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Wall Street Jolted as Bank Woes Stir Credit Angst: Markets Wrap

(Bloomberg) — Stocks slid, extending a weeklong stretch of volatility on Wall Street, as bad loans at two regional banks stirred concern about credit quality in the economy and further underscored the fragility of the $28 trillion bull market. Bitcoin tumbled, while bonds and gold rose.

Following an earlier advance driven by another solid outlook for artificial-intelligence demand, the S&P 500 turned lower as a pair of regional lenders disclosed problems with loans involving allegations of fraud, adding to concern that more cracks are emerging in borrowers’ creditworthiness.

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Zions Bancorp sank 13% after it disclosed a $50 million charge-off for a loan underwritten by its wholly-owned subsidiary, California Bank & Trust, in San Diego. And Western Alliance Bancorp plunged 11% as it said it made loans to the same borrowers.

“As of now, those seem isolated to those two relatively sizeable regional banks,” said Steve Sosnick at Interactive Brokers. “Although they are similar in size and scope to Silicon Valley Bank, which caused a bit of a crisis about two-and-a-half years ago when it failed, there is nothing (at least so far) to indicate that these are anything systemic.”

The renewed bank volatility came at a time when the dramatic collapse of subprime auto lender Tricolor Holdings hit a giant like JPMorgan Chase & Co. in the third quarter, contributing a $170 million charge-off that led to the bank’s elevated credit-cost figure and sparking a warning from Jamie Dimon.

Those bank jitters roiled markets less than a week after the re-flaring of the trade war and amid all the uneasiness caused by the the dearth of economic data during the US government shutdown.

The S&P 500 fell 0.6%. A closely watched regional bank ETF sank over 6%. Oracle Corp. spiked after sharing its margin expectations for AI infrastructure projects. Over $3.4 trillion worth of options will expire Friday, according to Goldman Sachs Group Inc.

Benchmark 10-year yields dropped below 4% while those on two-year notes hit the lowest since 2022. Gold hit a fresh record.

Speaking of Zions, Truist analyst David Smith wrote: “Is it a good thing or a bad thing in credit terms if these loans went bad due to fraud as opposed to the normal course of business? Either way, there have been enough ‘one-offs’ in commercial credits for banks of late that investors are selling first and asking questions later.”

And KBW’s Christopher McGratty said that even as Western Alliance was trimming losses, “the emergence of more ‘one-off’ credits for the industry is impacting investor sentiment, particularly for stocks deemed more credit sensitive.”

Traders also kept a close eye on geopolitics. President Donald Trump and his Russian counterpart Vladimir Putin agreed to meet in Budapest during a two-hour phone call. The conversation took place a day before Trump’s White House meeting with Ukrainian President Volodymyr Zelenskiy.

Read: US Tariff Take Helps Trim 2025 Deficit to $1.78 Trillion

A slew of Federal Reserve speakers also drew investor attention. Governor Christopher Waller said officials can keep lowering rates in quarter-percentage-point increments to support a faltering labor market, while Stephen Miran continued to advocate a larger reduction.

September inflation data that was slated to have been released this week was postponed because of the US government shutdown. That has complicated assessing the urgency of additional rate cuts, however Fed officials broadly have continued to back their September assessment that two more quarter-point cuts were likely this year.

“With the government shutdown limiting the amount of economic data available to investors, they’ll have to rely on earnings to drive the near-term narrative,” said Bret Kenwell at eToro. “At this point, earnings have the potential to steady the ship or rock the boat when it comes to recent volatility — and bulls are hoping for the former rather than the latter.”

The equity bull market could be headed for a choppier phase, Citigroup Inc. strategists led by Beata Manthey said. With the US-China trade tensions back in focus, the stakes are high and the path to resolution is complex, they added.

China’s decision to unveil unprecedented export controls on the rare-earth supply chain dominated meetings at an annual huddle of global economic chiefs in Washington this week. Treasury Secretary Scott Bessent hinted at an emerging coalition, saying US officials were “speaking with our European allies, with Australia, with Canada, with India and the Asian democracies,” to form a fulsome response.

“While the latest US-China trade flareup has dominated recent market headlines, the story remains the same for stock investors—the importance of focusing on large-cap, quality companies,” said Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy Team.

While there’s no recession on the horizon, Skelly noted, a cooling labor market and slowing economic growth could pose a challenge for many of the lower-quality, unprofitable companies that hitched a ride on the rally off the April lows.

In another sign of the recent stock-market caution, the latest American Association of Individual Investors survey showed that bullish sentiment dropped to 33.7% in the week ending Oct. 15 from 45.9% in the prior period.

“It’s been a somewhat rocky week for US equities, although by the standards of October, it’s hard to get too worked up,” according to Bespoke Investment Group strategists.

While bullish sentiment was routinely near 50% throughout 2024 as the market rallied, in the bounce off the April lows, investors have been much less willing to hop on the bandwagon, they noted.

“Some of the reticence on the part of investors has been chalked up to the upcoming earnings season and fears that expectations may have gotten too optimistic,” Bespoke said. “That hasn’t necessarily shown up in the results, though.”

At Strategas, Ryan Grabinski says one trend that remains clear is AI-related spending is not slowing down in dollar terms, at least not yet.

The solid results from Taiwan Semiconductor Manufacturing Co. underscore how the company remains one of the bigger beneficiaries of a spending spree on AI infrastructure. From OpenAI to Oracle Corp., industry leaders are racing to build the data centers that underpin the technology in the post-ChatGPT era. TSMC’s bullish forecast came a day after ASML Holding NV’s outlook pointed to solid AI demand.

“Early indicators suggest the AI narrative remains strong for now, and I suspect US companies will echo a similar story,” said Grabinski.

