Stocks slumped on Tuesday, as fears for the health of the financial sector after the collapse of First Republic Bank collided with broader anxiety over signs of a weakening economy.
Some regional banks, which have been under pressure since Silicon Valley Bank and Signature Bank failed in March, took sizable hits on Tuesday, shattering the relative calm that prevailed after First Republic was seized and sold to JPMorgan Chase by regulators on Monday.
PacWest lost a third of its value in the first hour of trading, its worst single-day drop since the height of the bank turmoil in March. Western Alliance sank nearly 20 percent, while Comerica and Zions bank both suffered double-digit percentage declines.
The moves came alongside data showing fewer new orders received by U.S. manufacturers than expected in March and a continued cooling of the labor market that month, with job openings falling and layoffs rising. Oil prices fell sharply, too, as the prospects of an economic downturn would likely cut energy demand. The price of a barrel of Brent crude, the international benchmark, dropped to around $76, close to its lowest level for the year.
The S&P 500 dropped 1.5 percent, its worst day since early March. Energy stocks fell by the most, with the sector as a whole down nearly 5 percent, followed by financials, down about 3 percent.
“The bank problem is going to be ongoing,” said Andrew Brenner, the 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 an economic slowdown.”
Elsewhere, a survey of bank lending conditions published Tuesday by the European Central Bank showed lenders in the eurozone pulling back from lending at a pace faster than that of any time since the 2011 European debt crisis. Worries about a credit crunch squeezing the economy are also becoming more prominent among policymakers in the United States.
Adding to the murky outlook, U.S. lawmakers have yet to agree on a deal to raise the ceiling on the amount of debt the government can take on, with administration officials warning that it could run out of money by June.
