Markets trim losses, shaking off regional banking jitters and bubble fears

After months of serene sailing, stocks are finding it easier to slip into reverse gear in October. Exactly one week since the market fell 2.7% — the S&P 500’s worst day since April — stocks and risk assets were once again tumbling in premarket trading on Friday, with high-flying momentum and AI stocks bearing the worst of the punishment.

The sell-off this morning was a more serious continuation of yesterday’s price action, when the S&P 500 Index turned a green day into a mildly red one, slumping in the afternoon to close down 0.4%. S&P 500 futures then dipped a further ~1.2% this morning, dragged lower by some of the biggest names in the AI trade, with Nvidia, Tesla, AMD, and Palantir among the most heavily traded names as of 7:45 a.m. ET.

However, markets have since regained much of the lost ground, seemingly due, at least in part, to comments from President Trump that appear to have assuaged investors about the risks of a trade war with China.

Quantum names like Rigetti Computing and IonQ were notable outliers in terms of premarket volumes. That follows on from yesterday when speculative pockets of the market, including quantum stocks, were clobbered.

The risk-off mood, which spread to European and Asian markets overnight, appears to have been brought on by concerns in the banking sector. Yesterday, two regional US banks, Zions Bancorp and Western Alliance Bank, disclosed loan fraud losses. Though relatively trivial sums in the grand scheme of things — Zions disclosed a $50 million charge-off for a loan — the news struck a nerve with investors, given the recent collapses of First Brands and Tricolor Holdings.

In the age of AI, with hyperscalers signing deals for tens or hundreds of billions of dollars, $50 million of misplaced capital is hardly a big deal. But such is the nature of markets: if AI bubble fears were the dry tinder and geopolitical and trade tensions were the gas-soaked rag, then the tiny spark to start the sell-off was a couple of bad loans in America’s regional banks.

Some of those worries about US financials are subsiding this morning after regional banks Truist, Regions, and Fifth Third all reported better-than-expected quarterly adjusted earnings per share along with lower-than-anticipated provisions for credit losses.

Outside of equities, the price action has been similarly safety-seeking. Gold was trading north of $4,350, up a whopping 18% in the last month, bitcoin was back toward $105,000, and ethereum was just north of $3,700. The VIX was also elevated, trading at its highest level since April.

Still, it’s worth gaining some perspective. At current prices, the S&P 500 is back to where it was last week, and where it was toward the end of September.