The SPDR S&P regional banking ETF was up 1.2% in premarket trading, after registering its steepest one-day drop in more than six months in the previous session.
The decline was triggered by Zions Bancorporation disclosing a US$50 million loss tied to two commercial and industrial loans, while Western Alliance said it had initiated a lawsuit alleging fraud by Cantor Group V, LLC.
The selloff rekindled concerns over lax lending standards in a sector already grappling with two auto bankruptcies, more than two years after the collapse of Silicon Valley Bank.
“This is literally the latest issue that investors need to add to a growing list of worries,” City Index’s senior market analyst Fiona Cincotta said, noting concerns over US-China trade tensions, the ongoing US government shutdown and stretched equity valuations.
Zions shares fell 1.3%, while Western Alliance lost 1.5% before the bell.
Some of the major US bank stocks also dropped.
JPMorgan fell 0.4% and Morgan Stanley lost 0.7%. Bank of America and Citigroup declined 1.2% and 1.7%, respectively.
At 7.35am, Dow E-minis were down 64 points, or 0.14%, S&P 500 E-minis were down 24.25 points, or 0.36%, and Nasdaq 100 E-minis were down 143.75 points, or 0.58%.
“It feels that these risks have come at a time when the recent grind higher to record highs actually felt quite fragile anyway.
“So, it feels like the list of risks is growing and making investors have a bit of a reality check,” Cincotta said.
Optimism around AI and expectations of US interest rate cuts have propelled Wall Street to record highs this year.
However, AI-related tech stocks, which were among the biggest contributors to the rally, also slipped today.
Wall Street’s fear gauge rose to its highest in more than five months at 26.31 points.
Investors also awaited developments between Washington and Beijing after their trade war escalated last week.
US President Donald Trump has threatened an additional 100% tariffs on China starting Nov 1, and other new trade measures against the world’s second-largest economy following Chinese curbs on exports of rare earth minerals.
China’s mission to the World Trade Organization (WTO) blamed the US today of undermining the rules-based multilateral trading system and renewed calls for Washington to adhere to WTO guidelines.
Among other stocks, Eli Lilly fell 4.3% after Trump said he would bring down prices of weight-loss drugs.
Micron Technology shares slipped 2.5% after adding more than 7% in the previous session.
Reuters reported that the chipmaker plans to exit server chips business in China.
Robust earnings from big US banks this week have set an upbeat tone for the start of the third-quarter reporting season.
However, with equity valuations already elevated, investors are treading cautiously.