The Dow fell 410 points on Thursday as Wall Street wrestled with mounting jitters about credit market turmoil and regional banks’ dangerous exposures to bad loans. The broader S&P 500 dropped 0.9% while the tech-heavy Nasdaq Composite moved 0.8% lower, signaling that investors are growing increasingly worried about the health of the banking industry.
US stocks turned lower as panic spread across trading floors. Volatility returned to markets amid rising US-China trade tensions and concerns about historically expensive stocks. But the real trouble is brewing beneath the surface, where lenders disclosed issues with borrowers that could trigger negative spillovers into the stock market and broader economy.
Regional Bank Shares Sink on Credit Worries
Regional bank shares tumbled Thursday after two lenders revealed serious problems with their loan portfolios. Zions Bancorp (ZION) sank 12% after the bank disclosed it would take a $50 million loss in the third quarter because of a bad loan. Western Alliance Bancorp (WAL) dropped 10.5% after announcing it’s suing a borrower over allegations of fraud.
The disclosures came on the heels of auto lenders First Brands and Tricolor Holdings declaring bankruptcy in September. Nerves are now rising that big banks are tied up in loans that might not get repaid. Credit quality worries are plaguing markets today as fears mount that multiple large lenders have heavy exposure to problematic loans with limited collateral, according to José Torres, senior economist at Interactive Brokers.
Jefferies (JEF) sank 10% Thursday as the bank wrestles with the fallout from having exposure to First Brands. The investment bank’s struggles are stoking fresh anxiety about who else might be caught in the credit crossfire. “Everyone is asking, is that a canary in the coal mine?” Michael Block, market strategist at Third Seven Capital, told CNN’s Matt Egan. “They’re supposed to be the smartest guys in the room.”
“Everyone is waiting for a shoe to drop,” Block said. “There is a little baby shoe dropping in the form of Jefferies. It could be a false alarm or it could be that where there is smoke, there is fire.” The KBW Nasdaq Regional Bank index sank 6.5% as investors fled banking stocks. About 80% of companies in the S&P 500 were trading lower by afternoon.
Wall Street’s fear gauge, the VIX, jumped 20% and traded at its highest level since May. The spike shows just how quickly jitters can spread when credit market problems surface. Gold futures surged 2.5% to surpass $4,300 a troy ounce as investors rushed into safe havens. Silver futures gained 3% and hit another record high.
Investors snapped up bonds, pushing yields lower across the board. The 10-year yield fell below 4% and hit its lowest level since April. The two-year yield dropped to 3.42% and traded at its lowest level since 2022. When you see money flowing this fast into government debt, it means traders are genuinely worried about what’s coming next for the economy.
JPMorgan Chase CEO Jamie Dimon said on his company’s earnings call on Tuesday that he’s concerned about the credit environment. JPMorgan disclosed it had a $170 million exposure to Tricolor, one of the auto lenders that recently went under. “These are early signs there might be some excess out there,” Dimon said on the earnings call. “If we ever have a downturn, you’re going to see quite a bit more credit issues.”
Dimon warned Thursday at the annual Institute for International Finance meeting that asset prices are very high and credit spreads are very low. “I’d feel more comfortable if that weren’t true because that’s a long way to fall,” he said. “And it seems to me the market kind of thinks everything’s going to be fine, and you know, I’m not quite so sure of that.” When the head of America’s largest bank starts talking like this, you should pay attention.