hour of trading, the worst single-day drop since the height of the banking turmoil in March. Western Alliance sank nearly 20 percent, while Comerica Bank and Zions suffered double-digit percentage declines.
The moves came along with data showing fewer new orders were received by US manufacturers than expected in March, and a continued sluggish labor market that month, with fewer job openings and more layoffs. Oil prices have also fallen sharply as the prospect of an economic downturn is likely to lower energy demand. The price of a barrel of Brent crude, the international benchmark, has fallen to around $76, close to its lowest level for the year.
The S&P 500 fell 1.5 percent, its worst day since early March. Energy stocks fell the most, with the sector as a whole down about 5 percent, followed by the financial sector, down about 3 percent.
“The bank problem will continue,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “The idea that giving First Republic to JPMorgan would end this, I never believed it. There is a real fear of instability and economic slowdown.”
Elsewhere, a survey of bank lending conditions published Tuesday by the European Central Bank showed that lenders in the eurozone are cutting back on lending faster than at any time since the 2011 European debt crisis. United State.
Adding to the murky outlook, US lawmakers have yet to agree on a deal to raise the ceiling on how much debt the government can take on, with administration officials warning it could run out of cash by June.