Wall Street takes another gut punch

Stocks experience 1% drop as bank woes stir recession fears

NEW YORK — Stocks fell Friday to end a whipsaw week on Wall Street amid rising fear among investors that turmoil in the banking industry could drag the economy into a recession.

The S&P 500 sank 1.1 percent, cutting into its gain for the week. The Dow Jones Industrial Average lost 384 points, or 1.2 percent, while the Nasdaq composite fell 0.7 percent.

Markets around the world churned this past week as worries rose following the second- and third-largest U.S. bank failures in history.

On Thursday, markets rallied in relief after two banks in investors’ crosshairs bolstered their cash holdings.

But on Friday, some of the hope washed out, and the pair went back to falling. In Switzerland, Credit Suisse shares dropped 8 percent. On Wall Street, shares of First Republic Bank sank nearly 33 percent to bring their plunge for the week to 71.8 percent.

The two banks have different sets of issues challenging them, but the overriding fear is that the banking system may be cracking under the weight of the fastest set of hikes to interest rates in decades.

“If the Fed hikes this far this fast, something will break,” said Ross Mayfield, investment strategy analyst at Baird. “There’s a very clear and evident history of that happening, even in slower, smaller rate-hike cycles.”

Analysts have been quick to say the current chaos for banks looks nowhere near as bad as the 2007-08 financial crisis that ruined the global economy. But the troubles still feed into concerns about a recession because problems for banks could mean problems for smaller and midsized companies getting the loans they need to grow.

In “the biggest picture: since 1870 there have been 14 big world recessions, all driven by wars, pandemics & banking crises,” investment strategist Michael Hartnett wrote in a Bofa Global Research report.

Banks borrowed nearly $165 billion from the Federal Reserve over the last week in a sign of how much stress is in the system.

After years of enjoying historically easy conditions, banks are now getting a shock after the Federal Reserve and other central banks jacked up interest rates at a blistering pace.

All told, the S&P 500 fell 43.64 points Friday to 3,916.64. The Dow fell 384.57 to 31,861.98, and the Nasdaq fell 86.76 to 11,630.51.