Stocks fall as Wall Street worries over what's next

Stocks fell Friday after the largest U.S. bank failure in more than a decade raised worries on Wall Street about what's next to break as interest rates keep climbing.

The S&P 500 was 1.4% lower in late trading after scrapping back from deeper losses earlier in the day. It's on pace for its worst week since September. That's despite a highly anticipated report on Friday showing pay raises for workers are slowing and other signals Wall Street wants to see of cooling pressure on inflation.

The Dow Jones Industrial Average was down 345 points, or 1.1%, at 31,909, at closing time, while the Nasdaq composite was 1.7% lower.

Some of the market's sharpest drops were again coming from the financial industry, where stocks tanked for a second day.

The yield on the 10-year Treasury plunged to 3.70% from 3.91% late Thursday, a sharp move for the bond market.

The two-year Treasury yield fell to 4.60% from

4.87%. It was above 5% earlier this week and at its highest level since 2007.

Some of the sharpest drops on Wall Street came from banking stocks on worries about who else may suffer a cash crunch if interest rates stay higher for longer and customers pull out deposits. That would set up pain because a flight of deposits could force them to sell bonds to raise cash, right as higher interest rates knock down prices for those bonds.

Stock losses were heaviest at regional banks. First Republic Bank tumbled 13%. It filed a statement with regulators to reiterate its “strong capital and liquidity positions.”

Charles Schwab lost another 9.7% after dropping 12.8% Thursday “as investors stretched for read-throughs” from the SVB crisis, according to analysts at UBS. The analysts called them “logical but superficial” because of differences in how companies get their deposits.

Losses were more modest at the biggest banks, which have been stress-tested by regulators following the 2008 financial crisis. Wells Fargo rose 0.4%.