Wall Street closed lower on Thursday, with signs of weakness in regional banks spooking investors already on edge over U.S.-China trade tensions. The selling pressure extended into Bay Street, which saw the S&P/TSX Composite Index fade throughout the afternoon to end 0.6% lower after setting a fresh record high on Wednesday. Financials in Canada were also among the biggest decliners.
Shares of Zions Bancorporation tumbled 13% after the regional U.S. bank disclosed an unexpected loss on two loans in its California division, adding to growing investor unease about hidden credit stress as lenders navigate economic uncertainty with interest rates still relatively high. Western Alliance slumped 10.8% after it said it initiated a fraud lawsuit against one of its borrowers. Jitters about commercial lending emerged following the September collapses of U.S. auto parts supplier First Brands and car dealership Tricolor.
“I think that there’s some level of minimal nervousness associated with the credit markets,” said Ron Albahary, chief investment officer at LNW in Philadelphia. “If you’ve been doing this long enough, you don’t ignore anything that might be a yellow flag in the credit markets.”
With the S&P 500 recently at record highs, investors were also watching for developments between Washington and Beijing after their trade war escalated last week.
U.S. President Donald Trump has threatened 100% tariffs on China starting November 1, as well as other new trade measures against the world’s second-largest economy following Chinese curbs on exports of rare earth minerals.
“With the added uncertainty of U.S. and China trade and increased rhetoric and what that could mean for the economy and for the markets, I think that’s adding to market instability,” said Tom Hainlin, an investment strategist at U.S. Bank Wealth Management in Minneapolis.
TSMC, the world’s largest manufacturer of advanced semiconductors, gave a bullish outlook for spending on artificial intelligence. Still, heavyweight AI-related stocks dipped, with Palantir and Meta Platforms both off 0.8%, and Tesla losing 1.5% .
Salesforce jumped 4% after the business software seller forecast revenue of more than $60 billion for 2030, above Wall Street estimates.
Optimism about AI and expectations of U.S. interest rate cuts have lifted Wall Street to record highs this year. The S&P 500 has gained 12% so far in 2025, and it is valued at an elevated 23 times expected earnings, a five-year high, according to LSEG. Robust earnings from major U.S. banks this week offered fresh signs of economic resilience at a time when official macroeconomic reports remain delayed due to an ongoing government shutdown.
Analysts on average see S&P 500 aggregate earnings up 9.2% in the third quarter, versus expectations of an 8.8% increase two weeks ago, according to LSEG I/B/E/S.
Data Thursday showed the Philadelphia Fed Business Index for October declined 12.8 points, compared with a rise of 8.5 estimated by the economists polled by Reuters.
Also Thursday, Fed Governor Christopher Waller said he supported an additional interest rate cut in October due to mixed readings on the state of the job market.
Treasury yields dropped with the yield on the U.S. two-year note hitting its lowest level in more than three years amid trade concerns and credit market worries. The yield on benchmark U.S. 10-year notes fell 6.9 basis points to 3.976%, from 4.045% late on Wednesday. Canada’s 10-year yield was down about 4 basis points for the session.
The S&P 500 declined 0.63% to end the session at 6,629.07 points. The Nasdaq declined 0.47% to 22,562.54 points, while the Dow Jones Industrial Average declined 0.65% to 45,952.24 points.
Ten of the 11 S&P 500 sector indexes declined, led lower by financials, down 2.75%, followed by a 1.12% loss in energy.
The TSX was down 178.32 points, or 0.58%, to 30,458.80. Financials were among the steepest decliners, losing 1.8%. On the positive side once again, basic materials rose 1.8%, as gold prices hit fresh record highs. U.S. gold futures for December delivery settled 2.5% higher at US$4,304.60.
Among U.S. stocks, the S&P 500 insurance index dropped after industry bellwether Travelers Companies posted quarterly revenue below estimates, with its stock falling nearly 3%.
Insurer Marsh & McLennan reported flat operating margins and slowing growth in its risk and insurance business, and its stock dropped 8.5%.
Hewlett Packard Enterprise slumped 10% after the technology company forecast annual profit and revenue below Wall Street expectations.
J.B. Hunt shares jumped 22% after the trucking firm reported third-quarter profits.
Declining stocks outnumbered rising ones within the S&P 500 by a 2.7-to-one ratio. The S&P 500 posted 29 new highs and 16 new lows; the Nasdaq recorded 113 new highs and 109 new lows.
Volume on U.S. exchanges was relatively heavy, with 22.4 billion shares traded, compared to an average of 20.5 billion shares over the previous 20 sessions.
Reuters, Globe staff