Stock market today: Wall Street falls with markets worldwide on worries about banks and the economy

NEW YORK (AP) — Stocks closed lower on Wall Street as worries about the banking system and the global economy inject more caution into financial markets worldwide. The S&P 500 fell 0.4% Tuesday after paring an earlier loss. The Dow lost 158 points, or 0.4%, and the Nasdaq fell 0.8%. Bank stocks helped lead the market lower after Moody’s cut the credit ratings for 10 smaller and midsized ones. Across the Pacific, stocks sank after exports for China’s troubled economy shrank by the most since the start of the pandemic. And in Europe, bank stocks tumbled after Italy’s Cabinet approved a proposed tax on their profits.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) — Stocks are falling Tuesday as more caution creeps into financial markets worldwide amid worries about the banking system and the global economy.

The S&P 500 was 0.5% lower in late trading after paring an earlier loss that was more than double that. The Dow Jones Industrial Average was down 198 points, or 0.6%, at 35,275, as of 3 p.m. Eastern time, and the Nasdaq composite was 0.9% lower.

On Wall Street, bank stocks fell after Moody’s cut the credit ratings for 10 smaller and midsized ones. It cited a list of concerns about their financial strength, from the effects of higher interest rates to the work-from-home trend that's leaving office buildings vacant.

Across the Pacific, stocks sank after a report showed exports for China’s troubled economy shrank by the most since the start of the pandemic in 2020. And in Europe, bank stocks tumbled in Italy after its Cabinet approved a proposal to tax a chunk of their profits this year.

The worries layered on top of a mixed set of earnings reports from big U.S. companies.

Beyond Meat tumbled 15.8% after its revenue weakened by even more during the spring than analysts expected. Demand is softening for its plant-based products.

Software company Palantir Technologies gave up some of its big gains for the year after it reported results for the spring that only matched analysts' expectations. It fell 4.9%, though it's still up more than 160% for the year so far on expectations for tremendous growth. It's one of the companies that’s been riding Wall Street’s frenzy around artificial-intelligence technology.

Among the minority of stocks to rise on Tuesday was Eli Lilly, which jumped 14.7%. It reported profit and revenue for the spring that topped analysts’ expectations. It benefited from booming sales for its diabetes treatment Mounjaro, which is widely used for weight loss,.

Treasury yields fell in the bond market as investors herded into investments considered safer. It's a comedown from the climb yields have been on recently, which has pressured the stock market.

The Federal Reserve has hiked its main interest rate to the highest level in more than two decades in hopes of grinding down inflation. High rates work by slowing the entire economy bluntly, which has raised the risk of a recession but also helped inflation to moderate since its peak last summer.

The much higher rates have hit banks particularly hard.

While downgrading credit ratings for 10 banks and putting six others under review, Moody’s said the rapid rise in rates has led to conditions that hurt profits for the broad industry. Higher rates also knock down the value of investments that banks made when rates were super low. Such conditions helped cause three high-profile failures for U.S. banks earlier in the spring, which shook confidence in the system.

Moody’s also said troubles may be coming for banks with lots of commercial real estate loans, which are threatened as work-from-home trends keep people out of offices.

“This comes as a mild US recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels,” Moody's Jill Cetina and Ana Arsov wrote in a report.

M&T Bank, one of the banks whose credit rating they downgraded, fell 1.7%. Northern Trust, one of the banks that Moody’s said it’s reviewing for a possible downgrade, fell 2.1%

Other, larger banks whose credit ratings weren't affected also sank. Bank of America dropped 2.3%.

Later this week, the U.S. government will release data on consumer and wholesale inflation, which could influence what the Federal Reserve does next with interest rates.

The hope on Wall Street is that the cooldown since inflation topped 9% last summer will help persuade the Fed no more rate hikes are needed. Forecasters expect Thursday’s data to show consumer prices rose by 3.3% in July over a year ago, an acceleration from June’s 3%.

But some economists and investors say getting inflation down that last bit to the Fed's target of 2% is likely to be the most difficult. They're saying Wall Street has become convinced too quickly that the Fed can achieve a “soft landing” for the economy and that the 19.5% run for the S&P 500 through the first seven months of this year was overdone.

In the bond market, the yield on the 10-year Treasury fell to 4.02% from 4.10% late Monday. It helps set rates for mortgages and other loans.

The two-year Treasury yield, which more closely tracks expectations for the Fed, slipped to 4.74% from 4.79%.

In Asia, stocks fell 1.8% in Hong Kong and 0.3% in Shanghai following the disappointing Chinese export data. The world's second-largest economy was supposed to be a bulwark for the rest of the world after it removed anti-COVID restrictions. But it's since stumbled, weakening a big engine of growth.

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AP Business Writers Matt Ott and Joe McDonald contributed.

Stan Choe, The Associated Press