Stocks fell on Thursday as market participants digested the latest interest rate hike from the Federal Reserve and the latest developments in the ongoing banking sector crisis.
Here's how the market settled on Thursday:
S&P 500 Index (NYSE: SPY): -0.72% or -29.53 points to 4,061.22
Dow Jones Industrial Average (NYSE: DIA): -0.86% or -286.50 points to 33,127.74
Nasdaq Composite Index (NASDAQ: QQQ): -0.49% or -58.93 points to 11,966.40
In the spotlight Thursday, shares of PacWest (NASDAQ: PACW) tumbled nearly 50% following reports that the regional lender has been exploring a possible sale as it reviews strategic options to maintain operations. Other regional names sold off on the reports, with Western Alliance (NYSE: WAL) dropping over 30% after being halted for volatility multiple times, while the SPDR S&P Regional Bank ETF (NYSE: KRE) slipping nearly 5% as the broader industry slumped.
Wall Street is also still digesting the central bank's latest interest rate hike, with policymakers issuing their 10th rate increase in this cycle to bring the fed funds rate to a range of 5% to 5.25% -- it's highest in 17 years. Investors were encouraged by policymakers softening language on future rate hikes in their post meeting statement, but Fed Chair Jerome Powell said in remarks that it is too soon to begin forecasting rate cuts.
"We on the committee have a view that inflation is going to come down not so quickly," Powell said in his post-meeting press conference on Wednesday. "It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won't cut rates."
Still many analysts are expecting the Fed to pause its rate-hiking campaign in its June policy-setting meeting, as recent turmoil in the banking sector and signs of cooling inflation continue to impact broader economic growth in similar ways to increasing interest rates.
Elsewhere in the banking sector, shares of First Horizon Bank (NYSE: FHN) dropped more than 30% as Toronto Dominion Bank (NYSE: TD) and the lender called off their pending $13 billion merger due to regulatory hurdles. First Horizon CEO Bryan Jordan told CNBC's "Squawk on the Street" on Thursday that the failed deal is unrelated to the regional banking crisis. In a separate statement, Jordan said the lender "will continue on its growth path operating from a position of strength and stability."
"Given the precipitous drop in regional bank valuations since TD made its announcement to purchase First Horizon, the fact that it is not preceding at the original valuation is a positive," Barclays analyst John Aiken said in note to investors, quoted by Bloomberg. "However, we are surprised that the parties could not come to an agreed upon lower price and believe that there could be broader repercussions from walking away from the deal."
In economic news, initial jobless claims totaled a higher-than-expected 242,000 for the week ended April 29, increasing 12,000 week-over-week in another sign that the labor market is cooling. Investors are looking ahead to April's "official" jobs report due out Friday morning for a clearer view on the health of the overall U.S. labor market.
In single-stock moves, shares of Paramount Global (NASDAQ: PARA) dropped over 25% after the media company issued disappointing quarterly earnings and announced a dividend cut. The company reported a loss of $511 million in its direct-to-consumer segment for Q1, compared to a loss of $456 million in the prior year period.
Shopify (NYSE: SHOP) shares jumped nearly 25% after the e-commerce technology company announced the sale of its logistics business to Flexport alongside a new round of layoffs that will impact 20% of its workforce following its surprise earnings beat. Flexport will serve as Shopify's official logistics provider as part of the deal.
Looking ahead, traders will assess the latest earnings from Apple (NASDAQ: AAPL) as well as April's jobs report from the U.S. Labor Department.