Wall Street plummets as markets around the world fall on worries about banks and the economy

Wall Street slid Tuesday as worries about the banking system and the global economy forced global financial markets to become more cautious.

The Standard & Poor’s 500 fell 19.06 points, or 0.4%, to 4,499.38 and was down almost three times as much at times. It was the index’s fifth loss in the past six days after surging for the first seven months of the year.

The Dow Jones industrial average fell 158.64 points, or 0.4%, to 35,314.49 after erasing an earlier loss of 465 points. The Nasdaq Composite lost 110.07 points, or 0.8%, to close at 13,884.32.

In the US, bank stocks fell after Moody’s downgraded the credit ratings of 10 small and mid-sized banks. It cited a number of concerns about their financial strength, including the impact of higher interest rates and the trend towards working from home, which is leaving office buildings empty.

Across the Pacific, stocks fell after a report showed exports for China’s struggling economy fell the most since the pandemic began in 2020. And in Europe, banks’ shares fell after Italy’s cabinet approved a proposal to tax part of their profits this year.

Concerns were mixed with mixed earnings reports from major US companies.

Beyond Meat plummeted 14.3% after spring sales fell more than analysts expected. Demand for its herbal products is waning.

Software company Palantir Technologies gave up some of its big annual gains after reporting spring results that met only analysts’ expectations. It fell 5.3%, though year to date it’s still up more than 165% on expectations of huge growth. It’s one of the companies that’s fueled the artificial intelligence hype on Wall Street.

Eli Lilly helped limit the stock market’s losses, rising 14.9%. Earnings and sales were reported for the spring that exceeded analysts’ expectations. The company benefited from booming sales of its diabetes drug Mounjaro, which is widely used for weight loss.

UPS fell 3% after lowering its revenue forecast for this year. Higher earnings but weaker sales were reported for the spring.

Government bond yields fell in the bond market as investors flocked to assets perceived as safer. It’s a moderation of the recent rise in yields that has weighed on the stock market.

The Federal Reserve has raised interest rates to their highest level in more than two decades in hopes of curbing inflation. One effect of high interest rates is that they significantly slow down the entire economy, which increases the risk of a recession.

The significantly higher interest rates have hit the banks particularly hard.

While Moody’s downgraded the credit ratings of 10 banks and put six others under scrutiny, he said the rapid rise in interest rates had created conditions that had hurt profits across the industry. Higher interest rates also diminish the value of investments made by banks when interest rates were extremely low. Such conditions contributed to the sensational failures of three US banks earlier in the spring, which shook confidence in the system.

Moody’s also said banks with many commercial real estate loans could run into trouble as the threat of a recession lingers and the work-from-home trend discourages people from leaving their offices.

“This comes as a mild US recession looms in early 2024 and asset quality is expected to decline from solid but unsustainable levels,” Moody’s Jill Cetina and Ana Arsov wrote in a report.

M&T Bank, one of the banks whose credit rating was downgraded by Moody’s, fell 1.5%. Northern Trust, one of the banks Moody’s says it is reviewing for a possible downgrade, fell 1.6%.

Other larger banks, whose creditworthiness was not impaired, also fell. Bank of America fell 1.9%.

Later this week, the US government is due to release consumer and wholesale inflation data that could influence what the Federal Reserve does next with interest rates.

The hope on Wall Street is that the slowdown in inflation since it topped 9% last summer will help convince the Fed that no more rate hikes are needed. Economists expect Thursday’s data to show consumer prices rose 3.3% year-on-year in July, an acceleration from June’s 3%.

However, some economists and investors say achieving the final inflation dampening towards the Fed’s 2% target will probably be the hardest. They say Wall Street was too quick to believe the Fed could achieve a “soft landing” for the economy and that the S&P 500’s 19.5% gain in the first seven months of this year was overdone.

In the bond market, yields on government bonds collapsed. The yield on the 10-year Treasury fell to 4.02% from 4.10% late Monday. It helps set interest rates on mortgages and other loans.

The two-year Treasury yield, which is more in line with Fed expectations, fell to 4.75% from 4.79%.

In Asia, Hong Kong stocks fell 1.8% and Shanghai 0.3% after Chinese export data disappointed. The world’s second largest economy should be a bulwark to the rest of the world after lifting anti-COVID restrictions. But it’s stalled since then, weakening a key engine of growth.

` writers Matt Ott and Joe McDonald contributed to this report.