Wall Street fell as Credit Suisse launched a new bank sell-off

NEW YORK (Reuters) – U.S. stocks pared losses late Wednesday, but the Dow Jones and S&P 500 indexes still closed lower, as troubles at Credit Suisse revived fears of a banking crisis, outweighing bets on a U.S. interest rate hike this month.

Benchmarks regained some traction in late trading after Bloomberg reported that the Swiss government was in talks about options to stabilize the country’s banking giant. The Nasdaq Composite Index closed with slight gains.

“We’re seeing movement in the headlines but not the sharp headlines and that’s good. … I don’t think we’re in the stages of 2008-2009 by any means when it comes to contagion matters,” said Co-Director of Themis Trading. Trading, Joe Saluzzi.

However, Credit Suisse’s problems added to the pressure on the banking sector after the US authorities relieved investors of emergency measures to prevent infection following the collapse of SVB Financial (SIVB.O) and Signature Bank (SBNY.O).

Some investors believe that aggressive increases in US interest rates by the Federal Reserve have caused cracks in the financial system.

“They’ve tightened at the most dramatic rate we’ve seen since 1980, and so I think this could be an opportunity for them to pause,” said Jack Ablin, CIO of Cresset Capital.

US-listed Credit Suisse shares hit a record low, after the bank’s largest investor said it could not offer the bank more financing, triggering a crisis for European lenders and putting pressure on US banks as well.

The selling put an early end to Wall Street’s tepid rebound in yesterday’s session.

“The rebound in financial stocks and banks yesterday made sense, but kind of the overriding factor here is the loss of confidence and it’s really the fear of the unknown,” said Mark Stoeckl, CEO of Adams Funds and senior portfolio manager.

The data showed US retail sales fell 0.4% last month after growing 3.2% in January. Economists polled by Reuters had expected a contraction of 0.3 percent.

A separate report showed US producer prices fell unexpectedly in February, a day after another reading showed moderation in consumer inflation. This fueled investor hopes that the Fed may slow down interest rate hikes.

US Treasury yields fell, as traders now expect equal chances of a 25 basis point rate hike and pause at the March Fed meeting.

The Dow Jones Industrial Average fell 280.83 points, or 0.87%, to 31,874.57 points, the Standard & Poor’s 500 lost 27.36 points, or 0.70%, to 3,891.93 points, and the Nasdaq Composite Index increased 5.90 points, or 0.05%, to 11,434.05.

First Republic Bank (FRC.N) fell by 21.37%, while PacWest Bancorp PACW.O fell by 12.87%, and trading was halted several times due to volatility, a day after the affected bank shares recovered strongly.

Bucking the trend, Western Alliance Bancorp (WAL.N) and bank and brokerage Charles Schwab Corp (SCHW.N) closed down 8.3% and 5%, respectively. Both stocks reversed early declines.

“In financial markets, you just have to look at those that can beat it and don’t have a lot of investment risk in their portfolio,” said Jeffrey Carbone, managing partner at Cornerstone Wealth.

Large US banks including JPMorgan Chase & Co (JPM.N), Citigroup (CN) and Bank of America Corp (BAC.N) fell, sending the S&P 500 Banking Index (.SPXBK) down 3.62%. The KBW Regional Banking Index (.KRX) fell 1.57%.

Most of the 11 major sectors of the S&P 500 were in the red, with the energy sector (.SPNY) being the worst performer, down 5.42%.

Low issues outnumbered high issues on the NYSE by a ratio of 3.34 to 1; On the Nasdaq, the ratio was 2.33 to 1 in favor of declining stocks.

The S&P 500 posted 3 new highs in 52 weeks and 37 new lows; The Nasdaq index posted 17 new highs and 379 new lows.

(Reporting by David Carnevale). Editing by David Gregorio

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