The Dow Jones fell more 400 points on Tuesday, as concerns mount over the the U.S. banking sector and investors wait on policy decisions set to be announced by the Federal Reserve. Shares in regional banks tanked following the collapse of First Republic Bank and investors are worried there are more to come. Western Alliance Bank, PacWest Bancorp, Comerica and Zions Bank all saw a significant drop off in shares on Tuesday, for the second day in a row. The collapse of First Republic Bank was the second largest in U.S. history and the third in the past two months, following Silicon Valley Bank and Signature Bank. First Republic was bought off in a fire sale on Monday by JPMorgan Chase.
Other concerns have lead to Tuesday’s market crash, including yet another expected rate increase by the Federal Reserve. The Fed’s two day policy meeting kicked off and experts agree the central bank will announce another 25 basis-point rate hike. Treasury Secretary Janet Yellen may also announce that the U.S. is set to hit the debt ceiling sooner than expected. She recently stated the country could the reach ceiling as early as June 1st. Republicans and Democrats in Congress have to pass a resolution. Time is running down for an agreement to be made and Joe Biden has made it clear he will not sign off on the current terms offered by Republicans. House Speaker Kevin McCarthy will meet with the president in coming days to discuss the issue.
Together, these elements point to the U.S. heading for a recession in the near future. Jake Jolly, head of investment analysis at BNY Mellon Investment Management recently told CNN that, “A recession sooner or later remains more likely than not,” and “the longer-term outlook, post-shakeout, remains relatively positive for equities — we just have to get past a volatile reset first.”
Volatile times are on the outlook for the U.S. economy in the short term. A multitude of problems seem to striking all at once.