Meantime, UBS’s Chief Investment Office upgraded US equities to “attractive” from from “neutral.” The firm also increased its year-end S&P 500 price target to 6,900 and the June 2026 target to 7,300. The gauge closed at 6,629.07 on Thursday.

“We believe the backdrop for US stocks remains favorable, driven by resilient economic growth, Federal Reserve rate cuts, and a boom in AI investment spending,” said David Lefkowitz at UBS Global Wealth Management.

Should a larger decline present itself this month, retail investors may view this as an opportunity provided that the technical and fundamental drivers — like key support levels, solid earnings growth, and lower interest rates — remain intact, said Kenwell at eToro.

“But if you are going against the prevailing bullish trend, it’s always essential to take quick profits and move on to the next opportunity because as evidenced by this week’s price action, the index has nearly bounced all the way back due to the trend being so strong,” said Fawad Razaqzada at City Index and Forex.com.

Corporate Highlights:

United Airlines Holdings Inc.’s bullish outlook failed to assuage investors’ concerns that premium demand has peaked, sending the stock down. Oracle Corp. spiked after sharing its margin expectations for large AI infrastructure projects, easing some of Wall Street’s concerns about the profitability of a crucial new business unit. Hewlett Packard Enterprise Co. gave an outlook for profit and cash flow for its upcoming fiscal year that missed analysts’ estimates, reflecting a margin crunch in the AI era. Salesforce Inc. projected double-digit revenue growth in the coming years, easing investor concerns about a slowdown. Tesla Inc.’s safety regulators in Europe are joining an expanding global effort to more closely scrutinize the door handle design popularized by the world’s leading electric vehicle manufacturer. JB Hunt Transport Services Inc. reported a quarterly profit that topped expectations. Charles Schwab Corp. reported third-quarter earnings that beat estimates as the firm benefited from a surge in retail investing activity. Bank of New York Mellon Corp.’s third-quarter profit trounced analyst predictions as the bank’s fee revenue benefited from a surge in client activity. U.S. Bancorp’s third-quarter revenue topped analysts’ estimates, a positive sign for a company whose shares have been underperforming their main rivals for years. General Motors Co. and a partner have paused the second phase of a cathode factory in Quebec, resulting in the cancellation of a nickel sulfate project by Vale SA. Travelers Cos. reported net premiums written that came in below the average analyst estimates. BBVA SA’s $19 billion offer for Banco Sabadell SA was rejected by nearly three quarters of shareholders, ending a takeover saga that has been going on for 17 months in a major setback to the pursuer. Uber Technologies Inc. is giving some drivers in the US the option to earn money by completing tasks related to the company’s nascent data labelling business, an area where the rideshare giant sees an opportunity to shine in the artificial intelligence boom. DoorDash Inc. customers in the Phoenix area may have their orders delivered by a Waymo autonomous vehicle as part of a new partnership that will help keep the robotaxis busy when there’s a lull in demand from passengers. Taiwan Semiconductor Manufacturing Co. hiked its projection for 2025 revenue growth for the second time this year, reinforcing hopes in the longevity of a global boom in AI spending. EssilorLuxottica SA posted revenue that beat analysts’ estimates in the third quarter, lifted by a new batch of AI glasses with partner Meta Platforms Inc. Infosys Ltd. raised the lower end its forecast for yearly revenue, banking on a revival in spending on technologies such as artificial intelligence. HSBC Holdings Plc is not exposed to the collapse of scandal-hit auto-parts supplier First Brands Group, whose bankruptcy has left some of the biggest players on Wall Street facing hundreds of millions of dollars in potential losses. Nestlé SA’s new chief executive officer, Philipp Navratil, may be following a strategy set in place by his ousted predecessor, but he’s quickly putting his own hard-driving spin on it. Merck KGaA disappointed investors as it outlined new mid-term targets that bank on its life science division driving further growth. Pernod Ricard SA’s sales fell more than expected on a sharp slump in demand in China and the clearing out of excess stock in the US. Will we see more convergence between gaming and finance in the future? Let us know in the latest Markets Pulse survey.

What Bloomberg Strategists say…

“Stars are aligning for bonds as a risk-off tone in Thursday’s session pushed the 10-year yield down and sustainably through 4%. Yet more notable than the decline in the long-end of the Treasury curve is the pullback in two-year yields. A deeper slide in that sector coincides with additional bets for the Federal Reserve to deliver at least two more reductions by year-end — a dynamic that will draw a line under stocks, even if they are retreating in the short term.”

—Kristine Aquino, Managing Editor, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.6% as of 4 p.m. New York time The Nasdaq 100 fell 0.4% The Dow Jones Industrial Average fell 0.7% The MSCI World Index fell 0.2% Bloomberg Magnificent 7 Total Return Index fell 0.4% Philadelphia Stock Exchange Semiconductor Index rose 0.5% The Russell 2000 Index fell 2.1% SPDR S&P Regional Banking ETF fell 6.3% Currencies

The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.4% to $1.1688 The British pound rose 0.2% to $1.3433 The Japanese yen rose 0.4% to 150.41 per dollar Cryptocurrencies

Bitcoin fell 2.6% to $108,297.97 Ether fell 2.2% to $3,874.33 Bonds

The yield on 10-year Treasuries declined five basis points to 3.97% Germany’s 10-year yield was little changed at 2.57% Britain’s 10-year yield declined four basis points to 4.50% The yield on 2-year Treasuries declined eight basis points to 3.42% The yield on 30-year Treasuries declined four basis points to 4.59% Commodities

West Texas Intermediate crude fell 1.2% to $57.55 a barrel Spot gold rose 2.4% to $4,310.03 an ounce ©2025 Bloomberg L.P.

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