After opening higher, US equities tumbled into the red around midday and lingered in negative territory thereafter.
All three major US indices finished lower, with the S&P 500 ending down 0.6%.
That came after a positive day on leading Asian and European bourses, including Paris, which climbed after French Prime Minister Sebastien Lecornu survived two confidence motions.
The VIX Volatility index – a closely-watched benchmark of investor anxiety – surged to its highest level since May, while gold prices set a new record.
“There’s some emerging concerns about credit,” Angelo Kourkafas of Edward Jones said of the drop in US equities. “Investors are taking a cautious approach.”
The private market has been in focus following bankruptcies in recent weeks of two auto-related enterprises, the auto parts company First Brands and the subprime lender Tricolor.
Shares of Salt Lake City-based Zions Bancorp plunged 13.1% after the company disclosed a pair of problem loans to businesses with “apparent misrepresentations and contractual defaults,” it said in a securities filing that announced a US$50 million hit on the matter in the third quarter.
Other mid-sized and regional banks also fell, including M&T Bank, Comerica and Fifth Third Bancorp, all of which lost between four and seven percent.
Investors are “extrapolating” the instances of known problem loans to the potential to ensnare more banks, said Art Hogan of B. Riley Wealth Management.
The problem with banks is the “story of the day at a point when investors are already worried about a lot of other things,” Hogan said.
In Europe, the Paris stock market climbed 1.4% on hopes of greater political stabilisation.
London edged out a gain despite data that showed lackluster growth in the UK economy, six weeks ahead of the government’s annual budget.
Among individual companies, Nestle shares surged more than 9% after the Swiss food giant announced that it will cut 16,000 jobs worldwide over the next two years.
United Airlines fell 5.6% after reporting that earnings had dipped on higher costs. The carrier projected better than expected fourth-quarter profits on strengthening demand.
But Briefing.com noted that United’s capacity additions could dent results if macro conditions “soften.”