On October 17, US stocks opened slightly lower on Friday as the market continued to focus on the credit crisis surrounding regional banks. Doubts about the health of these banks have led traders to reduce their risk exposure, with bonds and safe-haven currencies emerging as primary beneficiaries as investors shifted towards safer assets.
The Dow Jones Industrial Average fell by 3.87 points, or 0.01%, to 45,948.37; the Nasdaq Composite dropped 117.34 points, or 0.52%, to 22,445.19; and the S&P 500 decreased by 13.34 points, or 0.2%, to 6,615.73.
In Friday's early trading, the share price of Zions Bancorporation rebounded from yesterday's sharp decline, following an upgrade from Baird. Jefferies also saw its stock price rise after Oppenheimer raised its rating to “outperform,” recovering from a 10.6% plunge yesterday due to concerns over its exposure to the now-bankrupt auto parts supplier First Brands.
Fifth Third Bancorp's better-than-expected earnings helped ease worries, pushing its stock price up by 2.8%. Major banks also showed signs of recovery, with JPMorgan Chase and Bank of America regaining some of the ground lost in the previous trading session.
Investors sold shares of leading artificial intelligence companies NVIDIA and Oracle, while simultaneously increasing their positions in gold as part of a risk-averse strategy. Contracts linked to gold traded above $4,300 per ounce, while Treasury yields dipped slightly.
Focus on Regional Bank Credit Crisis On Thursday, US stocks closed lower, with major indices dragged down by a significant fall in bank stocks during the late trading session.
Two regional banks, Zions Bancorporation and Western Alliance Bank, disclosed issues related to loan fraud and bad debts, raising widespread concerns among investors about the credit quality in the US banking sector. Zions Bancorporation reported a $50 million loss on two loans from its California branch in the third quarter. Meanwhile, Western Alliance filed a lawsuit against Cantor Group V, LLC for alleged fraud, which Cantor's attorney denied.
Regardless, investors are worried that these banks' lending practices may be too lenient and are concerned that similar issues might arise in other banks. This sentiment led to a widespread decline among several financial giants and regional banks.
On Thursday, the SPDR S&P Regional Banking ETF, which had already experienced four weeks of decline, fell more than 6% again. Anxiety about the banking sector has intensified following the recent bankruptcies of two auto-related companies.
While some analysts believe the risks are isolated incidents, market sentiment has clearly turned cautious, with concerns about a broader credit crisis looming. On Thursday, the Cboe Volatility Index (VIX), often referred to as Wall Street’s fear gauge, surged, while Treasury yields and the dollar fell. Conversely, gold prices hit record highs, indicating sustained interest in safe-haven assets amid widespread uncertainty. On Friday, the VIX continued its upward trend, climbing above 27, reaching its highest level since April.
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said on Thursday that as fears in the banking sector arise, a considerable amount of "speculative bubbles" has formed in the open market, attributing this to investors chasing high-risk stocks like quantum computing, drones, and unprofitable tech stocks.
She noted, “When there is a speculative bubble in the market and at the same time a macro-level concern emerges, these two factors can collide, leading to increased volatility.” She emphasized that most of the so-called speculative bubbles no longer exist in large-cap stocks but are lurking in smaller segments of the market, such as the Russell 2000 small-cap index, which set a historical high this week.