[New York Stock Exchange] Indexes Fall on Regional Bank Troubles... Treasury Prices Surge Amid Safe-Haven Demand

Zions Bancorporation and Western Alliance Report Loan Losses
Credit Risk Concerns at Regional Banks Rapidly Cool Investor Sentiment
U.S.-China Trade Tensions Continue to Weigh on Markets

On October 16 (local time), all three major indices of the U.S. stock market closed lower. As concerns over bad loans at some regional banks surfaced, investors were reminded of the 2023 Silicon Valley Bank (SVB) collapse, fueling anxiety and triggering a wave of selling. With a stronger preference for safe-haven assets, U.S. Treasury prices rose, while yields, which move inversely to prices, fell sharply.

On the 16th (local time), a trader is working at the New York Stock Exchange (NYSE) trading floor in the United States. Photo by Reuters Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 45,952.24, down 301.07 points (0.65%) from the previous session. The S&P 500, focused on large-cap stocks, fell 41.99 points (0.63%) to 6,629.07, while the tech-heavy Nasdaq Composite dropped 107.542 points (0.47%) to 22,562.537.

Concerns over the financial health of regional banks rapidly cooled investor sentiment. Zions Bancorporation set aside a significant loan loss provision due to the deterioration of some loans. Western Alliance disclosed that a borrower had committed fraud. As a result, shares of the two banks plummeted by 13.14% and 10.81%, respectively. Jefferies, which had invested in the recently bankrupt auto parts company First Brands, also plunged by 10.62%.

There was growing concern in the market that the nightmare of the 2023 SVB incident could be repeating itself. The SVB crisis occurred when Silicon Valley Bank, which primarily managed funds for U.S. Silicon Valley startups, collapsed due to a bank run triggered by a decline in the value of its holdings in U.S. Treasuries, raising fears of widespread regional bank failures across the United States.

Jed Ellerbroek, portfolio manager at Argent Capital Management, told CNBC, "The market is very anxious about credit-related losses," adding, "Since the market is not welcoming (the regional banks' announcements), most small-cap financial and banking stocks declined today."

Recent bankruptcies of First Brands and subprime auto lender Tricolor Holdings have heightened concerns about credit risk in the market. Jamie Dimon, chairman and CEO of JPMorgan Chase, known as the "Emperor of Wall Street," warned of potential credit risk lurking throughout the financial sector, saying during a post-earnings conference call on October 14, "If you see one cockroach, there are probably more nearby."

Concerns over U.S.-China trade tensions also contributed to market instability.

On October 14, U.S. President Donald Trump strongly criticized China for halting imports of American soybeans and mentioned the possibility of suspending business related to edible oils and other traded goods. Subsequently, on October 15, U.S. Treasury Secretary Scott Besant announced plans for a joint response with allied countries against China's export controls on rare earth elements.

Additionally, the prolonged federal government shutdown and resulting delays in the release of key economic indicators have increased uncertainty regarding the Federal Reserve's monetary policy decisions.

With a stronger preference for safe-haven assets, Treasury yields are falling sharply. The yield on the benchmark 10-year U.S. Treasury note dropped 7 basis points (1bp = 0.01 percentage points) from the previous day to 3.97%, while the yield on the 2-year note, which is sensitive to monetary policy, fell 8 basis points to 3.42%.

By sector, financial stocks declined. JPMorgan Chase fell 2.34%, Goldman Sachs dropped 1.31%, and Wells Fargo plunged 2.85%. Nvidia rose 1.1%. Microsoft and Apple fell by 0.35% and 0.76%, respectively.