Wall St. ends sharply lower on bank contagion fears

STORY: A tumultuous week for stocks ended with all three of Wall Street’s main indexes closing lower, as an unfolding crisis in the banking sector grabbed headlines and spooked investors.

The Dow and S&P 500 both dropped just over 1%, while the Nasdaq lost three-quarters of a percent.

Shares of First Republic Bank plunged nearly 33% after it announced it was suspending its dividend, reversing Thursday's surge that was sparked by an unprecedented $30 billion rescue package from large financial institutions.

Peers PacWest and Western Alliance also both ended the session sharply lower.

It was the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank, which sparked fears of contagion throughout the global banking system.

SVB Financial, parent of Silicon Valley Bank, announced Friday it would seek Chapter 11 bankruptcy protection.

Concerns have spread to Europe, as Credit Suisse shares stumbled over liquidity worries, prompting policymakers to scramble to reassure markets. U.S.-traded shares of Credit Suisse also slid.

Investors now turn their gaze to the Federal Reserve's two-day monetary policy meeting next week.

In view of the unfolding banking crisis, some investors think the Fed might pause its rate hikes – something Anna Rathbun, Chief Investment Officer at CBIZ Investment Advisory Services, says could hurt the central bank’s credibility.

“I'm not entirely sure that we should be expecting the Fed to pause because, again, inflation is sticky, employment is still strong and other central banks are looking beyond the banking issues to tame inflation. So, the Fed's credibility depends on this. We also probably won't see the Fed saying that we were wrong and therefore we need to pause. That's another credibility issue. The Fed probably also does not want to say inflation is not important anymore because then they're just focusing just on banks and not on everyday Americans.”

On the upside on Friday, shares of FedEx jumped after the package carrier hiked its current fiscal year forecast.