Stock Market News: Disney, PacWest shares fall, inflation eases, debt ceiling looms

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 4, 2023. REUTERS/Brendan McDermid

The Dow and the S&P 500 ended lower on Thursday, dragged down by Walt Disney Co, which reported weaker subscriber growth, and declines in regional bank and energy stocks.

Lifting the Nasdaq, shares of Alphabet Inc rose, a day after Google rolled out more artificial intelligence products to take on competition from Microsoft Corp. Microsoft shares fell and were among the biggest negative influences on the S&P 500 and Nasdaq.

PacWest Bancorp shares dropped after it reported its deposits fell 9.5% last week and that it had posted more collateral to the U.S. Federal Reserve to boost its liquidity.

Other regional bank shares fell as well, as the news renewed worries about the industry's health following the recent collapse of three regional lenders.

Peloton Interactive Inc has recalled two million exercise bikes citing the possibility of the seat post breaking during use that could lead to injuries, the U.S. Consumer Product Safety Commission (CPSC) said on Thursday.

The recall piles on more pressure on Peloton, as the company deals with waning demand for its fitness equipment amid an uncertain economy.

This recall involves 2 million of Peloton's flagship Bikes sold from January 2018 to May 2023 in the United States.

Peloton is on pace to surpass it's current closing all-time low set on September 30, 2022 when it closed at $6.93

A for sale sign is displayed outside a home on December 13, 2021. REUTERS/Carlos Osorio/File Photo

The average long-term U.S. mortgage rate fell again this week to its lowest level in five weeks, according to weekly data compiled by mortgage buyer Freddie Mac.

The rate on the 30-year fixed mortgage slipped to 6.35% this week from 6.39% a week ago. One year ago, it averaged 5.3%.

"This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year," said Sam Khater, Freddie Mac’s chief economist.

REAL-ESTATE

Mortgage rates inch lower for second straight week

Mortgage rates declined again this week, marking the lowest level in five weeks, according to data from Freddie Mac. The rate on the 30-year fixed mortgage fell to 6.35%.

Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City, U.S., September 3, 2021. REUTERS/Andrew Kelly

The number of Americans filing for unemployment benefits last week jumped to the highest level since 2021, the latest sign the historically tight labor market is cooling off in the face of rising interest rates.

Figures released Thursday by the Labor Department show initial claims for the week ended May 6 surged by 22,000 to 264,000, well above the 2019 pre-pandemic average of 218,000 claims. It marks the steepest level for jobless claims since October 2021. 

Continuing claims, filed by Americans who are consecutively receiving unemployment benefits, rose slightly to 1.81 million for the week ended April 29, an increase of 12,000 from the previous week. 

ECONOMY

Jobless claims rise sharply to highest level since 2021

Applications for unemployment benefits last week climbed to the highest level since October 2021, the latest evidence the labor market is slowing down.

Minneapolis Federal Reserve Bank President Neel Kashkari poses during an interview with Reuters in his office at the bank's headquarters in Minneapolis, Minnesota, U.S., January 10, 2020. REUTERS/ Ann Saphir/File Photo

An extended period of high interest rates and an inverted yield curve could put more stress on banks, but would be necessary if inflation stays stubbornly high, Minneapolis Federal Reserve President Neel Kashkari said on Thursday.

There is some evidence high inflation "is coming down, but so far it's been pretty darn persistent - that means we are going to have to keep at it for an extended period of time," Kashkari said during an event at Northern Michigan University in Marquette, Michigan.

"The real question is, when is inflation going to come down," he said. "If inflation is going to stay high and it's embedded in our economy, and we have to run tight monetary policy and an inverted yield curve for an extended period of time, that creates real problems for banks of all sizes. We are very aware of that.

"If inflation falls pretty quickly, as financial markets now expect he said, "one might imagine interest rates normalizing, the yield curve uninverting and then the pressure on banks and their deposit bases becomes much much smaller."

Signs explaining Federal Deposit Insurance Corporation (FDIC) and other banking policies are shown on the counter of a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

Around 113 of the largest U.S. lenders will bear the cost of replenishing the $16 billion hit to a key deposit insurance fund caused by recent bank failures, the Federal Deposit Insurance Corporation (FDIC) said on Thursday.

The bank regulator will apply a "special assessment" fee of 0.125% to the uninsured deposits of lenders in excess of $5 billion, based on the amount of uninsured deposits a bank held at the end of 2022, the FDIC proposed at a board meeting.

While the fee applies to all banks, in practice it would affect lenders with more than $50 billion in assets, which would cover over 95% of the cost, the agency said. Banks with less than $5 billion in assets would not pay any fee.

The levy would be collected over eight quarters beginning in June 2024, but could be adjusted as the estimated losses to the insurance fund change. The extended timeline aims to minimize the impact on bank liquidity and is expected to have a negligible impact on bank capital, according to FDIC officials.

Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., pauses as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023. REUTERS/Marco Bello/File Photo

JPMorgan Chase & Co CEO Jamie Dimon said on Thursday bank staff are meeting weekly to discuss the potential implications for clients, contracts and markets of a potential U.S. default.

While he does not expect that potentially "catastrophic" outcome, the "war room" will likely convene daily to discuss a potential default as the U.S. government get closer to running out of cash to pay its obligations, he said.

A general view of Pacific Western Bank in Huntington Beach, California, U.S., March 22, 2023. REUTERS/Mike Blake/File Photo

PacWest Bancorp said on Thursday deposits declined last week and the bank pledged more assets as collateral to the U.S. Federal Reserve to increase its borrowing capacity, sending shares tumbling 20% in premarket trading.

PacWest pledged an additional $5.1 billion of its loans to the central bank on Wednesday, which the lender said resulted in an additional borrowing capacity of $3.9 billion.

During the week ended May 5, deposits declined about 9.5%, the bank said, adding the majority of those outflows happened on May 4 and May 5 after news reports said PacWest was exploring options.

The $15 billion immediately available liquidity is more than enough to cover the $5.2 billion of uninsured deposits at the Los Angeles, California-based bank said.

ECONOMY

Debt ceiling showdown risks triggering ‘self-inflicted’ recession

The U.S. government could default on its federal debt as soon as June 1, putting the economy on the fast track for a "self-inflicted" and "deep" recession.

The looming debt ceiling crisis is posing a big risk to the U.S. economy which is already fielding a number of headwinds and a potential recession.

Dow component Disney shares fell after the media giant posted weaker results in its streaming service.

Additionally, CEO Bob Iger slammed Florida Governor Ron DeSantis, in their ongoing feud.