U.S. stocks retreated Thursday, erasing earlier gains as renewed fears about bad loans in the banking sector rattled investors. The S&P 500 fell 0.6%, the Dow Jones Industrial Average lost 190 points (0.4%), and the Nasdaq Composite slipped 0.4%. All three major indexes had been trading higher earlier in the session before sliding sharply in afternoon trading.
Regional banks led the downturn following fresh reports of credit losses and alleged loan fraud. The selloff deepened broader worries about financial sector stability just as trade tensions with China and an ongoing U.S. government shutdown added further pressure to markets.
Regional Bank Losses Trigger Market Selloff
Shares of Zions Bancorp plunged nearly 9% after the bank disclosed a large charge tied to bad loans from two borrowers. Western Alliance dropped 10% following allegations that one of its borrowers committed fraud. Other regional banks, including Hingham Institution for Savings and Banc of California, also suffered steep losses of more than 7%.
“The market is just really skittish about credit-related losses,” said Jed Ellerbroek, portfolio manager at Argent Capital Management. “The market is not very happy about the regional banks’ reports, so most small-cap financials are down today.”
Concerns about lax lending practices have grown since the recent bankruptcies of First Brands and Tricolor Holdings, both tied to the auto sector. JPMorgan CEO Jamie Dimon likened the situation to “seeing one cockroach,” suggesting there could be more trouble ahead. Shares of Jefferies Financial Group, which has exposure to First Brands, tumbled 9%, bringing its monthly losses to 25%.
Volatility Rises, Safe-Haven Assets Gain
The decline in equities coincided with a surge in market volatility. The Cboe Volatility Index (VIX) jumped more than 14% to its highest level since May, signaling heightened investor anxiety. Bond yields fell as traders sought safety, with the 10-year Treasury yield slipping below 4%. The U.S. dollar index lost 0.4% as investors rotated toward risk-off assets.
Meanwhile, some AI-related stocks helped cushion losses across the broader market. Nvidia, Broadcom, and Salesforce posted modest gains, reflecting ongoing optimism in the technology sector despite broader market weakness.
Trade Tensions and Political Uncertainty Weigh on Sentiment
Market volatility has been amplified by rising U.S.-China trade tensions. Last week, President Donald Trump threatened to impose a 100% tariff on Chinese imports in response to Beijing’s new export controls on rare earth minerals. Although rhetoric softened briefly, tensions reignited Tuesday when Trump warned of a potential ban on cooking oil imports from China.
“The Trump administration desires to influence and control a lot more things than past administrations have,” Ellerbroek said. “They’re constantly jolting the market in unexpected ways, and investors just have to accept that as a new fact of life.”
The uncertainty is compounded by the ongoing U.S. government shutdown, now entering its third week. The stoppage has halted key economic data releases, leaving investors without fresh indicators on growth, employment, and inflation.
Regional Bank Index Plunges
The SPDR S&P Regional Banking ETF dropped nearly 5% in midday trading, bringing its October decline to 7% and leaving it down 16% from its 52-week high. Of the 148 banks included in the ETF, only Triumph Financial posted gains—rising 9.3% after better-than-expected third-quarter earnings.
Analysts say the steep selloff reflects growing skepticism about the health of smaller lenders as investors reassess risks in the private credit market. With lending losses spreading and macroeconomic uncertainty rising, traders are bracing for more volatility ahead.
